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WTF is a DAO?

WTF is a DAO?

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DAO is a buzzword you might have been hearing a lot recently, but what actually is a DAO? A DAO, or Decentralised Autonomous Organisation, uses a web3-native bottom-up approach to challenge the traditional model of cooperation. DAOs are governed by members, who pool their time, money, and expertise, to advance a shared interest.

Members contribute to a DAO through proposals and votes on how to allocate capital but, depending on the type of DAO, there are many other roles members can play. The key here is that the power to make decisions is distributed, rather than funnelled through a hierarchy. As decisions are made, they are executed via a blockchain encoded agreement known as a ‘smart contract’. This ensures the final decision is delivered with full transparency.

In spite of a not-so-positive crypto market, the prevalence of DAOs has grown exponentially. In June 2022, Snapshot Labs reported that the number of DAOs had increased from 700 in May 2021 to 6,000 now. The number of proposals increased by 8.5 times, and the number of total votes increased by 8.3 times over the past year, from 448,000 to 3.7 million.

Incentives for DAO participation are defined by the individual DAO but, since they first formed in 2015, DAOs have mostly evolved into six categories. These categories are: Investment/Venture DAOs; Grant DAOs; Collector DAOs; Protocol DAOs; Philanthropy DAOs; and Social DAOs. It’s important to note that these are not mutually exclusive, as many DAOs do not fall neatly into a single category. Many more types of DAO are emerging, but these are the most established and important to understand if you are new to the world of DAOs.

Types of DAOs

Venture DAOs, also known as Investment DAOs, pool money into a central fund which is used to invest in both on-chain and off-chain initiatives. MetaCartel’s Venture DAO invests exclusively in on-chain initiatives, specifically Decentralised Applications (DApps). Other venture DAOs leverage the technology to raise money for projects totally unrelated to Web3. For example, VitaDAO invests in early stage longevity research, while BraveNewDAO invests in businesses, technologies and infrastructure fighting the climate crisis. 

As the name suggests, Grant DAOs facilitate grants. They are often part of a larger web3 protocol like Ocean or Aave, which both launched grant DAOs to fund projects that contribute to their respective protocols. Others, like MetaCartel, grant funding and operational support to early stage Ethereum DApps, crypto-native experiments, and even other DAOs. 

Collector DAOs offer members a share in collectibles, which corresponds with their investment. These collectibles could be digital blockchain assets, such as NFTs. FlamingoDAO, for example, offers its members shares in its impressive NFT collection that boasts 215 CryptoPunks and 22 Bored Apes (if you’re not into NFTs, just know these are kind of a big deal). Alternatively, collector DAOs also offer shares in collectibles IRL (In Real Life). For example, in 2021, Constitution DAO raised $47 million worth of ETH in one week, in an attempt to buy a first-edition copy of the U.S. Constitution at Sotheby’s.

Protocol DAOs govern decentralised protocols, such as borrow/lending applications, decentralised exchanges, or other types of dApps. This ensures web3 protocols are true to their values by using decentralised governance models for both strategic and financial decisions. For example, Uniswap DAO members recently voted on which layer 2 networks the decentralised exchange protocol should be deployed on. Token holders also have a say in how the exchange’s $2bn treasury is managed. 

Philanthropy DAOs work to leverage web3 technology to create a positive social impact. Big Green DAO was the first non-profit led philanthropic DAO, in which members use Discord to discuss food or gardening nonprofits and vote on allocation of funds. Ukraine DAO‘s success is a testament to just how effective web3 fundraising can be when you cut out the middleman, raising over $3 million in ETH in less than a week for the Ukrainian army.

Community Capital

So far, the DAOs discussed in this article have focused on financial reward. The group accumulates a central fund, or ‘treasury’, raised through token sales, NFTs, and other services that generate revenue. DAO members then vote on when and where the money is invested.

Social DAOs, however, focus entirely on community capital. They are a little more exclusive but, once you are in, you have access to a like-minded network of individuals who share your passions and interests. Friends With Benefits DAO, for example, is “a worldwide group of cultural creators, thinkers, and builders, who convene digitally and IRL to collaboratively shape Web3’s future”, requiring 75 FWB tokens to join. The Bored Apes Yacht Club DAO is for the 10,000 lucky individuals who own a Bored Ape NFT, including many celebrities. The DAO gives holders access to a shared digital canvas, a private discord channel, and exclusive IRL events.

While not all DAOs depend on social capital alone, this is something that is at the core of DAO culture and web3 more broadly. For example, CreatorDAO is fundamentally a Venture DAO, investing in creators careers. But financial capital is just one incentive, as it stated in a recent press release on the 9th August: “CreatorDAO offers creators access to mentorship, professional tools needed to grow their brands, and a community invested in each other’s success.” In this sense, DAOs empower and mobilise the community, to an extent that traditional structures simply cannot match up to.

These categories only scratch the surface of how DAOs have evolved over such a short time period. Over the next few months and years, we can expect to see DAOs continuing to snowball and disrupt how traditional organisations are managed. We can also anticipate an increasing number of web2-native industries leveraging DAOs as a vehicle to transition to web2.5, distribute power, and improve access to capital. Stay tuned for more DAO content.

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