Updated: Dec 9, 2021
Things certainly look that way for DAOs (Decentralised Autonomous Organisations) when we look at the flurry of activity in that space in 2021. Whilst they have been around since the famous "The DAO" launched in 2016, it's taken a few more years for them to become part of the collective crypto investors psyche. By the way, 2022 in Chinese Zodiac is the year of the Tiger.
Back to DAOs and famous ones right now include Augur (prediction markets), YGG (a gaming guild), UniSwap (used for exchanging cryptocurrencies) and more. Typically, they've been though of as participants/building blocks in the new world of DeFi (and DeFi 2.0) bringing forth the future of finance. Whilst they've mostly been about moving away from traditional/centralised finance, there have been some interesting developments that could open up a pandoras box of ideas in this space.
What has been exciting in recent weeks/months towards the end of 2021, has been the types of DAOs we're seeing formed which have been nothing short of, creative and insightful.
First up, it's the US Constitution. ConstitutionDAO was created to pool together enough money to buy a copy of the original US constitution. Although they failed (beat out by hedge fund billionaire Ken Griffin of Citadel), they did showcase the lofty purchases that are possible to attain by the masses. Read this article from Bloomberg for more details.
Next we see ownership of an NBA team being the goal for The Krause House (highlighted in our Chain Reaction - Issue 2 newsletter), a DAO focused on owning and operating an NBA team. The average NBA team costs $2.2 billion so they have a way to go.
Another interesting example was SeaWorld DAO which aims to reclaim SeaWorld in Orlando, Florida on behalf of the world's orca community. It does not have a big following (probably since the movie Free Willy came out in the 90's).
Finally, we highlight PleasrDAO which bought a copy of "Once Upon a Time in Shaolin", an album which was the only one of its kind by legendary hip-hop group Wu-Tang Clan. The album was owned by disgraced investor and pharmaceutical company CEO, Martin Shkreli and seized by the US Government. PleasrDAO then bought it for $4m. More details in this Pitchfork article.
With ambitious ideas like these it's not hard to imagine that we'll see more amazing and perhaps even loftier goals from DAOs into the new year. All that said, DAOs do come with areas that are being figured out in real-time.
DAO liquidity - a see saw of events.
DAOs are not without their rough spots however, with one of the key selling points for them (their decentralised networks) also proving to be a weakness. When UniSwap saw its liquidity siphoned off by SushiSwap (see Vampire Attacks and Sushi) it highlighted that offering better yield could be a successful way of enticing investors to move their liquidity to different protocols.
On the other hand, protection mechanisms put in place by DAOs to lock up value and help them keep more of their liquidity have seen them become more centralised than their decentralised taglines.
Governance - an evolving soluition
Another area to consider is governance and how best this works. A 1 for 1 governance token equalling voting right may seem equal but that does mean richer investors see more influence (something we see in the real world already).
An option to combat this inequality has been to consider quadratic voting. This was proposed by Ethereum founder Vitalik Buterin (although the concept has been around for a while) and his paper on this (Quadratic) highlights Quadratic Voting (along with Quadratic Funding and Quadratic Attention payments). Basically, quadratic voting incentivises users to put more funds behind issues they care about. This has been proven in real world use cases in Germany, Taiwan and the US but also comes with criticisms.
ConstitutionDAO also highlighted what can happen when a DAO gets popular quickly. They missed out on their goal and proved quite popular by drawing in over $40m in funding. There has been some chaos in refunding investors or shifting them to new tokens (from $PEOPLE to $WTP - We the People) and even seeing bad UX on their website leading investors to convert tokens back to ETH when they stil wanted to participate in the new venture. It's certainly a lesson in what to watch out for if you're an investor and what to do better if your'e a DAO that gets hot very quickly (read more here in this Vice article).
So, what next for DAOs?
What comes next? That's the big question facing DAO creators, investors and regulators. In Australia, there has been recent news of Treasury looking into consultations on DAO regulation (see AFR article) and back in October in this ABC article, CEO of BTC Markets, Caroline Bowler said BTC said that the recognition of DAOs would be an industry game-changer.
What seems certain here is that the floodgates are opening up even more and that as DAOs continue to improve, we will see more ambitious purchases become a reality in 2022. Bring it on, eye of the tiger, eye of the DAO.
Here's a couple of interesting links on DAOs and regulation if you're keen on further reading: