- Developer Collectives
- Worker Collectives
- Art Collectives
- Community Collectives
- Metaverses / Virtual Worlds
- Asset Management
- Venture Capital
- Trust Funds
- Company / Project Fundraising
- Fan Ownership
- Media / Entertainment
It’s difficult to understand just how revolutionary Decentralized Autonomous Organizations (DAOs) are unless you’ve attempted to navigate financial regulation, set up a payroll or establish a charity. The latter can take years and involve recruiting trustees, choosing an organizational structure, writing a governing document and getting approval from the national Charity Commission with supporting documents and proof of income. In contrast, a fully-operational Aragon DAO with a transparent treasury and direct democracy of all members is a sovereign digital jurisdiction, which can be funding projects within 5 minutes. DAOs are not government-subsidized like charities, but what might be added by subsidies can be subtracted multiple times over in time and administration costs. As society grasps just how easy it is to self-organize in this way, we will see a Cambrian explosion of activity that will do for organizations what the internet did for communication.
The history of DAOs began inauspiciously in 2016 when Slock.it launched ‘TheDAO’ on Ethereum as a way to coordinate investment in, and governance of, a treasury of $theDAO tokens. By the end of the 4-week sale, $150m worth of $ETH had been deposited in exchange for 1.2bn tokens, priced at 0.01 $ETH each. With hindsight, this was an unbearable weight to be placed on such young shoulders: Solidity - the language that TheDAO smart contract was written in - was only a few months old and lacked the documentation and battle-testing needed to be production-ready. On June 17, 2016, attackers used a recursive call to execute a ‘re-entrancy exploit ’ and drained 30% of the treasury funds. In the aftermath, the Ethereum community decided to fork the blockchain from block 1,920,000 - a point prior to the hack - and learn from the experience.
5 years on from TheDAO hack, Solidity has accrued decades of developer time and is used in millions of smart contracts to manage over $100bn in funds. At a protocol level, the sophistication of the space already exceeds traditional finance in the sense that certain operations such as flash loans have no comparable analogue outside of Decentralized Finance (DeFi). DAOs are also superior in application, being customizable to all flavors of governance and voting. Any isomorphism between them is more likely to be driven by normative factors such as proven best practice to attract liquidity and capital, rather than any legal impositions or technological restrictions.
That said, DAOs are still very early on the adoption curve - equivalent to 56k dial-up modems on the internet timeline. This is not just because of how generally alien crypto can be, nor the complexity of choosing a DAO framework - which can be considerable - but in large part because of how legally uncertain the space is. At present, jurisdictions such as Wyoming do permit DAOs to be registered as LLCs but founders still risk the ire of securities laws if they promote a token to unaccredited investors. In theory though, any DAO that manages to fully decentralize all decisions to token holders would hold the same status as Bitcoin or Ethereum: not currently counted as securities by the SEC because of a lack of substantive control by any one person or company. Apart from that (understandable) hesitation on the part of developers to tackle the financial authorities, there are significant technical hurdles to overcome before transactions can be executed entirely collectively and be confidently beyond the scope of securities laws.
Despite these uncertainties, the DAO space is evolving at an incredible pace. This article can only cover a fraction of the projects that exist and even fewer of the novel use cases that are being built out every day. Aragon began as a dream to increase the iteration rate of governance and we can clearly see that happening today.
Developers are schooled in remote collaboration through tools like Github and are the most critical resource for building Web3 infrastructure, so it’s no surprise that developers have been among the first to structure themselves as DAOs.
BadgerDAO is a community dedicated to bringing Bitcoin to DeFi, especially the provision of $BTC collateral. Most Bitcoin bridges into DeFi are centralized, so, without a legal entity, BadgerDAO members have collaborated to fund and build a synthetic instrument called $DIGG, which tracks the price of Bitcoin using an elastic supply to adhere to the peg. They have also built a yield aggregator called $SETT, focused on wrapped $BTC assets. Governance of the DAO, including its treasury, is mediated by the $BADGER token: any vote requires 10% of the outstanding tokens to participate and a 50% quorum after seven days.
Gitcoin is an ecosystem of developers and contributors all collaborating as a DAO to build the decentralized web. Since 2018 they have distributed $22.8m to over 1600 Web3 projects and saw 300% growth in Q1 this year versus the previous quarter. Aragon are currently sponsoring the new dGov category of their Gitcoin Grants Program with 50,000 DAI of match funding over two rounds. The first round, GR10, has already raised $1.1m in community funding from ~300k unique contributions, all ratified by the Gitcoin community through an off-chain vote. Some of the projects funded include research into 'Commitment Voting' by the RMIT Blockchain Innovation Hub and open-source financial and governance tools for low socio-economic communities by The Wellbeing Protocol.
The interface between distributed ledgers and external data is a weakness in the DeFi stack because blockchains are not able to query APIs directly. Instead, they have to rely on third-party notary services called oracles to transit data, with varying degrees of decentralization. To cinch this gap entirely, API3 are building a multi-chain compatible network, governed by an Aragon DAO, to incentivize API operators to serve their own oracles. This is made possible by free and open-source middleware called Airnode that connects any web API directly to any blockchain application.
To join the DAO, Airnode runners can stake $API tokens into API3's insurance contract. This yields weekly staking rewards, pools their operations risk with other DAO members, and grants them voting rights.
Most workers no longer expect to have a job for life and salaried positions are increasingly being replaced by freelance contracts. DAOs can fill the gap that has been left by the eclipsing of traditional unions because the legal and practical obstacles to membership cannot affect decentralized, autonomous organizations. Strategies to combat unfair work practices can be coordinated and funded worldwide, with votes to decide which are optimal.
Before there were unions, there were guilds. The most powerful medieval guilds were so successful that they still exist today as ‘livery companies’ and wield enormous treasuries to protect their members and uphold high standards in their crafts. Raid Guild and dOrg are invoking this ancient tradition of worker collectives in their design and development agencies, focused on Web3. Through shared resources and selective recruitment, they are likewise able to fund common goods and set global standards for work in their field.
Art is now a huge asset class that will only get bigger as yields are driven down in traditional money markets. Attracting more capital has driven the art market to further reduce the friction involved in buying and selling pieces. Now the entire industry is starting to explore how decentralized currencies and organizations can hasten progress. The most high-profile adopters so far have been Christie’s & Sotheby’s auction houses, which have both sold NFTs and offer some crypto payment options. DAOs have the potential to take this trend to its ultimate conclusion by vertically integrating the entire industry stack, from commissioning and curation through to purchase and ownership.
KnownOrigin is an NFT marketplace that tested the concept of an art DAO in 2019 with OsakaDAO. Functioning as a decentralized collective of patrons, they raised $900 in pledges and then, playing the role of a gallery, they sold everything for a 56% profit. 5% of that money went back to the artists (in addition to their original commission fee) and the rest remained with the DAO’s treasury, to be deployed at the members’ discretion.
PleasrDAO began as a Telegram group set up to buy an NFT on Foundation called x*y=k, created by an artist called pplpleasr. The piece eventually sold for 310 ETH ($525,000) and seeded a DAO that now owns some of the most iconic NFTs in crypto.
As the user experience of DAOs improves - and especially if ‘no-code’ solutions emerge - more and more non-developer communities will begin to collaborate and pool their resources as DAOs because of the trust guarantees they afford when dealing with the management of funds. Prior to DAOs, collectives were limited to single jurisdictions if they wanted to avoid currency conversion costs, and expensive legal frameworks if they wanted to avoid fragile informal agreements. Many viable projects would simply fail to launch because of the friction involved. Multiplied the world over, this equates to an enormous waste of potential. Thankfully, that is beginning to change and traditionally under-resourced or under-represented communities are having their voices heard based on merit rather than privilege.
Zebpay - Women's DAO
Research by eToro in 2021 found that women only make up 20% of users on its platform and other companies report similarly low female participation. To help address this disparity, Zebpay have launched a female-led DAO, powered by Aragon. New members are admitted by majority consent and any vote must achieve a 60% consensus to pass. The DAO is currently working on a project to help rural Indian women set up solar panels to mine bitcoins as a route to financial independence and empowerment. Building a permissionless decision-making platform like this helps women to bypass unfair legacy systems and compete on a level playing field for capital and influence.
Community collectives are an area of organization where the structures of DAOs are especially fluid. DisCO is a ‘Distributed Cooperative Organization’ that is distinguishing itself from the dispassionate, transactional nature of many DAOs and using an Open Enterprise Governance Model to coordinate commons-oriented work, rooted in feminist economics. Their social and environmental undertakings resemble public / private partnerships where the nurturing of shared commons is of equal importance with economic production.
Social networks tend to dissipate and lose purpose once they become too popular. For example, after Facebook lost its cred function to Instagram, it quickly turned into a platform for petitions and special interest groups. This tendency to advocate is being catered for by the new generation of Web3 social networks that combine social groups with specific interests and aggregate interest in that area. The result is that social relationships are becoming much more purposeful in nature, based on the unifying mission of each DAO.
The technological integration is also becoming much tighter. To filter out luke-warm members, KarmaDAO uses a token to permit access to its gated Telegram group and FWB (Friends with Benefits) does the same for its Discord Group. Aragon recently partnered with the Witnet decentralized oracle to provide off-chain, ‘optimistic’ voting for DAOs via Discord using only emoji reactions.
Metaverses / Virtual Worlds
At the dawn of the internet, there was Second Life: an online virtual world with its own native currency and real estate. Second Life’s ‘Linden Dollar’ was, in many ways, the conceptual progenitor of cryptocurrencies and now history has come full-circle with Web3’s own virtual worlds.
Decentraland claims to be the first fully decentralized metaverse, having thrown away the private key to its founding smart contract. The rest of the extant smart contracts are controlled via the DAO, as well as Decentraland’s assets. $MANA is Decentraland’s native governance and token holders may vote on security council members, development grants, LAND & estate policy, questions such as what kinds of wearable items are allowed in Decentraland and the moderation of content.
Asset management is perhaps the most crypto-native use case for DAOs: it also promises the biggest capital allocation. The efficiencies that are captured by DeFi’s low friction architecture translate into relatively high interest rates for stakeholders and investors who want to earn a yield on their capital. Once Ethereum switches to proof-of-stake at the end of 2021, the network as a whole will become much more economically efficient, no longer having to fund proof-of-work mining and a hardware arms race, so one would expect its relative yield to improve even further. Indeed, staked Ethereum is likely to converge to a DeFi ‘base rate’ for the entire crypto economy as Marginal Revenue approaches Marginal Cost.
In theory, decisions about where to allocate funds can be made far more intelligently by a DAO because of the collective intelligence and ‘wisdom of crowds’ that emerges when aggregating the experience and insights of multiple independent agents.
Another key point about DAOs from an asset management perspective is their transparency in the use of funds. Using a DAO allows for all stakeholders to track spending and for the DAO to be accountable. This can be seen in the use of the Aragon Association’s Budget DAO, which is used for day-to-day transactions to provide visibility in the use of funds for all stakeholders.
CEO at Social Capital and Chairman of Virgin Galactic, Chamath Palihapitiya, called the Reddit group r/WallStreetBets “the largest hedge fund in the world” after members of the group, having worked out that short interest in NYSE: GME was bigger than the outstanding float of the stock, bid the price up from ~$18 to ~$340, forcing professional outfits to cover their shorts.
DecentralizeWSB is a nascent attempt to structure the r/WallStreetBets movement into a DAO where investment strategies can be voted on and executed. So far, around 20,000 signatories have registered their interest.
PieDAO provides crypto asset management in the form of index trackers and yield-bearing ‘PieVaults’. The composition of vaults is entirely governed by the decisions of $DOUGH holders, who also earn a portion of the fees generated by the platform. PieDAO also introduces the concept of ‘meta-governance’, whereby any governance token held in a PieVault will be automatically delegated to PieDAO, giving $DOUGH holders conferred rights to vote in that protocol’s governance decisions. This is the equivalent of individual ETF holders being able to vote on its composition plus the internal decisions of its underlying securities.
DAOs are predominantly grass-roots disruptors but recent activity is showing that they can achieve Redwood proportions very quickly. BitDAO recently raised an enormous $230m from investors such as Peter Thiel, Pantera Capital and Dragonfly Capital. $BitDAO token holders will vote on where to invest the funds, making it one of the largest DAOs in the world in terms of assets under management.
The advantages of asset management under a DAO structure also apply to venture funding.
Closely resembling a small family office, AngelDAO consists of four founders with equal voting rights who pool their skills to identify and manage investment opportunities within distributed systems and decentralized finance. Because their administrative burden is limited to the DAO and their own personal finances, the founders have more time to contribute to the projects they invest in with technical, marketing and community support.
VentureDAO is a sub-DAO of the MetaCartel ecosystem that distinguishes itself from traditional VC firms by offering relatively small funding rounds to crypto-native projects, but with a lot of additional support to build strong user communities. At present, VentureDAO straddles the crypto and VC worlds by wrapping its Ethereum smart contracts in a Delaware LLC, which does restrict its ability to admit new members permissionlessly. Instead, membership is curated with the ability to unilaterally ‘ragequit’ with one’s full share of the DAO’s assets at any time. So far, they have raised pre-seed, seed and series-A rounds for 20 projects, including Rarible, Zapper and PoolTogether.
DuckDAO are going further by building out an entire ecosystem of yield farming, staking and NFTs around their incubator service and leveraging the resources of their ~25,000 members to support ~50 investments.
At root, DAOs are about pooling risks and rewards and leveraging the stability that arises with such economies of scale. No industry understands this better than insurance so it is natural to expect that companies that manage risk will start to explore how DAOs can cushion their exposure.
UnoRe is partnering with Aragon to develop a reputation-based DAO to manage a system of reinsurance, whereby insurers cede portions of their risk portfolios to other parties to reduce the likelihood of having to pay a large obligation resulting from a claim. Reinsurance is a vast asset class but has historically been very hard to access for anyone other than the biggest investors.
Uno Re’s wider vision is to create a platform for innovative insurance products, offer retail investors access to risk pools, enable traders to buy and sell risk instruments and eventually create a market for freelance actuaries.
Trust funds have historically only been for those who have the resources to set up and manage complex legal structures. Now though, DAOs can function as virtual trust funds that only require an Ethereum address to get started. Such easy access throws open the doors of finance to younger generations who have not had the same opportunities or instinct to save as older generations. Furthermore, DeFi’s superior yields should help them to reclaim a fairer percentage of society's total investable assets.
Trust funds don’t only pertain to parents who want to set money aside for their children: gamers on Twitch or YouTube stars can have full-fledged careers before they’ve even hit puberty, so kids protecting their own wealth will be an increasingly normalized use of DAOs. The same questions of who to trust with administrator rights will still apply in the virtual world as they do in traditional finance but, should disputes arise, arbitration is far quicker and cheaper on a platform like Aragon Court than any comparable family law case.
Company / Project Fundraising
DAOs satisfy all of the requirements of purposeful organization as identified by EY Ireland: engaged leadership, integrated purpose, clear communication, aligned incentives, empowered employees, established core values, performance indicators, and belief. DAOs can even use KPI options to incentivize performance. Aragon Client already includes a module for raising funds, which takes crowdfunding beyond any geographical or legal barriers, and, with the world converging on a more purposeful economy, this combination of human and technological factors is an especially potent dynamic for raising and deploying capital.
DAOs are especially useful in areas where the current incentive models are actively working against the goals of society. The best example of this is the realm of intellectual property (IP), which is a veritable 'dark forest' of misaligned incentives. Inventive companies can often find themselves challenged by professional 'patent trolls', who register large numbers of patents with the sole intention of enforcing vexatious claims, despite not using the patented technology themselves. Within the pharmaceutical industry, it is a perverse fact that because natural products cannot be patented, researchers are incentivized to focus their energies on creating novel compounds rather than discovering naturally occurring ones. Not only is this grossly inefficient, it also means that rainforests are only valued as lumber, rather than the living apothecaries they ought to be.
VitaDAO is one such decentralized collective focused on longevity research, who are beginning to redraw the pharmaceutical industry's broken incentive structure by democratizing access to, and ownership of, IP.
Human Capital Contracts
In the history of the internet there have been various attempts to tokenize human capital. In 2013 the start-up Upstart allowed students to sell a percentage of their future income in exchange for a capital investment. In crypto, Ben Gravis was the first person to tokenize himself on the Zap protocol and in other projects we have seen a gradual movement towards something that might look like a share index of human potential.
Spencer Dinwiddie, point guard for the Brooklyn Nets, has pioneered the space by being the first athlete to tokenize himself on Ethereum. The NBA ruled that his actual contract could not be transferred to any third parties so, instead, he issued a Professional Athlete Interest Token (PAInT) backed by the assets of a newly created LLC. Only nine of the 90 tokens were sold but his experience laid the foundation for him to create Calaxy: a platform for creators to issue tokens under their own name and find their value on an open market. As the concept matures, we are likely to see a migration away from centralized services towards more liquid, permissionless, markets where anyone can issue their own token, not just athletes and celebrities.
Fan-ownership of sports clubs is already well established and armies of fans are growing more powerful by the day as the recent despatch of the European Super League testifies. Networks of talent scouts across the world could collaborate as DAOs to fund promising players in exchange for a percentage of their future earnings. If fan-owned clubs assumed that responsibility themselves then they could vertically integrate the entire stack of scouts, agents, coaches and managers, all funded and managed from a single DAO - the ultimate 'fantasy league'.
This model will likely extend to all manner of industries: music fans will become record label owners and vote on new protégés, art patrons will host biennales, and theatre company DAOs will vote on new productions.
Freeholder / Co-Living / Nomad Communities
Separate households living in a single building or apartment complex often operate insurance or ‘sinking’ funds to mitigate any joint liabilities. These are often structured quite awkwardly as limited liability companies or trusts that require quarterly reporting and can accrue significant compliance costs. DAOs offer a more collegiate alternative, where funds can be pooled - and even earn interest - while waiting to be used for any contingencies. This functionality could also extend to digital nomad communities such as Permatek, where members will remain for a season before moving on and passing their membership tokens to the next guest.
In their 1999 book, ‘The Sovereign Individual’, Davidson & Rees-Mogg expounded a thesis that the microprocessor would facilitate the transfer of power away from centralized authorities back to individuals. AirBnB epitomized this trend when they empowered property owners to rent out their spaces on short lets via a mobile app. Long-established hotel chains suddenly found themselves competing against a swarm of amateur hoteliers with very low overheads. Power was flowing out from traditional repositories, back into the hands of ordinary people. The next step, beyond even AirBnB, will be DAOs like Dtravel, where every holder of their native $TRVL token can actively participate in the organization’s governance by submitting and voting on proposals put forward by a representative council. Fees are over 50% lower than centralized alternatives and held in a community-governed treasury used to grow the network.
Media / Entertainment
The industry most disrupted by the internet was publishing. Yet, Web3 is proving that there is yet more disruption in the pipeline. Steemit was one of the first projects to use its own token to reward contributors. Satellite went a step further and launched on-chain publishing, where articles and comments are all signed by a wallet to verify the author. Mirror is another platform that now offers collaborative publishing, which sounds like the genesis of an entirely decentralized media organization.
With some US states’ debt/asset ratio at over 400% and civic institutions around the world struggling to cope with limited resources, delegated assemblies and community groups are starting to pick up the slack. This could be anything from a community litter picking group, to neighborhood security, a city balloting initiative or even a nationwide system such as EstoniaDAO. DAOs like this can operate on a one-person / one-vote basis with non-transferrable tokens denoting membership, allowing for the churn of new residents.
On the downside, in ‘The Sovereign Individual’, Davidson & Rees-Mogg warn that the demise of governments is likely to increase the “rewards of violence” in the short term, requiring community solutions for safety and security. On the plus-side, DAOs offer a way to combine the best of individual innovation with collective action where previously, to paraphrase Thomas Piketty, the bipolar confrontations between collectivism and individualism have tended to inhibit progress (to say the least…).
Looking more broadly, DAOs are effectively microcosms of political parties with integrated treasuries and directly accountable civil services. Signaling platforms like Aragon Voice enable decision-makers to prevent damaging policy mistakes by taking quick polls of community sentiment in an efficient, transparent way before significant resources are committed to preparing a consequential vote.
In contrast to legacy politics, DAOs are usually focused on a single vertical and seek to accrue expertise in that area, rather than attempting to manage multiple domains. DAOs are also largely meritocratic, globally diverse and operate far more sophisticated voting systems. They are the petri dishes of governance that Aragon was founded to encourage. Decades of time and gallons of ink have been spent trying to perfect the art of representative assemblies, without much satisfaction. Web3 is a grass-roots movement to opt out of the ideological rat-race and build an entirely new system from scratch. Aloof politics creates apathetic voters, but in DAOs, voters have immediate, tangible results from their engagement. This becomes a virtuous circle, when people witness that their voice is heard, they become more motivated to contribute further.
Which political party will be the first to operate entirely as a DAO? Watch this space.
"Water always wins."
No-one in 1996, drumming their fingers waiting for a 56k modem, could have dreamt of voting from an iPhone in a Costa Rican nomad DAO for a flash loan of a decentralized currency to a yield farm governed on Discord. Yet, here we are, and this composability will only accelerate as DAOs eliminate all remaining technological and legal friction between trustless collaborators.
History is proving once again that bureaucracy, with its information deficit and regulations, will always be out-competed by frictionless alternatives. Plumbers have a saying that “water always wins”, and DAOs are proving that if anyone tries to control the liquidity of ideas, eventually, it’ll burst its banks.
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