Future of VC in the Web3.0 era: A Race To Investing In DAOs
Researcher of decentralized systems. Head of Research, Cellframe
Decentralized fundraising and the ability to raise money “independently” from VCs and funds has always been a deeply rooted ideal in the crypto sphere.
The first “free-for-all” phase of the 2017 ICO mania was accompanied by brash statements
such as “crypto will eat your lunch, VCs”. Indeed, the early and mid-2017 ICOs were mostly funded by enthusiasts and individual crypto holders. However, this did not last long: by mid-2018, there was no longer a market for ICOs. The flows of money from crypto enthusiasts had dried up, retail investors were devastated as 80% of ICOs turned out to be SCAMs
. After this, crypto funds and VCs stepped in to become the primary source of capital in the crypto ecosystem.
It is not surprising - funds have significantly more resources and competence to analyze projects and significant capital to offer good deals to the selected ones. Besides, it is a significantly more complex task to fool the fund with professional management and an analytics team than to fool any independent person. So, if you are a rich person, it would be quite rational to hand over the management of your money to professionals.
“Initial Uniswap Offering”,, generated a huge buzz in the community. It looks like an IEO (as the offering was conducted via an exchange) but as a consequence of the permissionless and decentralized nature of the exchange de-facto looks like an ICO. Look at this - anybody could participate, there was no KYC/AML, and there was a “gas war”, similar to well-known ICOs in 2017. So, are we going to the ICO 2.0 race or not? I would like to believe that yes and no.
It is obviously “No” for scams and fooling the crypto community and “Yes” for a decentralized approach to raising funds. But, can we have the bright side here without the dark one? I think it is possible but greatly depends on decision-making mechanics.
My opinion is as follows: to make “ICO 2.0” a healthy and positive practice for the whole industry, we need collaboration and transparency. In this article, I will discuss the possible future of VC funding in the web3.0 epoch.
Web3.0-grade VC and asset management approaches
The blockchain industry in 2020 offers a variety of tools and services for collaborative asset management. They can be classified differently but for the purposes of this article they are divided into “DAOs” and “non-DAOs”.
The best example of a “non-DAO” asset management tool that offers some kind of collective decision making is Set Protocol. It is a portfolio management Dapp that allows auto-follow and already has solid traction
($15.9M in assets).
The other example is Melonport - one of pioneering web3.0 asset management projects coming back from 2017. It’s model replicates the traditional index fund model - there is a selected fund manager. Investors can buy fund shares, but cannot participate in the fund management process at all (each Melon fund not a DAO). But, this project didn’t get a lot of traction (only $347k in assets
) despite good funding and time advantage (it was initiated before the majority of DeFi projects). Probably, it is an honest indicator that a wide audience isn’t interested in this project. Currently, the project is managed by the community
Last year it was clearly demonstrated that the DAO model can successfully be applied to asset management tasks. Some known examples are non-profit ones, but that doesn’t change the fact that they solve the task of collective decision-making regarding money allocation. Let’s explore some of them.
One such non-profit example that is definitely worth mentioning is MolochDAO
. MolochDAO is an impressive initiative focused on solving two problems simultaneously. The first one comes down to create an efficient grant management system for the Ethereum ecosystem, while the other one is a fundamental game theory problem, known as the “tragedy of commons”. MolochDAO demonstrated solid traction, including successful operation followed by donations
from Vitalik Buterin and Joseph Lubin.
However, the model of MolochDAO is not applicable to traditional (for-profit) fund management purposes as its shares cannot be transferred and exchanged for other assets, which possess significant limitations for the traditional index fund model (which requires the possibility to exchange and trade shares).
The MetaCartel brand DAOs
is a fork of MolochDAO, focused on providing small grants ($1-5k) for consumer-facing applications. Under MetaCartel brand operates several other DAOs and most interesting according to the topic of this article is MetaCartel Ventures
. It is a for-profit DAO, focused on early-stage investments in Ethereum ecosystem projects. They recently made a decision for the first investment
.The AragonThe Aragon
is one of the most known frameworks for creating a DAO and also a DAO itself. The main function of the Aragon DAO is decision-making regarding the allocation of funds for Aragon development. Aragon definitely is an organization that made a great contribution to the development of the concept and implementation of DAOs.
So, in fact, millions of USD are already managed by DAOs and it is a very positive tendency.
And it is the only very beginning - the market is constantly expanded with new investment DAO projects. Here are some upcoming projects, that definitely worth mentioning:
is a new governance system used to manage tokenized indexes on the Balancer protocol. The DAO coordinates the creation of different asset pools called “Pies” and allocation of tokens into them. Pies can be held as their own derivative token to gain weighted exposure to the underlying assets. Pies also act as liquidity providers for traders, allowing to swap between assets, providing free automatic rebalancing via the Balancer protocol.
The first Pie is BTC++, which contains equal weights of tokenized Bitcoin, such as Wrapped Bitcoin
(WBTC), synthetic Bitcoin
(sBTC), pTokenised Bitcoin
(pBTC), and Tokenlon’s imBTC
. Both BTC++ and the PieDAO (built on top of the Aragon) are on the mainnet. Also, some other Pies are proposed such as Defi++ (tokens: MKR, COMP, REP) and USD++ (based on tokens of USD stablecoins).
The Pies accrue fees in the underlying assets which get collected in a DAO treasury that DOUGH holders can redeem via the Redemption app. Fees are not distributed between members. They go to a vault and members ragequit for a proportional share and vote on how to allocate these fees.
is a decentralized organization which aims to provide better ways to manage crypto-asset portfolios. They have two DAOs roadmapped: Pollen Portfolio DAO and Pollen VC DAO.
The Portfolio DAO is a DeFi platform focused on investments in established tokens (such as MKR, ZRX, BAT). While the Pollen VC DAO is designed specifically for early-stage investments as a better way for startups to capitalise and as a fully-decentralised alternative to ICOs.
Pollen Portfolio DAO is an Asset Pool; all participants are stakeholders and have skin in the game. This ensures robust, participatory and active governance. And members can delegate their voting rights to any other member. This powerful concept enables the time-poor to participate and provide the governance oversight needed. Assets are stored in the smart contract and are rebalanced by collective decisions. The project is currently in development with launch scheduled in June this year
UniDAO is a community-driven project for building decentralized autonomous organizations on Ethereum aimed at various topics: digital asset management, protocol governance, and even social ones like expertise sharing. Asset management activities include investing/lending/borrowing in DeFi protocols, position trading, market-making, and arbitrage.
The governance mechanism involves two tokens: 1st for accounting of shares and general voting purpose, 2nd for reputation accounting, and specific voting purposes.
DAO is focused on digital assets such as native crypto assets, non fungible tokens, synthetic tokens representing traditional stocks and bonds. Also, the project plans to launch the VC division as well. The project is currently on the MVP stage.
Instead of a conclusion, I'm going to take the liberty and share some thoughts regarding the future of asset management in the web3.0 epoch:
- You will notice that soon be a reputable member of the known investment DAO with a significant stake will be not less cool than being a partner of VC fund;
- Investment DAOs will compete with VCs to invest in notable projects;
- Investment DAOs will become serious players on token OTC market;
- More and more people will invest in shares of reputable investment DAOs instead of direct investments in crypto tokens and coins;
- Shares of reputable DAOs with significant capital will be used as collateral in Defi protocols and Dapps.
Of course, there are some serious limitations to make it true fast:
- At the moment, investments of such DAOs are limited by tokens of the Ethereum ecosystem. But, we hope that Polkadot and Cosmos will change that soon;
- The legal framework is still not well established yet. However, some countries are taking active steps to resolve this;
- All underlying principles of investment DAOs, for example, governance mechanics, are quite experimental now. Nobody knows for sure which will be better in practice.
But, the Token Engineering community is seriously concerned about this issue and rapidly develop tools such as Cadcad to solve the problem of modeling complex systems and create optimal mechanism design for specific tasks such as DAO models
The future comes rapidly, isn’t it? Are you ready for a race of the investment DAOs?
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