Landscape and Outlook of DAOs

 

What are DAOs?

DAOs (Decentralized Autonomous Organizations), decentralized autonomous organizations, are organizational forms operated and managed by the community through a transparent decision-making process based on blockchain technology.

Communities being the creator of value, are the beneficiary of value, through DAOs.

Why do we need DAOs?

Decentralization and smart contract-based blockchain are two important characteristics of DAOs.

Decentralization: DAO ownership is usually tokenized and distributed among members, and the issuance of tokens is not centrally controlled by anyone. DAO guarantees that the governance power of an organization is no longer centrally subject to the company's top management or board of directors, as it is in a traditional company; rather, it empowers token holders within the DAO organization to make decisions about the organization through voting.

Smart contracts based on blockchain technology: Smart contracts at the technical level ensure the realization of decentralization in theory. All transactions and the operations of the DAO treasury are traceable and verifiable under the blockchain to all the public, making it more open and transparent.

The role of DAO in the era of Web3 is similar to the role played by the existing corporate organizational structure in the traditional field, meanwhile, business operations will be moved to the blockchain network.

The current state of DAOs

Since the birth of "The Dao" in 2016, it has undergone long-term development; as an extension of the decentralization concept advocated by blockchain technology, the application of DAOs has become more and more widespread.

Organizations found as DAOs while with diverse characteristics are becoming more and more perfect and mature, thus playing an increasingly important role in the Web3 era.

According to statistics, there are currently more than 4,200 DAOs, with treasury assets under management exceeding $8.1 billion.

 

This article sorts out the functions of different types of DAOs such as DAO Operation Systems, Investment DAOs, Protocol DAOS, Collector DAOs, Service DAO, Social DAOs, Media DAOs, Grant DAOs, etc., the existing problems of DAO and future outlook of DAOs are also explored.

DAO Operation Systems,

DAO Operation Systems are the infrastructure of DAOs, providing people with convenient and easy-to-use modular tools and solutions, enabling different DAOs to easily start DAO creation, financing, token distribution, online governance, voting, etc. according to their own needs.; the Operation Systems makes it easier for DAO members to mutually collaborate to administrate the DAOs.

Related product platforms are: Aragon, DAOStack, DeepDAO, ThePass, etc.

Each product has some differences in personality in terms of DAO aggregation, NFT issuance, and vault dashboard.

With more DAOs being created, the demand for the use of operation systems is also growing.

Take Aragon as an example, it has a treasury of more than $190 million, more than 1900 DAOs built with Aragon, a total locked value of more than $500 million, and Aragon supported DAO members surpassed 60,000.

Investment DAOs

Investment DAOs allow members to pool funds and invest in different blockchain projects (commonly known as DeFi and GameFi projects) to obtain income, playing a role similar to VC. Meanwhile, through on-chain record, the income of DAO's investment becomes an open account to be fairly distributed among DAO members.

MetaCartel Ventures, Flamingo, Komerabi are all good examples of DAOs pooling resources, making collective investment decisions, and sharing the benefits when investments appreciate.

Collector DAOs

Collector DAOs are similar to Investment DAOs, but mainly focus on investments in the NFTs.

Due to the limited market capitalizations of the NFTs, consensus-based price discovery is required, therefore, it’s not suitable for whale capital to enter with large fund. On the other hand, the collector DAO has the flexibility of moderate capital, with more organized and professional team that could serve as a curator to promote specific artists, platforms or series of works. This helps to gradually grow the capitalization and volume and cultivate the long-term value of the NFT market

NFT collector DAO including, PleasrDAO，FlamingoDAO，Gremlins，FingerprintsDAO

Whale，Jenny MetaversDAO etc.

Collector DAO’s investment scope can be continuously expanded, such as the purchase of rare historical relics or entertainment and sports franchises. On-chain transaction records make investment behavior more transparent and traceable.

Protocol DAO

The demand for decentralization makes some Defi protocols (such as Uniswap, Sushiswap ,Aave, Curve, etc.) adopt the form of DAO to transfer power from the core team to the community, and issue transferable fungible coins to the secondary market. The entry and exit mechanism is more free.

Tokens are typically used to govern protocols, and token holders have the sole power to propose, vote, and implement changes to the network’s regime. Projects typically vote on the mechanism to allocate tokens, guiding community decisions on important rules such as fair distribution, liquidity mining, yield farming, ect.

Protocol DAOs provide a framework for all mainnets to issue tokens owned and operated by their communities.

Service DAO

With the emerging of many projects in various sectors such as L-1s Defi protocols, DAOs, NFTs, etc., it become extremely critical for good ideas to come in to reality at the right time. Therefore, the need of timely accessing mature professionals could sometimes become particularly urgent.

Service DAOs therefore came in place, creating a channel for project team to contract with web3 employees, regarding aspects from law to creativity, from governance to marketing, from development to fund management, etc. Professionals earn quest reward after completing specific quests.

Most of the early service DAOs, like DxDAO and Raid Guild, focused on bringing talent together to build the crypto ecosystem. Their clients including crypto projects and protocols, require all services from software development to graphic design and marketing.

The service DAO will reshape the way people work in the future. Global talents can work within their own available time, meanwhile people's profile and skills can be verifiable and accumulated through the on-chain records.

Creator DAO

Creator DAOs are aimed to bring people with a common mission or hobby together into a community to act in unison for some goal. By issuing tokens or NFT for organizational management, members are motivated to create a valuable community.

Some of these typical DAOs include, Friend with Benefits, IreneDAO, ConstitutionDAO, MoonDAO, etc.

Gaming Guild

With the rise of GameFi in 2021, countless users or communities have participated in GameFi for profit in the form of gaming guilds, mostly managed by DAO. The guild has lowered the threshold for crypto players to participate in blockchain games, and has become a medium between games and players. Guilds are important promoters of the prosperity of the GameFi market by discovering high-quality games and guiding players to Play-Earn.

The leading guild is the Yield Game Guild, and there are hundreds of guilds including YGGSEA, Good Games Guild, Merit Circle, etc.

Media DAO

Media DAOs reshape how content producers, consumers and media interact in a decentralized way. Instead of relying on ad-based revenue models, these DAOs use token incentives to reward producers and consumers for ownership of a given content.

 

For example, Bankless is an Ethereum-focused media outlet that produces popular podcasts and newsletters. The Bankless team airdropped BANK tokens to their audiences, allowing readers to take an active role in media channels and earn extra through content production, research, graphic design, article translation, marketing services, and voting on key decisions that guide the BANK token.

In order to break the model based on advertising revenue, the media DAO re-adjusts the distribution of benefits between readers and producers.

Grants DAOs

Donations are the first practical use case of a DAO, where the community donates funds and uses the DAO to vote on how to distribute the funds to various contributors in the form of governance proposals.

The governance of the Grants DAO was initially carried out through non-transferable shares, meaning that the primary motivation for participation was social engagement rather than financial returns.

Gitcoin is a precursor to this model, funding critical open source infrastructure where funding may be difficult. Similarly, large protocols such as Uniswap, Compound, and Aave have specific delegated DAOs that allow the community to vote on how to deploy their treasury to pay builders and developers to advance the protocol.

Grant DAOs are also starting to emerge to reimagine how charitable givings are done. For example, the Dream DAO issues NFTs to raise funds, and then lets NFT holders vote on how to allocate those funds to the DAO’s mission (funding Gen Z’s civic leaders).

Common tools for DAOs

At present, a series of DAO tools are serving as the standard used by most DAOs today.

 Gnosis Safe - A multi-signature wallet commonly used to manage community treasuries.

 Snapshot - Off-chain voting platform that enables easy token-based governance.

 Discourse - a forum typically used to discuss governance proposals.

 Collab.Land - A bot that provides token-gated access and prompts chat groups within community.

 Coordinape - Coordinate games to determine which contributors should receive token rewards.

 Parcel - Capital management to easily track and send payments.

 SourceCred - Tracks instances of community engagement and rewards active members.

 Mirror - Financing creative projects through tokenized crowdfunding.

 Tally - Governance dashboard to track on-chain voting history for different protocols.

 Boardroom - A governance center managed by token holders to empower key decisions.

 Sybil - Create and track on-chain governance delegates.

 Rabbit Hole - Reward tokens for completing certain on-chain tasks.

Barriers to the Development of DAOs

The DAO, as the organizational primitive of Web3, will reshape the way we manage, invest, work, and create in the future. Given that DAOs are essentially tasked with reshaping centuries years’ experience drawn from democracy and corporate governance, the extent of the challenge is obvious.  The shortcoming below can’t be neglected during the development of DAOs:

• Lack of recognition by laws/regulations. There are no relevant laws and regulations in many countries and regions, and it is in the blind spot of legal supervision.

• Lack of an effective coordination mechanism: A decision that requires all people with voting rights to vote may reduce the efficiency of decision-making, and attempts of delegated voting are in the process of exploration.

• Lack of customize platforms: On the one hand, every DAO needs similar infrastructure and governance tools，thus operation system are required; On the other hand, the tools provided by management platforms are similar, and most platforms does not provide customized DAO management solutions.

• Vulnerability risk of smart contracts: as happened along history, this may cause significant losses to the treasury and user assets.

• Division within the community: The divsion of Bitcoin/Bitcoin Cash and Ethereum/Ethereum Classic in history show that the internal division of the community can cause huge chaos.

• Continued development of the DAO: In times of uncertainty and market downturns, many people may have less confidence in the DAO

The Outlook of DAOs

Although DAOs have experienced some failures and faced many challenges along the way, with the exploration and practice of DAO in recent years, more mature thinking and solutions have been accumulated. It is expected that DAO will continue to reshape the way how humans are organized in the era of Web3, more efficient and successful organizations and company forms will be established on the blockchain-based DAOs, which will play an increasingly critical role in the global market.

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