DAOs: Social networks that can rewire the world(dec 22, 2021)



What is a DAO?

Simply put, DAOs are software enabled organizations. They allow people to pool resources toward a common goal and share in value creation when those goals are achieved.


Protocol DAOs

Ethereum led to an explosion of new crypto assets. From there, developers created protocols that let people trade and lend these new assets (like Uniswap, Compound, and Aave). 


However these protocols were intended to be decentralized, which created a need to figure out how to govern their growth and evolution.


Investment / Collector DAOs

The second largest category is investment and collector DAOs. These let people pool capital with the aim of investing in specific assets.


 They range from venture investments in things like DeFi protocols or NFTs, to increasingly ambitious efforts like buying rare historic documents or even professional sports franchises.



Social DAOs

Social DAOs intend to bring like minded people together in online communities, coordinated around a token. The leading example is Friends With Benefits and its $FWB token.


 To join, members must submit an application and acquire 75 FWB tokens. Entry comes with access to a community full of prominent crypto builders, artists, and creatives as well as exclusive events.



Service DAOs

Service DAOs look like online talent agencies that bring strangers together from all over the world to build products and services. 


Perspective clients can issue bounties for specific tasks and once completed, pay the DAO treasury a portion of the fees before rewarding individual contributors.


 Contributors also typically receive governance tokens that convey ownership in the DAO.


Media DAOs

Media DAOs aim to reinvent how both content producers and consumers engage with media. 


Rather than rely on advertising based revenue models, these DAOs use token incentives to reward producers and consumers for their time with an ownership stake in a given outlet.



Grants/Philanthropy DAOs

Grant and philosophy DAOs, similar to investment DAOs, pool capital and deploy it to various endeavors. 


The only difference is that allocations are made without the expectation of a financial return.



The hurdles for DAOs

As this increasingly diverse landscape shows, DAOs can become the organizational primitive of Web3, reinventing how we govern, invest, work, create, and donate. 


Expect to see the categories, number, and quality of DAOs evolve dramatically in the future.



  • Lack of efficient coordination mechanisms
  • Lack of infrastructure
  • Smart contract, fragmentation, & sustainability risks

Lack of Legal/Regulatory Clarity

Corporations have always been rooted in a specific place, with their right to exist bestowed first by monarchs, and eventually by cities and states. Those same municipalities have always set the rules that corporations in their jurisdiction must abide by. 



Given that DAOs don’t exist in any one place and don’t operate like corporations, they don’t fit cleanly into existing regulatory frameworks.


Lack of efficient coordination mechanisms

There’s a reason corporations and governments don’t have every employee or citizen weigh in on every decision — it’s a highly inefficient way of getting things done and not everyone is qualified to do so.



Lack of developed infrastructure

Just as corporations enjoy clear legal frameworks and efficient decision making processes, they also benefit from highly developed infrastructure on which to operate. 


DAOs on the other hand, are tasked with building most of that same infrastructure from scratch.



Smart contract, fragmentation, & sustainability risk

It’s hard to discuss DAOs without referencing “The DAO:” The first ever DAO on Ethereum, designed around venture investing in 2015, that had 40% of its treasury hacked and drained of $60 million. As the recent $130 million exploit of BadgerDAO showcased, DAO treasuries remain vulnerable to smart contract risk.





Re-wiring the world with DAOs

While obstacles abound, DAOs represent a paradigm shift in economic organization. 


If Web3 is to become an internet collectively owned by its users, DAOs will be the organizational primitive in which that ownership is metered out.





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