Understanding crypto DAOs and their potential for the future
In today’s article I'm going to zoom out and discuss not only where I feel the crypto space is going but on practical ways you can get involved as well. In recent articles I have touched on the area of NFTs which dovetails nicely into todays subject of crypto DAOs.
First off I want to take you through a mental exercise looking forward into the future on how the NFT landscape can grow from here.
Currently, a few “big” projects (BAYC, CryptoPunks, 1/1 Art) take up almost all the space when it comes to things like market share, news, and major ecosystem developments. This is evident by just looking through the last few weeks of this newsletter.
When it comes to real application though, we are still not even in the first inning of the NFT game. How do we know?
We’re Still Early...
Ask yourself this question: How many traditional industries have been significantly changed by the advent of NFT technology?
The answer, so far in my opinion, is pretty close to zero. Right now, the only one I can think of is digital art (we’ve still yet to see any major changes to the traditional art world — things like certificates of authenticity via NFTs, etc.).
That’s not to say NFTs aren’t knocking on the door… although many have been saying it for a long time now, the intersection between NFTs and video games (both play-to-earn and traditional) is heating up like never before.
At the risk of sounding like a broken record, the point really is this — we’re still early.
When it comes to NFTs, we’ve discussed a lot about how the education you’re giving yourself and the research you’re doing may well be the best investment possible. But when it comes down to the bottom line, I get that you want to start putting some skin in the game with real hard cash (or ETH 😉).
There are usually a few reasons why somebody in this position will not have invested any money into NFTs up to this point (and is reluctant or struggling to make the jump).
1. High Barriers to Entry
NFT prices, particularly when they’re priced in ETH terms (as most of them are), can be very expensive for one person to burden on their own. It takes somewhat of a nest egg to buy into some of the projects that already have momentum.
2. Support System
As a result of NFTs being foreign to so many people and having a mixed reputation to those who don’t know much about them, oftentimes our journey can be a little lonesome. This is simply because there aren’t very many people around us who can help. To some, this can be daunting because it makes them doubt themselves: “Why isn’t anybody else I know doing this? Will I look foolish in front of my family and friends? It’s easier and safer if I just don’t invest in NFTs, that way I know for sure that I won’t lose any money.”
This is the self-talk I hear a lot of when I ask people about their particular NFT experiences, and it can be a real problem.
If you find your own position in NFTs somewhere along these lines, I’d like to present to you a potential solution today. It’s something we’ve addressed before, but I think it’s important enough to go into a little more detail.
Consider starting a DAO (a decentralized autonomous organization).
What is a DAO?
Think of a DAO like a group wallet where everybody gets to vote on how the money is used. Further, everybody gets a proportional vote equal to the amount they’ve staked in the pool.
For example, if 3 friends and I started a DAO, and the total of the treasury amounted to $100, and I contributed $50, I get a 50% say of where the money goes.
DAOs are more than just group wallets though. Overarchingly, they're the latest and greatest way of how to structure an organization. Any organization can be turned into a DAO.
In the name of decentralization, let’s imagine that a new decentralized social media platform was born. A platform owned by its users.
How would any changes be made without a CEO or traditional hierarchy of decision making?
A DAO could be used to allocate tokens to the users of the platform (perhaps based on activity, contributions to the platform, etc.), or alternatively, anybody could buy these tokens off the open market and participate in the voting procedures.
If the users believed a change needed to be made, anybody could propose the change (this happens through DAO toolers such as Snapshot Labs), and it would be voted on by all token holders. The kicker — all of this is automated through blockchain technology.
Where is the tie-back to NFTs?
You may have already connected the dots, but you can use DAOs to solve the NFT investing problems we talked about above.
Are NFTs too expensive? Create a DAO with friends and pool your money.
Worried about taking the NFT plunge by yourself? Create a DAO with friends and do it together.
Before just recently, though, you may have looked at me and asked how to actually create a DAO? After all, we are dealing with smart contracts on the blockchain here.
If you didn’t personally know a programmer, you would’ve been out of luck. That is until Syndicate DAO came out with their very own (extremely simple) DAO builder.
Now, anybody can create an investment DAO through Syndicate with a few clicks. Syndicate even includes a legal wrapper for the DAO, so you don’t have to worry about compliance issues.
I think Syndicate’s DAO builder and the greater accessibility to DAOs in general are important for a few reasons.
Firstly, by creating an efficient solution for pooling money with others and investing in assets, DAOs unlock a new level of economic activity in the asset classes they are involved in, because barriers to entry decrease by orders of magnitude.
The benefit isn’t just to the asset though, as we just stated, this democratizes access for market participants like rarely before.
Let’s try and go full circle and connect a lot of what we’ve been talking about today.
At the start, we discussed how NFTs are yet to really crack the mold of any existing markets, and why that suggests we’re still early in the lifetime of the technology.
Well, what better time to start a DAO then?
It would also be remiss of me to suggest that the only benefits of a DAO are for combining money with your friends — although a DAO may operate as a typical investment DAO, that doesn’t mean it can’t also be other things.
One idea I’ve had for a while to illustrate what I’m getting at here is women in crypto. We simply don’t have enough right now. For many reasons, crypto is dominated by men, and in a field that is supposed to be the new beginning of the traditional world, this simply isn’t acceptable. What I’d love to see is an investment DAO created where all members are female, and, as part of their brand, they aim to promote female involvement in the space.
This is just one example of the power a DAO can hold, particularly during these days where there simply aren’t that many in existence.
Aside from being awesome investment vehicles and having the potential to represent or promote a greater message, DAOs can also be awesome Web3 coordination tools. What I mean by this is that cryptocurrency as a sector might be the vastest in the world (or at the very least the fastest moving), and what this means is that nobody has time to keep up with all its moving parts at once.
A DAO gives you the opportunity to divide and conquer — curate a group that is well-balanced between their focus in Web3 and you can build a powerful community of people who keep each other knowledgeable and informed.
With DAOs, (maybe not yet due to investment-club laws that restrict you to 100 members, but I’m not ruling it out for the future), we’ll one day have thousands of people coordinating hundreds of millions of dollars in investments in the same ways major institutions operate today.
We’ll likely see some DAOs purposed entirely for the purchase of 1 or 2 high-priced assets such as Bored Apes or CryptoPunks. As we said earlier, the mere amount of new capital that will flow to these assets as a result of DAOs may be unlike anything we’ve ever seen before.
As time goes on, the ratio of individual investors to DAOs will decrease dramatically.
If you want to be an early adopter, look no further than the potential of a DAO.
Become one of the first investment DAOs in the world. Who knows where you can be in 5, 10, 20, or 50 years if you start today. Will you take the plunge?