When it comes to the distributed ethos of blockchain-based systems, it should come as no surprise that company structuring is also begging to be disrupted. More specifically, we’re seeing a swift rise in the number of DAOs that have been created to tackle a plethora of issues (and opportunities) surrounding the industry today.
At this year’s DevCon 5, many users were quick to highlight the term #yearoftheDAO, symbolizing that 2020 could see the expansion and growth of many of the biggest distributed organizations that have been created so far to date. As it stands today, most DAOs are based on Ethereum and it’s subsequent products and services, however, this structure is by no means restricted to blockchain-based ecosystems.
What is a DAO?
DAO stands for distributed autonomous organization. As the name would imply, this means that rules and decisions related to the underlying project’s future are handled by a large number of individuals from all over the world rather than by a small subset of individuals based in Silicon Valley. Taking this a step further, DAOs replace the notion of hierarchical order by providing mechanisms for each member to have an equal say surrounding governance decisions.
In practice, this structure looks to incentivize community members to participate in important decisions when it comes to the long-term viability of products and services. Most DAOs can either be categorized as not-for-profit or for profit, with the large majority of DAOs today leaning towards the not-for-profit side of the coin.
Most of the DAOs that we’re seeing today are ultimately looking to evangelize and support blockchain systems by issuing grants in the form of digital assets such as ether. In particular, DAOs have become a leader in helping to fund ETH 1.X, along with the upcoming transition to Serenity via ETH 2.0
While the list described below is by no means all encompassing, it should provide a good grasp on some of the more well known DAOs that have been created to date. Take note that each of these DAOs have different missions, rules and structures, but are all focused on the long-term growth and evolution of blockchain and cryptocurrencies as a whole.
Debatably the largest and most established DAO in the space, MakerDAO encompasses both the core team behind Maker (the project that created the Dai stablecoin) along with the community of individuals that participate in governance polls with the governance dashboard. MakerDAO leverages a native token, MKR, which is used to vote on all polls. Similarly, MKR is designed to be the primary value capturing mechanism for system, meaning that those who help shape the ecosystem through holding and voting with MKR tokens are said to see the most upside if the project continues to succeed in the future.
With the upcoming release of Multi-Collateral Dai, community members will play a huge role in determining which assets should be supported as collateral. Similarly, DAO members (otherwise known as MKR holders) will influence and determine the relative risks and implementations of new asset classes such as centralized synthetic assets including tokenized T-bills.
Aragon is unique in the sense that it not only strives to act as a DAO itself but is entirely focused on providing users with the tools they need to create their own DAO(s). In this sense, Aragon can be thought of as an ecosystem of multiple DAO’s all with unique structures and rules that govern a given mission.
“Aragon is software that empowers you to freely organize and collaborate without borders or intermediaries. Create global, bureaucracy-free organizations, companies, and communities.”
More recently, Aragon announced the upcoming release of Aragon Fundraising a dashboard which allows DAOs to take advantage of distributed autonomous initial coin offerings (better known as DAICOs) and to leverage continuous token models or batched bonding curves. In short, Aragon not only provides the tools to create a governance dashboard, it takes this a step further by providing the mechanisms for a DAO to raise funds and handle token issuance in a programmatic, distributed fashion.
As one of the newer projects in the space, Moloch DAO has gained a lot of attention due to its core focus to help fund Ethereum 2.0 development. In a world where the large majority of Ethereum-based fundraising went into the project’s who ICO’ed to build competing solutions, little funding remained for the developers who are vigorously looking to improve Ethereum and it’s underlying infrastructure without trying to exploit a lucrative fundraising loophole.
Enter Moloch, a DAO based on a collection of membership units or shares. A member is anyone who holds any number of shares, which represents voting interests (i.e one share equals one vote). Each member’s voting power is proportional to their percentage of overall shares. Moloch prohibits members from selling or transferring their shares.
Members must be voted into the DAO, meaning that in order to join, you need an existing member to vouch for you. Seeing as shares require skin in the game, the DAO also utilizes a “ragequitting” mechanism in which members have the ability to withdraw their funds for a period of 7 days following the completion of any vote they strongly disagree with.
MetaCartel was created as a fork of MolochDAO, focusing on dApp funding to leverage shared product data and user insight. In this sense, members of MetaCartel *theoretically* receive upside in the form of valuable information gained from any products or companies the DAO has funded.
In practice, MetaCartel has funded a variety of projects including but not limited to Kickback, rDAi, and DAOsaka just to name a few. Interestingly enough, most of the funded projects also leverage a DAO structure in some way shape or form, likely due to the nature that members of the teams were members of MetaCartel themselves.
Unlike other DAO’s, MetaCartel has a minimum buy-in of 10 ETH, a hefty premium for those interested in participating. This minimum was set to ensure that members are committed to the long-term viability of MetaCartel, seeing as a larger initial contribution is much more likely to induce active participation from the community as a whole.
While not inherently marketed as a DAO, Gitcoin is worth mentioning due to the ethos and vision behind the project. Gitcoin is a platform used to source blockchain developers, similar to UpWork but specifically focused on blockchain. As it relates to the DAO concept, Gitcoin recently hosted a program called Gitcoin Grants, a system leveraging the EIP1337 token standard in which all donations were matched using quadratic voting.
For those unfamiliar with the term, Gitcoin weighed donation matching relative to the number of donors to any given project, rather than the overall amount donated. In this sense, Gitcoin was directly empowering community governance, favoring donations that received strong community support over those that received generous donations for a select few donors.
DAO’s Impact on DeFi
For those wondering how DAOs relate to the larger ecosystem of DeFi, its important to recognize that up until now, there has been a strong amount of criticism that DeFi products are far more centralized than they market themselves to be. Without going too deep into this topic, there’s no denying that the large majority of DeFi projects utilize a traditional company structure in an attempt to provide the most compelling product(s) possible.
Seeing as DeFi unlocks the potential for financial services to be automated, it’s highly likely that a new round of DAOs will emerge with a specific interest in DeFi and it’s subsequent products and services. Taking this a step beyond introducing a governance mechanism, a DeFi DAO would allow for members to capture the upside from any products they created or funding through dividends and/or profit sharing. In this sense, it’s interesting to consider how a community-created DeFi product might compete with one that is heavily influenced by venture funding.
As we begin to watch DAOs such as Maker take their next big step forward, it will be interesting to watch if the DAO structure can operate efficiently at scale. As someone who is personally on the lookout for more for-profit DAOs, there’s no doubt that web 3 technology has unlocked an entirely new paradigm for company structuring.
In the coming months, be sure to be on the lookout for a new wave of DAOs all with a unique niche. It’s highly likely that if any DAO gains significant traction, we could see a surge of interest towards creating the next big DAO similar to what we saw with ICOs in 2017.
Cooper is the Editor of DeFi Rate and an active contributor to leading DeFi media outlets like The Defiant, DeFi Pulse, and Bankless. He works with early-stage teams through Fire Eyes DAO to incubate governance models and grassroots community development. He is an ambassador to Set Protocol and an author of a weekly publication called Token Tuesdays. To stay up with Cooper, follow him on Twitter.