In November last year, an auction was held in New York where the 13 surviving copies of the United States Constitution were for sale. From among the bidders, there was a digital group trying to purchase a copy of the constitution. ConstitutionDAO (yes, that’s what they call themselves) lost out in the auction but created enough buzz to turn the heads of the mainstream media and business organizations.
But what is a DAO?
DAOs are essentially blockchain organizations on the internet having no central authority. Picture a group of friends coming together to start a venture. DAOs work similarly, except that the group doesn’t choose a leader and carries on the governance based on a set of rules they set as codes. These codes are immutably stored on the blockchain as smart contracts and get executed each time decision-making takes place. The majority of DAOs are hosted on the Ethereum network. They are open-source, autonomous, and transparent, providing an equitable setup where every member has a right to put forth their idea, which then passes the consensus radar before it becomes a reality.
With zero hierarchy present, decision-making is done via consensus within the community. The DAOs have a treasury accessible to the members when members approve the same via a consensus. DAOs concern internet-native organizations serving conventional and unconventional purposes. They may be a group of freelancers, a charitable organization, a law firm, an investment firm, a Meta-like social community, or any functionality that can be worked upon via a DAO setup.
DAOs are being considered the next big thing in the internet business sphere.
DAOs have been operating in the crypto space since 2016. The first DAO operating a venture capital fund was able to secure $250 million worth of ETH and was an instant success. These blockchain-based decentralized organizations, despite grabbing the limelight for their ‘sensational ploys,’ have been calmly ‘forging a new ecosystem for digital startups.’ No wonder the billionaire Mark Cuban recently tagged them as the ‘ultimate combination of capitalism and progressivism.’ And Andreesen Horowitz, the popular VC firm, led funding rounds worth several million in DAOs as well as the firms supporting DAO formation.
Today, 180 DAOs operate in the blockchain space with a collective run by over 2 million members and having a combined value of $10 billion in AUM (Assets Under Management). These DAOs look after the management of some of the largest crypto protocols, including MakerDAO, Compound, Aave, Kyber Network, DAOstack, Dash, Tezos, Bancor, etc.
They also help manage many small organization systems concerning crowdfunding, media, tokenization, social community, etc. PleasrDAO, belonging to a group of crypto fans, bought the only existing copy of the album titled Once Upon a Time in Shaolin’ by Wu-Tang Clan for $4 million. The DAO had spent another $4 million on the original Doge meme NFT. Then, there are other DAOs like HerStoryDAO run by a certain group of women and non-binary artists, MetaCartel Venture DAO investing in early-stage startups, Friends with Benefits DAO operating as an invite-only social club, and the list goes on.
What’s the next evolution in the DAO space?
DAOs hold the potential to leapfrog the existing organizational structures like those of cooperatives, LLCs, banking organizations, etc., to present a trustless, decentralized setup with no corporate headquarters. By enabling transparency, disintermediation, and automation in the setup of a financial organization, DAOs can be instrumental in the move toward banking 2.0. DAOs like MAkerDAO, Swissborg, Uniswap, Compound, Aave, Curve DAO, etc., are some of the significant names writing new chapters in the finance sector offering crowdfunding, lending, and borrowing, wealth management, and exchange utilities.
Consider the 2.5 billion unbanked global population and consider what will entail if DAOs become a part of these people’s lives. With a simple mobile device and an internet connection, the untapped potential and customer base of billions can be brought under banking and other allied services.
Talk of Cooperatives and LLCs: The structure of a DAO is such that it can easily be adapted to the legal framework of an LLC. Wyoming, a state in the US, has already passed a law in 2021 that recognizes DAOs as legal entities giving DAOs the same legal protection as LLCs. When it comes to cooperatives, DAOs look like their long-lost but much-developed cousins. DAOs can better adapt the collective ownership functionalities via economic rewards, new forms of social capital, and governance. PartyDAO constituted in 2021, is a fine example of an internet cooperative that completed million-dollar deals via collective bidding and fractionalized ownership.
DAOs are also the truest social communities of the future, where every member contributes to the development of the community where they love hanging out. DAOs work upon how people collaborate online via social tokens – the direct incentives towards building a virtual social economy.
Work 4.0 – the next iteration of Work has been catching steam for a while, and DAOs can be the biggest contributors to the ‘creator economy.’ They challenge centralized structures and bring together developers, artists, investors, and other stakeholders under a single roof. Also, developers and artists can monetize their work and data by tokenizing it into fractional tokens, which can be traded for other tokens. Coinvise is a web3 platform that provides tools for creating tokens for the members. BAYC and Friends with Benefits DAO are other examples.
DAOs can also contribute to decentralized funding for both for-profit and non-profit initiatives. They are the next logical extension of capital formation in the decentralized interface of web3. Defi is the future, and DAOs are best suited to lend Defi utilities to their members. DAOs are also serving non-profit and charitable initiatives via crowdfunding and decentralized governance. Some examples include Save the Children Organization, Charity DAO, Endaoment, Code Green, etc.
While DAOs are yet to spark a revolution, these mini to macro-level internet organizations can rebuild businesses and transform work like never before.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn’t represent any investment advice or WazirX’s official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.