DAOfication as a Nascent Crypto Trend

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

The latest trend in the cryptocurrency market is DAO or Decentralized Autonomous Organization. And the share of organizations that are turning to DAOs is also rising, showing the trend of DAOfication. 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 among the network and nodes. 

Much like that, DAO is an organization run by the rules enforced by a smart contract while collectively owned, controlled, and managed by its members with no outdated hierarchical structures to exchange value in a trusted environment. 

Today, DAOs are being used for investment, fundraising, buying digital assets, borrowing, in media, and charity, all the while removing the need for intermediaries. DAOs are usually incentivized by governance tokens, which grant their holders rights to voting power on certain decisions or access to exclusive events. 

All that DAOs are Doing

These software-enabled organizations, which are not contained to a physical location like the traditional organizations, are allowing people to pool resources toward a common goal. Once the goals are achieved, the participants share the value creation among them. 

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

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

DAOs, however, aren’t new. In the cryptocurrency space, many protocols are already operating in some capacity as DAOs, especially to vote on the direction of the protocol. 

“The DAO” was one of the earliest ones launched in 2016, which suffered a hack and lost about $50 million, one-third of the group’s capital. Because it contained roughly 15% of all Ether, an upgrade was issued resulting in splitting the Ethereum blockchain into two.

Advocates say DAOs can bring more transparency and inclusiveness and that these internet-native organizations can eventually replace the traditional model. Critics, meanwhile, argue that they aren’t doing anything new and are often not legal. 

Gaining Traction

These forms of organizations started picking up speed in 2021, and they are even impacting the mainstream culture. 

As crypto grew to $1.5 trillion in market capitalization, investor capital has been pouring in to chase the massive returns. It has led to the formation of several prominent DAOs with varying flavours. 

DAOs surpassed 3.8 million in governance token holders in August, a surge of 130x from a mere 13,000 last January, according to DAO data provider DeepDAO.

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

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

Uniswap DAO has been created by the users of the DEX Uniswap to improve DeFi governance, while 1inch DAO is the creation of DEX aggregator itself to provide 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 ones, which was created by Julian Weisser in an attempt to buy a copy of the U.S. Constitution to preserve history, but most importantly stick it to the establishment. It raised more than $40 million from 17,000 contributors in less than a week. Despite the failed attempt, its native token PEOPLE hit an all-time high and still has a market cap of $170M.

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

Decentraland DAO meanwhile is a decentralized city planning committee in the metaverse in collaboration with 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 don’t have their issues, lack of regulatory clarity being the most common one. However, Wyoming has become the first US state to legally recognize DAOs, after the law that grants them the same rights as limited liability companies came into effect on July 1, 2021. The company BLOCKS is already the first legally registered DAO LLC to create decentralized solutions and automation for organizations.

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

Not to mention, it is still in its nascent stage, which means it currently lacks a developed infrastructure. 

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

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