What is DAO?
I don’t know if it’s normal,
It’s a trendy and highly idealistic and romantic word.
It is worth understanding by everyone who pursues ideals.
Crypto pioneers always have considerable progress and enthusiasm for DAOs, so they always look to the “future”, but the “future” is always long overdue. The DAO has actually been around for as long as Ethereum. Although it was related to the DAO 2016 hack, the discussion about the DAO’s potential has now been revived.
Recently, some DAOs have piqued the interest of orthodox investors, such as the famous Mark Cuban, who described DAOs as “the ultimate combination of capitalism and progressivism.” When crypto enthusiasts around the world predicted the DAO to be the “next big wave” of the cryptos web3 movement, mainstream investors took notice, asking the question: “What is a DAO and how does it work?”
“ You don’t own ‘web3’. The VCs and their LPs do. It will never escape their incentives. It’s ultimately a centralized entity with a different label. Know what you’re getting into… ”
Jack Dorsey，前Twitter CEO
The key question arises as traditional venture capitalists are still the majority of power brokers and asset holders, also in the encrypted web3 movement. If DAOs really are the highest and best form of merit-based ownership, the most important thing to invest in human capital should be active members, no? As we have seen in the traditional financial sector, we have many examples of venture capitalists dominating this space. To name just one example, Andreessen Horowitz, a thriving venture capital firm, oversaw the multi-million dollar funding rounds for both companies, assisting in the growth of the DAO.
THE NUMBERS NEVER LIE
Let’s take a look at the products in the web3 world
The DAO Controversy
According to the Financial Times, 9% of accounts hold 80% of the $41 billion market value of NFTs on the blockchain. Bloomberg further concluded: “Controlling the majority of NFT profits in a small circle of insiders.”
BitInfoCharts detailed the further centralization of cryptocurrencies, showing that the top 2% of accounts hold $800 billion, or 95% of the cryptocurrency supply, with 0.1% of miners accounting for half of all output. The logical conclusion is that if cryptocurrency were a country, it would have the greatest inequality in the world. Then “is there a safer, smarter, better way?” As a true meritocracy, what should a DAO in its purest form look like?
《 12 Angry Men 》1957
What a DAO is and its 9 principles
Owned and operated collectively by members, it is an emerging blockchain-based organization.
- In the absence of hierarchical governance, DAOs can serve a variety of goals.
- A DAO is an organization of rules defined and enforced around the blockchain, operating through community governance.
- Due to the lack of centralized leadership, the DAO is a blockchain entity that operates through these bottom-up decisions.
- The resolution passes individual proposals, and collective voting takes place within the specified time.
- The blockchain records the voting decisions of these groups.
- The DAO’s operational structure and processes are based on smart contracts that define organizational rules, while performing protocol operations and governance functions.
- The use of funds is determined by voting, which is still the way to control the DAO’s treasury.
- The built-in DAO vault can only be accessed with member authorization.
- The DAO empowers a network of freelancers to combine the contractual benefits of paying fees with venture capital operations managed by these charitable nonprofits and groups, enabling stakeholders to approve payments.
DAOs provide stakeholders with significant transparency and control over the organization and represent the true spirit of the decentralization movement, which we expect to continue.
History of DAOs
The DAO concept dates back to a blog post in 2013. At the time, blockchain developer Dan Larimer coined the term DAC (Decentralized Autonomous Company). His blog post describes the DAC as a profit-driven organization whose code defines bylaws and obtains operational services by paying its operating costs using shares in a decentralized company. A few months later, Vitalik Buttrick coined the term DAO as we know it today in an article in which he mused: “If, with the power of modern information technology, we can encode mission statements into code ; i.e. create an inviolable contract to generate revenue, pay people to perform certain functions, and find hardware to run themselves, all without top-down human guidance?”
In May 2016, the first DAO was established – THE DAO, a crowdfunding venture capital fund. The DAO raised 11.5 million ether, which was worth $150 million at the time. Three months after the fund was launched, it was hacked for a loss of $50 million, details of the breach first disclosed by Flashbots Phil Dalian. The DAO accounts for about 14% of the circulating ETH supply and is one of the largest projects on Ethereum.
On July 20, 2016, the Ethereum community finally decided to save investor funds by hard forking Ethereum and rolling back before the hack. The fork version of Ethereum became Ethereum Classic, and the hard fork version is the latest version of Ethereum today. On July 25, 2017, the U.S. Securities and Exchange Commission (SEC) issued a ruling stating that the tokens sold by the DAO were securities and therefore subject to federal securities laws.
DAO offerings are subject to the same federal regulations as IPOs because the DAO and its investors violated securities laws. Because of this SEC ruling, blockchain DAOs that issue tokens are required to demonstrate that the tokens do not meet the Howey test and are therefore unlikely to be construed as securities by the SEC.
How do DAOs work?
DAOs use smart contracts that automatically execute code when a set of criteria is met. While now used on many blockchains, Ethereum was the first to use smart contracts. While there are various options for participating in the DAO, holding the DAO Company Token is required to participate as a DAO member owner.
The DAO’s regulations establish the operation of these smart contracts. DAO members holding stakes can then vote to influence business functions by introducing new governance concepts. This structure protects the DAO from a large number of proposals requiring member votes. Smart contracts prescribe the actual method of determining the majority, as this is where DAOs are different.
The DAO is built on an open source blockchain and is completely self-sufficient and transparent. As the blockchain records all financial transactions, any member can monitor their built-in finances.
Incentives for DAOs
Allowing more people with different skill sets to participate in early-stage investments to provide strategic funding for new projects. Diverse Resource Library
Enhancing synergies in blockchain protocols to democratize investment decisions while also expanding transaction sources.
Why DAO will lead the team?
“The DAO could have a huge impact on the adoption of Web3 products,” said Chris Dixon and Cara Wu of venture capital firm a16z. The DAO operates as an organizational structure that raises, manages token assets while allowing for transparent governance.
Wyoming approved legislation earlier last year to legally recognize DAOs as LLCs. Wyoming-based CityDAO is a DAO structuring company building “blockchain cities” in the real world. CityDAO has purchased a 40-acre parcel of land in remote Wyoming, with plans to purchase more in the future. Each piece of land is considered an NFT owned by an individual or a DAO collectively. DAOs are being promoted as a new means of listing crypto companies as a governance mechanism option for a company’s standard board structure.
Currently managing $8.3 billion in DAO assets, according to DeepDAO, BitDAO, which claims to be the largest DAO in the world, was founded to invest in DeFi. Earlier last year, a $230 million pledge was led by Peter Thiel, Dragonfly Capital, Pantera Capital and Founders Fund, and the BitDAO Treasury, and the group now holds more than $2.5 billion in crypto assets. Additionally, PleasrDAO was formed in early 2021 by a coalition of NFT collectors, DeFi leaders, and digital artists to purchase Pplpleasr’s Uniswap V3 NFTs. Thanks to its high-value NFTs as collateral, the DAO has acquired more digital artworks while taking out a $3.5 million loan from CREAM (the iron bank of the financial industry) in July 2021.
As people begin to believe in the concept of digital public action, more DAOs will emerge in new and exciting scenarios. According to a prediction from Pantera Capital partner Paul Veradittakit, “As DAOs become more functionally and organizationally complex, we will see substantial progress in the development of decentralized autonomous organization operations and management tools.”
Investing in DAOs
DAOs have grown to cover the needs of different communities and businesses. Investing in DAOs and venture capital DAOs has become a way for the community to invest in early-stage projects. An on-chain component, usually in the form of a smart contract that manages the operation of the DAO, and an off-chain component that provides some legal liability protection for its members, the DAO’s legal structure. The investment process for a venture DAO differs from that of a typical venture fund, as each member of the DAO can act as a lead investor and submit proposals to the DAO.
Investment decisions are also based on the voting results of the DAO, not through the investment committee. Depending on the specific DAO smart contract, DAO members may have the right to “rage out” or terminate their participation in the DAO at any time. A typical venture capital investment requires investors to stay in the fund for a certain period of time.
DAO project example
1. MetaCartel Ventures
Created by the MetaCartel community, MetaCartel Ventures is an early stage decentralized application (DApps) investor. Founded in Delaware, MetaCartel Ventures is the DAO’s first joint venture to launch in 2020.
Based on Moloch v2, members must be accredited investors or employees of MetaCartel Ventures. MetaCartel Ventures is currently closed to new members.
2. THE LAO
LAO is a joint venture DAO established under OpenLaw. It uses Moloch v2 for on-chain smart contracts. Members of LAO contributed over 15,119 ETH. New members must contribute at least 310 ETH, but this is only 1% of the total.
3. Flamingo DAO
Flamingo DAO is an investment DAO focused on NFTs and the first collective LAO established in September 2020. Flamingo DAO uses OpenLaw as a service provider for DAO management. The DAO uses Moloch v2 smart contracts, and members must be accredited investors as defined by U.S. law.
4. Stacker Ventures
Established in May 2021, Stacker Ventures, a Cayman Islands entity, is a venture capital DAO that enables holders of STACK tokens to access different levels of the DAO. Members can stake their STACK to receive a portion of DAO revenue. The DAO uses Aragon to sign smart contracts and does not need to be certified as a non-US entity.
Vulcan is an encrypted art collection fund DAO. It is the first decentralized organization in Asia focusing on the field of encrypted art NFT. Vulcan DAO was officially established. Vulcan will be based in the Asia-Pacific region and radiate around the world. By supporting, building and investing in emerging opportunities in the NFT field, Vulcan will promote the intersection of technology and art, and lead Asian culture to the world. Vulcan members can pool resources here, create proposals, continuously optimize investment decisions and improve the DAO governance ecology, so that DAO fund members can enter the NFT economy in the best way and share the prosperity and development of the NFT track.
6. Komorebi Collective
Komorebi Collective is a joint venture DAO investing in women-led blockchain projects with 37 members. The DAO is structured as an SPV LLC and uses Syndicate – a decentralized investment protocol that allows for the efficient creation of investment DAOs. They use Gnosis Safe for on-chain consensus and will migrate to Snapshot for off-chain voting. A core team of 4 members should conduct due diligence on projects before they are voted on by the DAO.
Final Thoughts on DAOs
While regulations lag in recognizing DAOs as legal entities, the current set of risky DAOs is taking a hybrid form of traditional legal entities, along with on-chain DAO governance. The early success of DAOs and their multi-layered win-win appeal shows that risk DAOs have their rightful place in the crypto ecosystem.
We have every reason to believe that DAOs will surpass this early hype and thrive in the future. Full respect for those embracing and embarking on the DAO journey while bringing about meaningful change through “the future of work” and a safer, smarter, better meritocracy.
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Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/the-epoch-of-dao-has-begun/
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