Read the DAO: 11 questions to help newcomers catch the falling “DAO”

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2022-05-16 14:47:27

Uses of DAO: investment, management, purchase and sale

1. OK, let’s start gently. What is DAO?

KNIFE stands for Decentralized Autonomous Organization.

2. It sounds too complicated. What does it mean?

The DAO is a new type of organizational structure, built with blockchain technology. It is often described as a kind of cryptocurrency cooperation (co-op). (Or “a flashy finance-related crowd” or “a group chat with a bank account”).

In its most basic sense, DAOs are groups formed for a common purpose, like investing in startups, managing a stablecoin, or buying a bunch of coins. NFT. ConsenSys, a blockchain organization, defines the DAO as “the regulatory body that oversees the allocation of resources and ensures the long-term success of the projects it supports.”

Once established, a DAO is run by its members, usually through the use of cryptocurrency tokens. These tokens often come with certain rights, such as the right to manage the shared treasury or to vote on certain decisions.

3. It sounds vague. Can you give me an example?

Sure then. The most famous DAO is probably CharterDAO – a group of thousands of crypto fans. In about a week, they raised more than $45 million to auction off a rare copy of the US Constitution being auctioned off by Sotheby’s. But since the group fell apart after losing (and got mired in controversy over how to return investors’ money), this is probably not the best example.

A better example might be PleasrDAO – a group of dozens of crypto artists, entrepreneurs and investors – set up to auction the work of famous digital artists.

The group spent $5.4 million on an NFT tied to Edward Snowden – who caused a stir when he suddenly revealed many classified information and documents related to US global spying programs. PleasrDAO also purchased the Wu-Tang Clan album “Once Upon a Time in Shaolin” for $4 million.

Once these works are purchased, they become the property of DAO members, and they will manage them as they see fit. They can vote to display them somewhere, or split them up into 1,000 NFTs and sell the pieces to the public, or simply keep them in storage. In the classic DAO model, all of these decisions are made “on-chain,” through a token-based voting system.

Disadvantages of DAO: expensive gas fees, legal troubles

4. Why don’t they use a normal crowdfunding site?

I understand why people want to collect money to buy things. But why does this require an entirely new crypto-based governance structure?

They can do that. And in some cases, using a fundraising platform like Kickstarter can be better for the DAO, as normally using cryptocurrencies to raise large amounts of money can cost users transaction fees. cut throat. For example, when ConstitutionDAO raised $47 million, its users paid about $1.2 million in fees for the Ethereum network.

people
Photo: Allinstation

5. Wow. Does DAO have any other disadvantages?

Some DAOs discovered that decentralized blockchain-based governance is much more complicated than they thought. The first DAO, simply called The DAO, raised more than $150 million to build a type of crowdfunding investment company, but failed due to a series of legal issues, governance and security. Similar problems have plagued other DAOs since then.

DAOs can also get into legal trouble if the regulator decides that the tokens they issue are securities, thus requiring them to go through the same registration process as a company selling stocks or bonds. In 2017, the US Securities and Exchange Commission found that DAO Tokens – the native token of The DAO – were in fact securities and should have been subject to securities laws.

The recent DAO outbreak has also attracted the attention of regulators and law enforcement agencies. They are concerned that some DAOs may be fronts for fraud.

Even some crypto fans argue that DAOs have yet to prove they can do more than allot crypto to projects.

DAO technologists have failed to create compelling technology to solve the problems facing society.,” wrote Grace Rebecca Rachmany, a leadership consultant with the DAO in a 2020 paper.

Advantages of DAO: transparency, democracy, agility

6. So why would anyone choose to join a DAO?

Well, it’s all new and unexplored. DAOs are still – to borrow a favorite phrase among crypto fans – in their infancy, and proponents argue that better, more efficient DAOs will emerge within the next few years.

But if you ask crypto believers, they will tell you that compared to traditionally run institutions, DAOs can do a few things better:

In theory, DAOs could be more transparent than traditional organizations, because key team decisions are made “on-chain,” using governance tokens and votes that appear permanently on the ledger. blockchain.

knife democracy
Photo: Builtin

In theory, DAOs could be more democratic than traditional organizations because all participants can vote on group decisions, not just the board of directors or executives.

In theory, DAOs can be more agile than traditional companies. As they are often project-specific projects that you can get up and running quickly with less cost than forming a traditional startup.

7. Why do you use the phrase “in theory” so much?

Because there are not many DAO success stories and most of the aforementioned benefits are still unproven. Some people suspect the DAO’s inability to make complex business decisions, others argue that they resemble pyramids.

In fact, some DAOs are said to be rug pull – like AnubisDAO, a DeFi project that chooses dogs as themes. The founder of this project is accused of stealing $60 million from investors.

rug pull
Photo: Cointelegraph

Also, a leaderless company structure doesn’t really work outside of crypto. And today most successful DAOs are called “protocol DAOs” – that is, they are designed to manage infrastructure projects for cryptocurrencies themselves. We don’t really know how the DAO model would work if applied to a typical non-crypto business.

Why should I care about DAOs?

8. Why should I care about DAOs?

If I am not a blockchain engineer or a cryptocurrency investor but just an ordinary person with an ordinary job, living an ordinary life. Why should I care about DAOs?

Right now, people don’t come across DAOs on a daily basis. But I think we should know what problems technologists are trying to solve. A lot of technologists who have received large grants are looking to turn all kinds of organizations – including those you’re a member of or are extremely interested in – into DAOs.

Some even predict the DAO could become a force in politics, facilitating the development of a sort of loose, unregulated crypto-political action committee. And this committee can carry out campaigns and lobbying with the money and support of the organization.

In its most basic form, a DAO is a new way for a group of people to manage large sums of money and organize resources for a project – whether it’s “buying” a constitution, building a new social network, or influencing an election. It’s a big idea, revolutionary and not superfluous when we keep an eye on its formation.

9. What are the most exciting applications of the DAO right now?

Cryptocurrency lovers are starting to experiment with “social DAOs” – a kind of community-owned social club where you have to pay to join (in the form of a token purchase).

The best known social DAO is Friends With Benefits with thousands of members. Recently, the organization raised 10 million USD from investors including venture capital firm Andreessen Horowitz.

Friends With Benefits is compared to a “Decentralized Soho House” and it functions like an online country club. To participate, members must purchase a certain amount of $FWB tokens. (Currently, a full membership costs 75 $FWB tokens, which is about $4,000.)

fwb club
Photo: Emamo

Participants will be invited to a Discord chat room, where members chat about cryptocurrencies, trading leads, and investment tips, and hold meetings to talk about the group’s future plans. The team organizes members-only parties at major crypto conferences and members hold meetups where they live.

10. An exclusive club that you have to pay $4,000 to join sounds like the opposite of that idea?

Wait. I think crypto is a level playing field where power becomes decentralized.

Alex Zhang – one of the leaders of Friends With Benefits answered this question as follows:

In most cases, especially with FWB, the initial token price is quite low and it increases as the value of a member increases over time. Therefore, it is important to remember that tokens are an asset, instead of the recurring fees you pay to join other types of social organizations, you are now buying tokens. At any time if necessary one can sell their tokens.

However, it is important that the DAO continue to create opportunities for new members who cannot afford to buy tokens. For example, we pay FWB tokens to content creators, managers, designers, event volunteers, and other roles that benefit our mission. We allow these contributors to have an ownership stake in the community.

Conclusion – DAO: new collective ownership model

11. If DAOs are so useless, why are investors funding them, and why is everyone involved?

If so, it sounds like the DAO can get messy and complicated. And some are outright scams, and even with DAOs doing something interesting, it costs money to join. So… what’s the good part of it?

Like any other crypto project, the DAO attracts people for all sorts of reasons: speculative gambling, trending and the belief in a new kind of cutting-edge organizational structure.

A common topic of interest to more serious DAO advocates is collective ownership. Like those who believe web3advocates of the DAO believe that with the next phase of the internet, we need a completely different model of ownership.

They argue that DAOs can allow us to build a new set of organizations and platforms that are user-owned, and managed fairly and transparently.

landscape knife

For example, you might have a DAO-managed social network where users can vote to take down some offensive posts or give tokens to people who post lots of valuable content. Or the DAO-ified version of Amazon Web Services acts as a co-op, in which members build new features and keep the network running.

Chris Dixon, venture capitalist and crypto investor, argues that the DAO “can help the internet regain its original, idealistic vision: power and money pushed to the edge, networks grow and flourish together, a level playing field for talented people everywhere in the world. world, a thriving creative middle class and a place that is generally diverse and exciting“.

But, of course, it can also turn out to be a costly mess – as DAOs face challenges related to drawing people towards a common goal, inside or outside the field. electronic money.

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