DAOfication as a nascent crypto trend

Sergei Khitrov

Entrepreneur, Listing.Help Agency founder and CEO

“What the internet did for communication, DAOs can do for capital.” – according to Coinbase.

The latest trend in the cryptocurrency market is the DAO or Decentralized Autonomous Organization. And the proportion of organizations turning to DAOs is also increasing, showing the trend of DAOfication. The DAO is inspired by one of the main features of cryptocurrencies, decentralization, where no single entity, central bank or government is in control; rather, it is distributed between the network and the nodes.

Likewise, the DAO is an organization run by the rules enforced by a smart contract while owned, controlled and managed collectively by its members without outdated hierarchical structures to exchange value in a trusted environment.

Today, DAOs are used for investing, fundraising, buying digital assets, lending, in media and charity, while removing the need for middlemen. DAOs are typically incentivized by governance tokens, which give holders the right to vote on certain decisions or access to exclusive events.

All that DAOs do

Not confined to a physical location like traditional organizations, these software-enabled organizations allow people to pool resources toward a common goal. When the goals are reached, the participants share the value creation among themselves.

For example, PleasrDAO, a decentralized group of NFT artists and collectors, was formed to buy an NFT of an animated Uniswap ad for $525k. DAO also bought the Ross Ulbricht Genesis Collection for $6.3 million, paid $5.5 million to buy an Edward Snowden NFT, and won the $4 million bid for the only copy of the Wu-Tang Clan album “Once Upon a Time in Shaolin”.

The fact that in DAO the organization is governed by a set of rules built into the computer program that are automatically enforced makes it more efficient and decentralized. In addition, DAOs remove the need for documents and people, and thus not subject to human error, in governance.

However, DAOs are not new. In the cryptocurrency space, many protocols already function in some capacity as DAOs, specifically to vote on the direction of the protocol.

The “DAO” was one of the earliest to launch in 2016, which suffered a hack and lost around $50 million, a third of the group’s capital. Because it contained about 15% of all Ether, an upgrade was issued that resulted in splitting the Ethereum blockchain in half.

Advocates say DAOs can provide more transparency and inclusion, and that these Internet-based organizations could eventually replace the traditional model. Critics, meanwhile, argue that they do nothing new and are often not legal.

Gain traction

These organizational forms began to gain momentum in 2021, and they are even influencing mainstream culture.

As crypto grew to a $1.5 trillion market cap, investor capital has poured in to chase the huge returns. That has led to the formation of several prominent DAOs with varying flavors.

DAOs passed 3.8 million in governance token holders in August, a 130-fold increase from just 13,000 last January, according to DAO data provider DeepDAO.

This growing DAOfication can be seen with centralized crypto exchange ShapeShift announcing its switch to DAO last July and airdropping tokens to its early adopters while NFT marketplace Rarible has merged DAOs and NFTs.

Another crypto exchange Bybit announced BitDAO, which has the world’s largest treasury, with around $2.5 billion invested with the backing of CEO Ben Zhou, PayPal co-founder Peter Thiel and British billionaire hedge fund manager Alan Howard.

The Uniswap DAO has been created by the users of the DEX Uniswap to improve DeFi governance, while the 1inch DAO is the creation of the DEX aggregator itself to give the community “direct control over extended governance mechanisms.”

Even the development team behind the meme coin Shiba Inu (SHIB) has announced the launch of a DAO.

ConstitutionDAO is one of the most interesting, which was created by Julian Weisser in an attempt to buy a copy of the US Constitution to preserve history, but most importantly keep it to the establishment. It raised more than $40 million from 17,000 contributors in less than a week. Despite the failed attempt, its original token PEOPLE hit an all-time high and still has a market cap of $170 million.

FriendsWithBenefitsDAO is another example of a DAO, which is a member-only social club for crypto where buying five tokens gives the holder exclusive access to various community-driven events and 75 tokens gets exclusive access to their primary Discord channel.

Decentraland DAO, meanwhile, is a decentralized urban planning committee in the metaverse in collaboration with the homeowners’ association.

Some of the most valuable DAO cryptocurrencies and tokens include Uniswap (UNI), Aave (AAVE), Curve (CRV), Maker (MKR), SushiSwap (SUSHI), Aragon (ANT), and Ethereum Name Service (ENS).

A paradigm shift, but not without its faults

This is not to say that DAOs do not have their problems, lack of regulatory clarity being the most common. However, Wyoming has become the first US state to legally recognize DAOs, after the law giving them the same rights as limited liability companies went into effect on July 1, 2021. The company BLOCKS is already the first legally registered DAO LLC to create decentralized companies. solutions and automation for organizations.

Moreover, the decentralized nature of DAOs makes them highly inefficient, and also risks smart contracts, fragmentation and sustainability. It is also unclear how much income can be earned through this model.

Not to mention, it’s still in its infancy, which means it currently lacks a developed infrastructure.

Despite these obstacles, the DAO represents a shift in the traditional economic organizational structure, which has created discontent among people due to a handful of companies and individuals controlling the majority.

If nothing else, The DAO is an interesting experiment that promotes the development of future organizations on open crypto networks.