Bottom-up: An article to understand how community DAO realizes value capture through autonomy

In heralding the modern prospect of community dao, social media is clearly a canary in Web 2.0. Twitter and Facebook expanded the growth of digital tribes, but also squeezed most of the value of these tribes. Moving to Web 3.0, the digital community is upgraded by introducing native units (tokens). The first instance of community tokens revolved around popular celebrities (such as EDM artist RAC). Whether it is a ready-made social media platform or a well-known profession, at first, the digital community needs a central group to build.

Although super fan clubs are exciting, they are essentially one-way. Members can buy and sell their RAC tokens for profit. Perhaps token holders will retain exclusive non-monetary privileges, such as stage passes or opportunities to collaborate with artists. Dapper Labs plans to improve their usefulness by integrating TopShots clips into the fantasy sports game Hardcourt. But in the end, in most cases, one party creates and the rest follow. The next evolution of community tokens needs to be more generative and inclusive, weaving a symbiotic relationship between tokens, members and creation. The model should be bottom-up, not top-down.

Community DAO: a new digital organism

Community DAOs like BanklessDAO, PleasrDAO, and Friends with Benefits (FWB) reverse the script. Community DAO is not determined by the superior organization to determine the spirit and value of the community, but to self-organize, formulate its own guiding principles, and generate/get its own value. Just as a child grows up as an adult, so does the digital community.

The origin of the community DAO is the further adaptation of human beings to cloud social life.

Community DAOs are usually initiated by netizens who share common passions, skills, or values. They are cultural Schelling points (or focal points). Holding the tokens of the community DAO represents the loyalty to the digital tribe and the status that comes with it. Holding community tokens represents some information about its online holders. The members of BanklessDAO and the members of Friends with Benefits are completely different netizens. The former focuses on advocating the development of DeFi and the mission of Bankless, while the latter may seek planned cultural and offline social opportunities.

To illustrate how current and potential members “value” online communities, we will look at NFTs, especially CryptoPunks . CryptoPunks are public non-productive assets. These assets have neither cash flow nor complicated beauty in the past 180 days, they outperformed the Ethernet Square . Using price as a representative of desire, this digital community with 10,000 virtual avatars is very popular in the field of encryption. Cryptopunk is a scarce symbol of identity and belonging. It is a digital passport issued by and belonging to crypto elites. Because punk’s “production value” is zero, their value comes almost entirely from their desire to enter the community. This is the community premium.

Community DAO: an independent value engine

In the community DAO environment, access is a scarce resource. It is the fuel to run the engine. People’s emphasis on access is both the reason and the impact of community power. In short: the community drives the value obtained, which creates a need for inclusiveness and further strengthens the size and strength of the community.

When deciphering the specific relationship between the strength of the community and the value of visits, we can look at FWB’s hierarchical progress model. Friends with Benefits (FWB) lives on Discord, not only providing content, but also a hive of the community. When the first season is launched, members need 50 FWB tokens to get the right to enter discord. As the size of the community expands, the barriers to access and related benefits also increase. Season 3 started a few weeks ago and requires 75 FWBs to enter.

Those who participate in the third season of FWB can benefit from some additional benefits, such as a closed IRL (in real life) event, high-quality sub-stack content, and a well-curated city guide. As access is becoming increasingly scarce, one of these privileges is undoubtedly exclusive.

Bottom-up: An article to understand how community DAO realizes value capture through autonomy

BanklessDAO is an extension of the mission spread through Bankless newsletters and podcasts: financial freedom and sovereignty over assets. Although the goal pursued by BanklessDAO is different from FWB, it uses a similar access method. Only after obtaining 35,000 BANK tokens can members fully enter the DAO Discord. After entering, membership benefits include corporate health plans and special NFT gifts.

In addition, contributors are organized into specialized guilds within the DAO. Everyone is responsible for drawing and accomplishing goals in certain areas, such as finance or writing. A grant program provides subsidies for member projects that promote the benefits of the DAO. BanklessDAO finally launched an on-chain financial product called the BED Index, which consists of equal amounts of Bitcoin , Ethereum and DeFi Pulse Index (another index product designed by Index Co-op).

How tokens can enhance network effects

The development method of community DAO is roughly the same as that of other encryption economic protocols. They usually guide themselves through subsidies and accelerate network growth by distributing tokens to individuals who have a certain commitment to the network. This is similar to the “lightning expansion” strategy of Web 2.0, or suffer losses in the short term to promote long-term adoption.

Forefront (FF) is a DAO resource aggregator and FWB both distribute tokens to members who complete their goals on behalf of the community. Goals range from brief promotional blog posts to designing POAP (Proof of Attendance Protocol) badges for events to building Discord bots.

This one-time contribution may seem unremarkable, but these commitments will increase over time. As the identity of the community becomes more specific and the welfare of its members expands, the value of potential nodes as part of the community also grows. As the demand for access to DAO increases, community tokens appreciate. As the value of tokens increases, insiders are further motivated to improve the utility and content of the network in order to attract new members.

If members can effectively expand the social dynamics of the community DAO, outsiders will be attracted to the network and utility programs. The community DAO network effect may be more powerful than the Web2 network effect. The Web2 network extracts value from an ecosystem that might otherwise grow symbiotically. This value is not reinvested, but captured by the platform and exited from the system. Token-based communities enhance the network effect of the ecosystem by distributing value from the platform to community members. DAOs managed by token holders can harvest the fruits of their labor and continue to build the infrastructure needed for growth.

This reflexivity is widely understood as one of the main advantages of cryptoeconomic protocols. In the context of the community DAO, this effect may be more obvious. In a low-tech environment, such as a community DAO, a wider range of members can contribute real value to the ecosystem and provide stronger support for community tokens. Recalling traditional club members: The real-world counterpart of community tokens is another reality, that is, members of a particular club issue shares of the parent company. If a member can strengthen the club, make its visit and own stock more valuable.

Valuation of community tokens and DAO

The marginal nature of community tokens such as FWB makes it difficult to value such tokens. As the community develops or becomes “inorganic”, the intrinsic value of exclusivity will be weakened. For this reason, although DeFi agreements like Compound seek institutional capital, the adoption of these community tokens by institutional investors is not necessarily a logical or ideal end state.

Even if you can enter the Discord of a community, the nature of these digital communities may be unpredictable. How can investors synthesize thousands of threads in the community Discord into a discussion about the long-term growth and profit potential of community tokens? How to quantify the total creativity and productivity of the entire community? At this stage, the discounted cash flow model is almost inapplicable, and most traditional valuation indicators are not applicable.

But this is the case for most start-up for-profit organizations, whether they are online organizations or other organizations. As the community DAO matures, they will experiment with projects, some of which will generate benefits. The Bankless BED index currently charges management fees. FWB can make its web3 ticketing application profitable. Other community DAOs sell NFTs of members and transfer part of the proceeds to the treasury. Whether it is through internally designed products or selling treasury assets, the treasury of successful communities will expand.

In order for the tokens to maintain their value in the long term, these profits need to be distributed in some way. The community DAO may avoid directly distributing profits to token holders in the near to medium term. From a regulatory perspective, it may be more acceptable to establish a programmatic token destruction mechanism.

A potential way that is more beneficial to both parties is to return value to shareholders through implicit privileges. The community can subsidize goods and services based on the number of tokens owned by members. Some of these digital guilds (communities) can start to provide the same services as existing institutions, making exclusive access very valuable. In any case, the community DAO will be as decentralized as possible by folding the central function. By returning the ecosystem to its members, the DAO also strengthens the pride of the community and reduces the possibility of regulators marking their community tokens as securities.

If a community DAO can thrive in bull and bear markets, its native token may also prove to be resilient. As the industrial economy gives way to the knowledge economy, social capital takes on new importance. Influencers with social capital have come together to collaborate and develop their networks. Trying to evaluate the value of community tokens purely through future earnings is a simplification, and it does not take into account the premium of the community.


Posted by:CoinYuppie,Reprinted with attribution to:
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