An Introduction to DAOs
With the growth of digitally native communities, DAOs are bringing web3 IRL
Decentralized Autonomous Organizations (DAOs) are shaping the future of Web3 by
allowing communities to organize and monetize like never before. With new DAOs forming every day, and some gaining national spotlight, it's time for a solid understanding of what they are and why they are important.
What is a DAO?
A DAO can be defined as an open-membership, blockchain-based community of independent parties that use a token (fungible or non-fungible) to govern a protocol and allocate capital. Put simply, DAOs are internet-native organizations managed by communities that share a common interest or mission. Projects traditionally require a minimum token ownership (fungible or non-fungible) to be admitted into the DAO.
DAOs have two unique features: voting power and internal capital.
Where centralized organizations concentrate decision making power in a board of directors, DAOs redistribute that power to the community, ensuring that all members play a role in the organization’s resource management and governance. Since all of this information is publicly available to anyone in the DAO or looking to be a member, everyone has an equal opportunity to participate and make informed decisions. This transparent and egalitarian decision making process is made possible through blockchain technology. Governance and decision making in the DAO is traditionally expressed through voting. Tools like Tribeca are making it easier than ever before to manage DAO voting and governance.
Beyond voting power, DAOs are little more than a group chat with a shared crypto wallet. Since token ownership determines your membership to a DAO, the larger your token ownership relative to the supply, the greater your share of governance. The sale of governance tokens supplants the DAO with a treasury of stablecoins and other tokens like Solana. With the help of treasury management tools like Squads, the DAO can then direct its treasury towards various initiatives that grow the DAO.
Why are communities building DAOs?
Communities are collections of humans united by one or a few things, like, for example basketball. Where one basketball community may be interested in playing the sport with others, another could be interested in watching basketball or supporting a particular team. The benefit of community is that as long as there are shared interests in a particular topic or subtopic, these like minded individuals can meet together and continue doing what they love. Traditional communities create positive network effects for their community and members, but also have their limits. Without incentivization, traditional communities are limited in their ability to provide real world value and give back to the members helping that community grow.
Similar to communities, businesses are also a collection of humans united by one or a few things: usually generating profits and shareholder value. Businesses often do provide value but all too commonly are unable to optimize for sustainability, financial resistance, and worker alignment.
DAOs however, are a hybridization of community and business that incentivise value creation while optimizing for member alignment and sustainability. This new value-aligned organizational primitive shifts management from the role of gatekeeper to the role of facilitator. While still in the early innings, DAOs have already proven to be a powerful mechanism for financial coordination.
Traditional organizations today require legacy financial infrastructure and legal entities to create value. This means that for groups to financially coordinate, it may take up to 3+ weeks to set up a legal entity and gain a company bank account. This process is inefficient and permissioned.
Contrast that with the DAO structure that allows communities to financially coordinate in a matter of minutes. With public blockchain infrastructure the organization is instantly and permissionlessly accessible to everyone around the globe.
1KX partner Peter Pan elegantly described the DAO use cases in a practice he referred to as community banking.
Through DAOs, we can:
- Create companies that provide frictionless global work opportunities to anyone with an internet connection
- Enable strangers all around the globe to crowdfund and form internet native non-profits
- Create companies owned, ran, and governed by their workers
- Enable online communities to evolve beyond social networks and become fully operational community run organizations. Tools like Grape Protocol now allow these social networks to be rewarded and secured on Solana.
Who’s using DAOs?
A multitude of communities have already leveraged Metaplex’s suite of tools to build functioning, high-impact DAOs. While some have been created as a means of representing shared interests within a community, others have created DAOs that step through several of the DAO use cases.
PleasrDAO is a community of NFT collectors and DeFi alumni that collaborate primarily to invest in digital art. After starting with a single tweet, PleasrDAO has grown into one of the most successful DAOs in all of crypto. The group crowdfunded capital through its PEEPS governance token to collect famous NFT artworks like the original doge meme, which it purchased for 1696.9 ETH. PleasrDAO then fractionalized the NFT into DOG tokens through Fractional.Art, creating a new social community and empowering others to own a piece of DOGE history.
In addition to using the DAO structure to collect and expand ownership of digital art, PleasrDAO also uses the structure to create decentralized nonprofits to benefit real-world communities. FreeRossDAO was an organization created by PleasrDAO that is governed by the DAO’s FREE tokens. FREE represents a fractional ownership of Ross Ulbricht’s NFT collection. The DAO aims to free Ross Ulbricht, who is currently sentenced to multiple life sentences for his involvement in the Silk Road, as well as advance prison reform.
In the summer of 2021, Solana Monkey Business (SMB) became one of the first NFTs to use the Metaplex metadata standard and soon after created its own marketplace using Metaplex. SMB subsequently became proclaimed by the Solana NFT community as the protocol’s blue chip project akin to CryptoPunks on Ethereum. Solana’s MonkeDAO then became the first NFT DAO on Solana when it was independently established by SMB NFT holders. The DAO was first created to provide a community for SMB holders but has quickly moved on to pursue more ambitious initiatives, like running a Solana validator node, community staking in Solana's native token SOL, online events, and startup investing. SMB and Metaplex continue to interact with the Metaplex standard today as the project evolves.
With a better understanding of what DAOs, why they are important, and the projects leveraging their technology, it's easy to see why the best is yet to come. As new use cases continue to grow out of forward thinking teams, the utility of DAOs are set to disrupt traditional organizational structures in the near future.