The current venture capital model is also facing changes due to the rise of the crypto industry and the DAO concept. Before we go into details, we need to introduce Ventures DAO.
Ventures DAO is an organizational vehicle for democratizing investment. Like traditional VC, its primary purpose is to raise capital, but it does so without relying on the approval of large traditional VCs, and because of its more diversified sources of capital, a more diverse portfolio is possible in Ventures DAO.
Much of what makes Ventures DAO stand out from traditional investment structures is that it is often egalitarian and transparent in its underlying design based on blockchain technology. Overall investment decisions have also shifted from a single leader to relying on community voting and consensus.
Also, under a specific DAO smart contract, members of the DAO have the right to launch or terminate their participation in the DAO’s investment activities at any point in time. Traditional VCs, on the other hand, often require investors to stay in the fund for a certain period of time.
For a long time, large VCs and big money investors often buy Tokens at relatively low prices during the early seed and private placement rounds of projects to make large profits. After the project is officially launched, most VCs will sell it for profit, and this short-term profit-seeking behavior will undoubtedly cause great harm to the long-term development of the project.
Compared to the traditional crypto VC investment model, Ventures DAO allows a larger group of small capital to participate in the investment process of early-stage crypto projects. Its existence can impact the throwback phenomenon of traditional VC investments by providing community users with the opportunity to invest in early-stage projects and to reap the benefits of investing in early-stage projects.
Venture DAO’s investment process differs from a typical venture fund because each member of the DAO can act as the lead person and make investment recommendations to the DAO. Investment decisions are also based on the results of DAO voting, rather than through the investment committee. DAO participants will use the DAO’s own governance token to vote on which projects to invest in.
Typically each Venture DAO will have an exclusive community vault that holds all assets in a multi-signature wallet and distributes capital in a transparent manner.
This model will enable a relatively healthy venture capital ecosystem that will provide a more convenient source of funding for Web3 projects and help crypto flourish.
For the practical advantages of Ventures DAO, we can make the following specific summary.
- DAO’s organizational model harnesses the wisdom of the group to make investment decisions, and the most important feature of the DAO community is that it brings together people from all over the world with different professional backgrounds, and the distributed office model allows for shared decision-making.
At the same time, DAO members are a community of interest, so in order to protect their individual interests members will contribute their exclusive industry resources, expertise and insights to help guide and facilitate investments in projects with real potential.
- The DAO model allows for a true sense of up-chaining of the operating investment funds, which further increases the transparency of investment decisions. This means that the community must manage investment funds and the making and execution of decisions through extensive communication and voting, instead of having a centralized leadership group determine the direction.
- Compared with traditional crypto VCs, members of a DAO have greater autonomy. Depending on the DAO’s smart contract deployment model, any DAO member has the right to exit the DAO at any point in time and get back their share of the DAO’s total assets. This allows for greater organizational flexibility and also protects DAO members from getting into “governance limbo”. In contrast, however, traditional crypto VCs typically require investors to stay in the fund for a certain period of time. There are certainly some hidden risks.
We’ve covered a lot about Ventures DAO, and in fact, a large number of industry insiders have generally seen it as one of the most promising DAO models for a long time. The combination of decentralization and investment decision making undoubtedly brings the flow of benefits and funds back to the original idea. And we will also introduce a trendy Ventures DAO project, Ceres DAO, in detail from many dimensions today.
Ceres DAO – Empowering Web3 with DAO as a base
Ceres DAO is the world’s first decentralized digital asset management infrastructure and management protocol based on DAO governance and empowered by Web3. Ceres DAO builds a new standardized DeFi asset investment model that provides non-custodial and decentralized asset management services for cryptocurrency assets.
In terms of governance structure, Ceres DAO is a community-driven organizational structure that provides a flexible mechanism that can engage DAO members in investment decisions in a way that traditional venture capital fund models cannot match.
The move will also lower the barrier to entry for DeFi, allowing users to access more investment opportunities and returns without the need for volatile asset exposures and active money management.
Ceres DAO uses a co-share model, also known as AB shares. There are two main tokens included in the Ceres DAO ecosystem, which are the CES Token and the CRS Token.
Among them, CES Token is an equity token, while CRS Token is a secondary market liquidity token. The price of both is 1:1, but the equity is different, and we will discuss each of them and the relationship between them next.
1、Equity Token – CES
The biggest role of CES, Ceres DAO’s equity token, is to determine the next action and direction of the DAO through on-chain proposals and voting.
The CES Token can be minted in two ways.
1) VC Pool (Mainstream Asset Pool)
VC Pool conducts CES casting through mainstream assets such as BTC, ETH, BNB and FIL.
Bond Pool minting CES via stablecoins such as USDT, USDC or BUSD. the VC Pool and Bond Pool have a daily minting limit of 1 billion CES Token. after CES is minted by the above two methods, it will be released linearly after 7 days.
The funds in the CES mint pool will be distributed in the following proportions.
- 50% – injected into the vault
- 30% – injected into LP pool (converted to stablecoin and matched LP with CRS tokens)
- 10% – Commission (5% for CRS repo destruction, 5% for community operations)
- 10% – Marketplace Incentive (5% for DAOs Incentive, 5% for Nodes Incentive)
- Circulating Token – CRS
CRS is a liquidity token issued by the Ceres DAO protocol, whose primary role is to provide good liquidity to the entire ecosystem.
In terms of access, CRS Token can be obtained through CES pledge, DEX purchase or 1:1 exchange of CES.
CRS has a total supply of 1 trillion tokens, for which the specific allocation ratio is shown below.
- 60% – Mining Pool
- 10% – Foundation
- 15% – Institutional
- 7% – Technology
- 7% – Ecological construction
- 1% – IDO
3、The relationship between CES and CRS
After the introduction above, it is easy to see that the main part of the Ceres DAO protocol consists mainly of CES as an equity token and CRS as a liquidity token together.
Users can obtain CES Token through the two casting methods mentioned above, while CRS Token can be obtained through pledging, secondary market trading or CES exchange.
Regarding the conversion of CES and CRS, it is done exactly in the ratio of 1:1 (not reversible). At the same time, a 20% transaction tax will be payable on the conversion of CES to CRS, and the specific allocation ratio of this portion of funds is shown below.
- 10% – injected into the vault
- 5% – injected into LP pool (converted to stablecoin and matched LP with CRS tokens)
- 5% – as commission (2.5% for CRS repo destruction, 2.5% for operations)
It is worth noting that both CES and CRS can be pledged to generate CRS Token. pledging is critical to the long-term growth of the ecosystem. Users are incentivized to pledge their CES and CRS for compound returns. The adjustable incentive rate can be adjusted to market conditions to avoid hyperinflation.
The current actual status of pledge awards is shown in the following chart.
In the pledge mechanism, the maximum daily CRS output is 100 million coins/day. If the actual output of the pledge falls below 100 million pieces, the remaining CRS will be destroyed to create a deflationary mechanism that further drives the coin price.
4、Evaluation and summary
Ceres DAO uses an AB share model that allows the entire ecosystem to remain relatively stable by operating with a clear separation between equity tokens and liquidity tokens.
Through a detailed exploration of Ceres DAO’s AB share model, we can easily find that there are some ingenuity in the design of its economic model. The project owner has always deliberately avoided the direction of over-centralization, hoping to lead the community to truly decentralized governance. At the same time, we can also find out the trade-off between community feedback and project development through the allocation ratio.
But the actual operation of how effective, we do not know yet, which undoubtedly need a lot of practice to test, so we can keep a proper attention to this.
In the Ceres DAO ecosystem, each DAO or Node has its own NFT (i.e. Rich Panda family), which is freely transferable. The difference in authority between DAOs and Nodes NFTs is shown in the following figure.
The assets used to cast the NFT will be distributed according to the following allocation.
- 50% – injected into the vault
- 50% – Copyright tax
Under this governance model, the ecological governance of Ceres DAO will have the following major features.
- DAOs can be involved in the governance and deployment process of the protocol.
- After screening for quality projects or better investment opportunities, both DAOs and Nodes have the ability to make and initiate proposals to the platform. This includes, but is not limited to, new product releases, integration and collaboration with other protocols, and deployment in other Layer 1 ecosystems.
- TOP50 DAOs can participate in the governance of the platform and have the right to vote. If the approval vote reaches 67% or more, the proposal will be adopted and implemented.
However, as the market value of CES Token continues to grow, becoming a TOP50 DA0s will undoubtedly require more funding. Therefore, subsequent communities may form sub-DOs, and sub-DOs may also enter the ranks of TOP50 DAOs as a whole (multi-signature addresses) to gain access to governance.
Vault Investment Strategy
As a Ventures DAO, the choice of investment strategy is undoubtedly the core requirement of the entire project. In this regard, Ceres DAO’s vault will adopt a hybrid investment strategy of “Beta” + “Alpha”. Before introducing the strategy, we need to understand what “Beta” and “Alpha” strategies are.
“Beta” and “Alpha” are financial terminology used in traditional fund investing, and are often used to refer to two factors that represent two different investment ideas with different risk appetites.
Beta coefficient is a risk index that is commonly used in traditional fund investing to measure the price volatility of individual stocks or equity funds relative to the overall stock market. It is a tool to assess the systematic risk of a security and can be interpreted as the magnitude of volatility relative to the broader market, or it can indicate the correlation to market volatility.
If a fund’s Beta coefficient is greater than 1, it is more volatile and riskier than the market; if a fund’s Beta coefficient is less than 1, we can assume that it is more volatile than the market and less risky than the market. The more the Beta coefficient converges to 1, the more its volatility converges with the market.
The Alpha Factor is the difference between the absolute return of an investment or fund and the expected return on risk calculated according to the beta factor. In simple terms, the Alpha factor most commonly means excess return.
The “Beta” + “Alpha” hybrid investment strategy adopted by Ceres DAO Vault is a combination of these two strategies, i.e., a large percentage of funds is invested in mainstream cryptocurrencies that fluctuate with the market and a small percentage of funds is invested in higher-risk Alpha projects with higher risk.
Specifically, the “Beta” investment strategy refers to investing 70% of the vault funds in crypto assets in the crypto market, such as BTC, ETH, BNB, etc., and generating relatively stable income through DeFi lending agreements or asset appreciation.
The “Alpha” investment strategy means that 30% of the treasury funds are invested in higher risk Alpha projects through the proposal of the investment research union in order to seek excess profits.
The reasons for this arrangement are easy to understand. As an investment institution, Ceres DAO has to focus on both return and risk, and it is often difficult to combine both with a single investment strategy, so the combination of multiple strategies has become a necessity.
The Beta strategy provides Ceres DAO with a more stable investment return, which is affected by the volatility of the crypto market but is still a more secure investment, thus the Beta strategy also occupies a larger share of funds in the overall investment strategy.
The Alpha strategy, on the other hand, focuses on potential projects and aims to gain excess returns, which, of course, means that it will also face greater risks. Therefore, the proportion of Alpha strategy in the overall investment strategy is destined to be smaller, and at the same time, the review process of its investment will be more stringent, after all, Alpha projects are not like BTC and ETH, which have gathered a general consensus.
As the vault’s funds under management continue to grow, users will also be encouraged to actively participate in the governance of the Ceres DAO ecosystem through CES pledges. The distribution of dividends from vault investments will be based on the following scale.
1) 80% of the vault revenue will be distributed to the pledgers of CES Token.
2) 10% of the vault revenue will be allocated to Top 50 DAOs.
(3) 10% of the vault revenue will be used for project operations.
The distribution ratio of the vault investment dividend reflects the project owner’s balanced thinking of giving back to the community and empowering project development.
At the same time, Ceres DAO uses multi-signature wallets in order to protect the vault funds. A multi-signature wallet is a wallet that requires multiple signatures to execute a transaction. In this model, the loss of a single private key does not compromise the security of Ceres DAO’s vault funds, which is protected to a certain extent.
The Ventures DAO is likely to drive a change in the way VC funds operate, and the entry of Web3 will make venture capital more democratic. At that point, venture capital will probably no longer need to set the threshold of investors, and the amount of assets will no longer be a restriction for entry. Traditional venture funds will also be forced to change the way they invest in projects, and they may even need to turn their business models upside down and transform themselves into Ventures DAO.
In the Web3 world, Ventures DAO does not have a central agency to provide funding, and its venture capital funds are often raised primarily through community members. In the process of investing in promising projects, DAO members conduct their own due diligence, community outreach, and participate in community governance, and Ventures DAO members coordinate resources around common investment interests.
Web3 will enable people to come together in innovative ways, including the aggregation of capital and other resources, in a model that goes far beyond the rigid structure of the current venture capital space.
However, Ventures DAOs are undoubtedly a long way from reaching their full potential. Many of the tools currently in use are not fully compatible with the existing legal framework, and the existing decision-making mechanisms do not appear to be suitable for investment purposes, as they disguise incentives for convergence toward common goals. But in the long run, Web3, the engine of innovation, will undoubtedly provide relevant solutions to most of these obstacles.
Back to Ceres DAO, which is currently in a fairly early stage, but its overall project and ecological plan has been clearly presented. As an investment DAO, the investment strategy and economic model are certainly crucial for Ceres DAO. And it has indeed made a lot of designs for this, which to a certain extent can reflect the willingness and sincerity of the project owner to do things.
However, looking at these designs, it is easy to see that the general framework is already in place, but the overall details are still to be enriched. At the same time, since the project itself still lacks actual market practice, it still needs a lot of testing to determine the feasibility of its strategy.
Overall, though, Ceres DAO is a sincere project, as evidenced by the many trade-offs in its economic model and distribution strategy. Also, investment DAO is quite a track to watch, and in my opinion, it has the potential to be the next round of breakout. Therefore, Ceres DAO with these two points is certainly a project worth experiencing and watching.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/can-the-beta-alpha-investment-strategy-drive-the-next-revolution-in-ventures-dao/
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