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Coinbase Ventures talks about DAO: It may reconnect the world's social networks, but these four problems still need to be solved

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What the Internet did for communication, DAO can do for capital.

Original Author: Justin Mart & Connor Dempsey, Coinbase Ventures

Original Title: "DAO: The Social Network That Can Reconnect the World"

Original Compilation: Bai Ze Research Institute

The Internet is for communication, but DAO can be for capital use.

The advent of the Internet and social networking has made it easier than ever for like-minded people to communicate, regardless of geographic location. Against the background of the rise of digital currency and finance, a new type of social network has emerged, allowing like-minded people to not only communicate, but even coordinate around capital. Like social networks, these new networks are not limited by geographic boundaries, while being able to attract large-scale participants.

Some thinkers believe that DAOs (Decentralized Autonomous Organizations) could reshape the way humans organize and eventually surpass the world's largest corporations and even nation-states. size and scope.

In this article, we'll explore the current DAO landscape and what's wrong with it going forward.

What is DAO?

DAO is an acronym for Decentralized Autonomous Organization, which represents the Web3 structure of an enterprise or organization. DAOs allow people to pool resources toward a common goal and share the value created when that goal is achieved.

Just as the LLC (Limited Liability Company) has been the preferred organizational structure since the industrial revolution, so can DAOs for Web3. Whereas businesses are rooted in the traditional financial system and organized through legal contracts, DAOs run on a public blockchain network like Ethereum, organized by tokens, with rules encoded in smart contracts.

DAOs are not bound by geography, which allows them to be established quickly and attract talent from all over the world. This sentiment was on full display with the recent Constitution DAO, which raised over $40M in less than a week from 17,000 contributors, unfortunately the Constitution DAO was unsuccessful in purchasing the original copy of the US Constitution one.

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But DAO can do more than mobilize people around the world Bid together on historical documents that could change the way we organize any economic activity.

What can DAO do?

According to DeepDao's data, there are now more than 180 DAOs managing assets of more than 10 billion US dollars, attracting nearly 2 million members. And DAOs range from large DAOs that help manage crypto protocols, to smaller DAOs organized around investments, communities, media, and philanthropy.

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Protocol DAO

2018, Ethereum The rise of smart contracts has led to an explosion of many new crypto assets and protocols. Back then, developers created protocols (such as Uniswap, Compound, and Aave) that allowed people to trade and lend assets. However, these protocols are designed to be decentralized, and how to manage the growth and evolution of the protocol has become a difficult problem that needs to be faced at the time.

The emergence of the protocol DAO is not to hand over every decision to the development team, but as a way to allow users to have collective governance in the future development direction right way. Usually, the protocol will issue governance tokens based on the user's usage and contribution, giving users corresponding voting rights. Any user can make a proposal to improve the protocol, and token holders can vote on whether the developer should move forward with the proposal. More tokens = more voting power.

For example, Uniswap token holders are currently voting on which Layer 2 the protocol should be deployed on. Additionally, token holders can suggest and vote on anything from marketing plans to how Uniswap’s $2 billion fund is managed.

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As of December 20, the protocol DAO with the largest asset management scale is Uniswap, Lido, Radicle, Compound, Olympus and Aave.

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Invest/Favorite DAO

Second The category is Invest or Collect DAO. These DAOs allow members to pool funds to invest in specific assets. They range from venture capital investments like DeFi protocols or NFTs, to increasingly ambitious goals like buying rare historical documents or even professional sports franchises.

Similar to other forms of crowdfunding in the crypto industry, DAOs provide a quick and easy way to capitalize when compared to the complex laws associated with traditional venture capital funds Composition. These DAOs are also more transparent than traditional venture capital funds, as members can audit all transactions on-chain.

PleasrDAO, MetaCartel Ventures, Flamingo, Komerabi are all great examples of DAOs pooling resources, making investment decisions together, and sharing the proceeds as those investments appreciate. Likewise, Syndicate is a tool to build functionality that makes it easy for anyone to launch their own investment DAO.

Social DAO

Social DAO aims to bring like-minded people together in an online community around Tokens are coordinated. An example is Friends With Benefits and its token FWB. To join this DAO, users must submit an application and send 75 FWB tokens (which can be understood as payment of membership fees). After the application is passed, the user becomes a member of the organization and can enter a well-known developer, artist and A community of creators and exclusive events.

By organizing around a token, members are motivated to create a valuable community where insights can be shared, meetups, great parties, and more. For example, as more and more people join the FWB community, the token will appreciate in value, and the price of FWB will range from $10 to $75, so the required membership fee will range from about $750 to $6,000.

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Some other social DAOs use NFTs as a mechanism to unlock community access. For example, owning a Bored Ape NFT unlocks access to the Bored Ape Yacht Club's Discord, events, airdrops, and spinoffs. In this case, the perceived value of the community drives the value of the NFT.

Social DAOs are still in their infancy, and it will take time to verify which models work and which ones don't. But the rapid rise of these communities suggests that they represent a powerful new form of social organization.

Service DAO

Service DAO looks like a kind of online talent agency, it Bringing people together from all over the world to build products and services. Clients can offer bounties for specific tasks, and once the tasks are completed, a portion of the fee is also paid into the DAO's treasury before individual contributors are rewarded. Contributors typically also receive the DAO's governance tokens.

Most early service DAOs, like DxDAO and Raid Guild, focused on bringing together talent to build a complete ecosystem. Their clients include crypto projects or protocols that require software development, graphic design, and marketing.

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Service DAO can reshape the way people work, allowing global talents to work according to their own time, and get DAO governance rights. Although the early service DAO focused on the encryption industry, we can imagine a scenario when Uber is replaced by UberDAO in the future. takes a long time).

Media DAO

Media DAO aims to reshape the interaction between content creators, consumers and media The way. Instead of relying on an advertising-based revenue model, these DAOs use token incentives to reward creators and consumers.

The idea of decentralized media can be traced back to the "Let's Talk Bitcoin" podcast in 2013, but we use the popular project of 2021 BanklessDAO as an example. Bankless is an Ethereum-focused medium that frequently produces podcasts and newsletters. Recently, the Bankless team airdropped BANK tokens to readers. In addition, readers can also contribute in Bankless , such as creating articles, research, graphic design, article translation, marketing services, and voting on key decisions to earn more BANK.

At a time when many believe the current ad revenue-based media model is broken, Media DAOs offer a compelling alternative to refocus Interest among readers, creators and media.

Funding/Charity DAO

Funding/Charity DAO, similar to Investment DAO, members will Pool funds and deploy them to various targets. The only difference is that funding/charity DAOs invest without expecting a financial return.

Gitcoin is a pioneer of this model, funding some critical open source infrastructure projects that might otherwise struggle to secure development funding. Likewise, large protocols like Uniswap, Compound, and Aave all have specific DAO functions that allow community members to vote on how funds are allocated to pay developers for the long-term development of the protocol.

Charitable DAOs are also slowly emerging today, aiming to reimagine how charitable giving is done. For example, the Dream DAO issues NFTs to raise funds, and then lets NFT holders vote on how to allocate those funds to goals (such as funding civic leaders).

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Problems facing DAO

An increasingly diverse DAO could become the organizational structure of Web3, reshaping the way we govern, invest, work, create and donate. At the same time, we also expect to see a huge change in the type, quantity and quality of DAOs in the future.

But DAO still has a long way to go. The difficulty is obvious, given that the DAO's primary mission is to apply changes to centuries of lessons learned from corporate governance. Today we have seen 4 major flaws with DAOs:

-Lack of legal/regulatory clarity

-Lack of effective coordination mechanisms

-Lack of infrastructure

-Smart contracts, fragmentation and sustainability risks

Lack of legal/regulatory clarity Degree

Traditional companies will have a specific office location, and their management rights are granted by the government and the city. Correspondingly, the government will also formulate regulations that companies within the jurisdiction must abide by. Given that DAOs have no physical location and do not operate like corporations, they cannot be fully integrated into existing regulatory frameworks.

While protecting members from risk, DAOs must also resolve various thorny regulatory and legal issues. How will DAO tokens and financial activities be treated from a tax point of view? How should income paid to members be reported?

In the United States, DAOs currently face the situation of being considered limited liability companies or general partnerships in certain jurisdictions. Belonging to the former undermines the ability of a DAO to be governed by the rules in a smart contract, while belonging to the latter could make members liable through partnerships.

Uncertainty about regulations makes it difficult for DAOs to interact with physical companies, which is a disadvantage. While the U.S. state of Wyoming pushed for legislation that would allow DAOs to operate on the same legal basis as traditional limited liability companies while allowing them to be governed by their own smart contracts, this has met with resistance from the U.S. Securities and Exchange Commission (SEC).

While A16z and OpenLaw have proposed a clear legal framework for DAOs, for the foreseeable future, DAOs may have to continue to operate in a gray area operate.

All of this uncertainty underscores the idea that in the short term, The DAO's growth is likely to be entirely concentrated in the crypto industry - as the DAO attempts to leapfrog into Legal complexities are magnified when dealing with traditional industries such as UberDAO.

Lack of an effective coordination mechanism

The company does not involve every employee in every decision There is a reason, because it is a very inefficient way of working, and not everyone is qualified to participate in decision-making. The existence of corporate hierarchies eliminates the need for large numbers of qualified individuals to make difficult decisions.

Many DAOs today exist with crude governance structures where 1 token = 1 vote. In a large DAO with thousands of token holders, this can lead to confusion in the decision-making process, and members with "bad intentions" can be too biased from the correct decision. For DAOs to be truly effective, they had to delve into the governance structure, such as changing to a delegated model where token holders could vote for qualified leaders and make key decisions in a transparent manner.

So, in the short term, DAO governance will likely continue to remain chaotic until, after trying many different models, one finally finds out what really works Model.

Lack of developed infrastructure

Just as companies enjoy a clear legal framework and efficient decision-making process Likewise, they also benefit from a highly developed operating infrastructure. However, DAOs require building similar infrastructure from the ground up.

DAO tools for governance, reporting, treasury management, communication are still in their infancy. Thankfully, the DAO tooling space is well established and there are currently hundreds of teams working on these deficiencies.

There are so many great teams out there that I won't mention them here, but in terms of governance tools, we're excited about Messari's Tool Aggregator, which Individual DAOs can be monitored and participated in governance through a single interface.

Smart Contracts, Fragmentation and Sustainability Risk

It would be foolish not to refer to "The DAO" Difficult to discuss DAO. The DAO was the first DAO on Ethereum, but 40% of its funds were hacked and nearly $60 million was lost. As expressed in the recent BadgerDAO $130 million breach, DAO treasuries remain vulnerable to smart contract risk.

Some large blockchains also have a history of fragmentation caused by internal splits in the community. The fork between Bitcoin and Bitcoin Cash was caused by a technical dispute over the block size. The ethereum-ethereum classic fork was caused by a disagreement over how to respond to the aforementioned "The DAO" hack. So we are very likely to see a similar "split" of large DAOs in the future.

On the other hand, how sustainable is DAO when crypto winter comes? Will people continue to get excited about DAOs when token prices are falling, treasury pools are shrinking, and participation and membership are dwindling?

Reconnecting the world with DAO

Although there are many obstacles to DAO, DAO represents the organizational structure change. If Web3 is to become an Internet collectively owned by users, then DAO will become an organizational structure that embodies governance rights.

In 2021, we have witnessed the rise of new DAO experiments and models. At the same time, the all-in-one tools for building DAO functionality and the overall outlook for DAOs remain the largest in the crypto industry.

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Image: DAO invested by Coinbase

If this development trend continues, we may one day actually see huge organizations, venture capital firms, media, and institutions built not on regulations, but on open blockchains. Likewise, as the crypto user experience improves, DAOs are likely to replace LLCs as the preferred organizational form in an increasingly digital world.