The DAO Ecosystem- Organizations for the Internet Age

On the internet, things move fast. Now that information and content can reach around the globe almost instantly, some businesses are beginning to move their entire operations into cyberspace. And yet, the speed at which these businesses actually operate is….lagging?  

Many organizations are still slowed down by bottlenecks that could be a thing of the past. LLC formation, hiring, onboarding, operational decision making, asset management — these are all necessary, yet time consuming aspects of any modern operation. Throw in the use of outdated tech, à la wire transfers and fax machines, and you have a business that is shooting itself in both feet. If time is money, today’s corporations are shoveling funds into the furnace. 

Excuse the meme, but, DAOs fix this. At least, they have the potential to. 

A DAO, or decentralized autonomous organization, is a self governing, internet-native community with a shared bank account. Actually, that community is making decisions on the blockchain, and that bank account is a cryptocurrency treasury locked into a smart contract. If that last sentence made no sense to you, take a little step back and read our Intro to DAOs article before jumping into this one. If you know exactly what’s going on here and are tired of this preamble, then let’s dive into the rapidly growing ecosystem of DAOs.

Let’s take it from the top. The original vision for DAOs came from The DAO, a first of its kind organization that allowed anyone to join by adding some ETH into a joint treasury. In exchange for these funds, members received DAO tokens, which were used to vote on business decisions. Namely, members voted on where to allocate the treasury’s funds.

The idea was simple - let anyone join, but ensure they had skin in the game by requiring an initial investment. With their own funds on the line, and decision making power in their own hands, The DAO’s members were its investors, owners, and employees. 

Now, as we know, The DAO was hacked, preventing them from doing much of anything with all that ETH they pooled together. But this was the result of an oversight in their smart contract's code, not an issue with the structure of The DAO itself. Today, plenty of spiritual successors to The DAO live on, including Moloch DAO and MetaCartel, as well as grant programs from protocols like Aave and Compound.  

At the ground level, grant and investment DAOs provide funding for projects and creators. These projects aim to contribute to the blockchain network and its community, improve a specific protocol or application, or anything else that aligns with the DAO’s goals. While a majority of DAO grants and investments go to internet-native projects, DAOs could just as easily fund projects and startups in other industries. 

These DAOs bring the ideas of venture capital into the modern age, allowing investors to quickly and easily organize themselves and their capital.

Instead of funding someone else’s project, what if a DAO came together to support a project of their own? This gives us protocol DAOs. In true decentralized fashion, even the applications being built on Web3 are slicing up their own value and power to share with the community.

Protocol DAOs share some basic mechanics with investment DAOs - they issue tokens to their members, and those members receive governance rights. But a protocol DAOs' tokens are different — they have economic value outside of the DAO.

Protocols and decentralized applications, or dapps, such as Uniswap, Maker, and Audius, all utilize tokens that can be traded on secondary markets. By offering a piece of the pie to anyone who wants to contribute, protocol DAOs lower the bar to entry for investors. Now, anybody with a few bucks can buy a small stake in a protocol, participate in its governance, and share in its upside. 

Many protocols even make it possible for individuals to earn some of their native tokens simply by being users. By directly rewarding users and allowing them to steer the ship, protocols are able to turn their user bases into incentive-aligned, supportive communities. 

To see firsthand just how powerful this organizational structure can be, look no further than this list of protocol DAOs and their market caps. There are tens of billions of dollars being managed by these DAOs as we speak.

Few scenarios illustrate the speed at which DAOs can organize themselves better than the formation of the first collector DAO - PleasrDAO. 

PleasrDAO is an art collection DAO that began taking form on March 25, 2021. On that day, the to-be DAO’s founder, Leighton Cusack, sent out a tweet asking if anyone was interested in purchasing an NFT by digital artist/absolute legend, pplpleasr. By March 26 (yes, just one day later) Cusack and a handful of others managed to organize themselves, pool together hundreds of ETH, and win a bidding war for pplpleasr’s animation, x*y=k. The final price was 310 ETH, which was worth about $525,000 at the time. This ability to quickly organize around a very specific cause is a testament to the power of blockchain and decentralized organizations.

Cusack and the others involved in this purchase went on to form PleasrDAO, and the group continues to collect high quality artwork for even higher price tags. Other collector DAOs like Museum Of Crypto Art and FlamingoDAO also have similar missions, with the former even creating virtual art galleries which can be viewed in Somnium Space and Decentraland. 

By pooling together the funds of large groups of individuals to bid on artwork, collector DAOs are creating digital treasure troves. Some of these DAOs are fractionalizing the ownership of their collections, creating fungible tokens which give their buyers a small stake in them. Thanks to DAOs like these, ownership of high-end artwork is being made available to the masses. 

The Web3 world is built on community. At the end of the day, dapps, tokens, and blockchains themselves all rely on large networks of individuals working to achieve a unified goal. In the DAO space, this sentiment expresses itself in countless ways.

DAOs such as Seed Club and Friends With Benefits exist exclusively to bring people together. These communities are less focused on investments and financial gains, and more focused on sharing knowledge and ideas. DAO members congregate on platforms like Discord to collaborate and converse. 

Similar to other DAOs, some of these communities require members to buy their DAO token to gain access. With this membership comes governance rights, as well as the support and resources of the DAO, the wisdom of its members, and even access to IRL events. By requiring a buy-in, community DAOs separate themselves from open forums and social media communities, ensuring that everyone involved has a real incentive to contribute to the community. People want to join these communities because of their people - not their treasuries.

Content creation on Web3 looks vastly different than it does on the traditional web. And that’s a good thing. Instead of content being effectively owned and monetized by platforms, with a small piece going back to the actual creators, Web3 allows content creators of all types to truly own their work. This is enabling new forms of creation and new ways for creators to work together. We are now seeing internet-native creative groups taking shape - digital content creating coops, if you will. 

Creator DAOs such as BanklessDAO and Forefront are rethinking the structures of today’s media companies and news outlets. As you may have guessed, these communities all have their own tokens which they use to pay their contributors. These contributors — writers, photographers, graphic designers, video producers, marketers, and the like — all build together, adding value to the tokens they hold. At first, these tokens aren’t worth much to the outside world. But through their collaborative work, creator DAOs aim to turn these tokens into pieces of large, valuable bodies of work. 

When you smush together some of these ideas, like token-gated communities and digital co-ops, you get groups like Bored Ape Yacht Club. BAYC is...well it’s actually a collection of 10,000 NFT avatars. But there’s a little more to it than that — each Bored Ape actually comes with its own IP rights. 

What is the potential here? 

Bored Ape owners can create derivative works and products based on their avatars. This effectively makes BAYC a decentralized brand, with many individuals creating value and awareness through their own contributions, adding to the collective value of the Bored Ape Yacht Club brand.

This same idea can be applied to other NFT-based projects to turn passionate communities into decentralized content machines. Your NFT avatar acts as your buy-in fee, your financial stake, and your creative platform.    

The range of DAOs covered here is likely a very small percentage of the DAOs that we’ll be seeing in the not-so-distant future. Newcomers like PartyDAO, PaperclipDAO, and VitaDAO are all forging new paths for DAOs and discovering just how widespread their use cases are. 

Sure, there are still some kinks to be worked out, such as coin-voting governance and the legal standing of DAOs, but they are already proving to be reliable organizational structures with loads of promise. DAOs are removing intermediaries and allowing individuals to pool their knowledge, resources, and unfettered energy to put towards causes they are truly passionate about. Combine that with the transparency of blockchain and the efficiency of smart contracts, and there's no telling how high this ceiling goes.