How DAOs Can Change the Investment Landscape for Crypto Users

Decentralized Autonomous Organization (DAO) is the term used to refer to an organization with no central authority that uses technology to automate certain processes. A DAO's ability to process external data and carry out predefined instructions automatically is made possible through smart contracts. 

For example, a governing body usually makes decisions in traditional organizations, and middlemen make those decisions. However, when it comes to a DAO, its members can vote decisions, with smart contracts carrying out the approved decisions. 

The organization is decentralized and self-governing by removing a central authority and using automated smart contracts to carry out processes. Typically, a DAO is managed by a group of people with a vested interest in the project and are encouraged to do so via a token.

Anybody can use the distributed ledger (blockchain) to see a DAO's and transaction history. Votes from relevant parties often determine the rules that will apply, and most DAOs use a proposal system for making decisions. The network consensus rules state that a proposal is to be adopted if it receives approval from a majority of the stakeholders voting on it.

Due to their decentralized nature, there is no legal obligation upon members of a DAO. Instead, they are held together by the network incentives inherent to the consensus rules and by the shared objective that unites them. Because no one body has the power to formulate and implement rules, we say it is decentralized. Moreover, it is self-sufficient because it does not need external control to carry out its operations.

Once activated, a DAO is beyond the control of any one person or group, instead being steered by the consensus of its users. If the protocol's governance rules are well-designed, they should direct participants toward the conclusion that is best for the network.

Traditional venture capital

Traditional venture capital works by corporations known as venture capital firms (or VC firms) making investments in other businesses. They are often primarily interested in new businesses that are in the initial startup phase and have the potential for enormous expansion. Many of them concentrate on technology businesses (i.e., blockchain, software-as-a-service, hardware tech, etc.)

When VC firms invest in a company, they usually participate actively in the operation of the business. Many businesses see this hands-on approach as a positive development. For example, you may have a founder with the technical skills to build the product for their business, but they may lack the business skills needed to grow and manage their startup.

This is where the business expertise of the venture capitalist is valuable to the company; many businesses see this as a positive development. However, it is common practice for venture capitalists to anticipate that most of the firms they invest in will fail. Due to this, VC firms usually invest in many companies hoping that profits from one breakthrough can cover any losses they incur.

Issues with traditional venture capital

While traditional venture capital is still seen as an effective method of funding startup ventures, there are still some issues with the process. One issue with traditional VC in the crypto space is a lack of liquidity. When VC firms invest in a crypto project, their tokens are usually locked for a fixed period. Lockup periods range from 2-4 years with small token unlocking intervals spread in-between. This presents a double-edged problem. 

On the one hand, since a majority of a new project's tokens are locked up, there is low liquidity, making it difficult for non-VC investors to buy a lot of tokens. On the other hand, low liquidity also increases volatility. This is because investors can cause the price to shift dramatically without moving a very large amount of tokens. For example, if there are 1 million tokens in circulation (out of 100 million total), it would only take the movement of 100k to 250k tokens to shift the tokens price upwards or downwards. 

Another issue with this is the volatility associated with token unlocks. Whenever token unlocks occur, many tokens are released, which usually causes a sell-off event that reduces the token's price. Sometimes these token unlocks can have ripple effects with other investors selling off in anticipation of the token unlock or after the unlock has occurred.

DAO venture capital

DAO venture capital can help to solve some of the problems in the crypto space. For one, it improves accessibility for investors by allowing anyone to contribute to projects the DAO is invested in.

A decentralized autonomous organization (DAO) can accept any number or type of investors. It doesn't have to limit the number or types of investors it accepts. Because these investors have given the company a lot of money, they get to help make strategic decisions about the money. 

Because members of the DAO are getting more involved in the investing process, they are also getting more involved in the management and administration of the DAO's investment portfolio.

Because these DAOs usually have native tokens, anyone who wants to can now invest any money they want, no matter how much they have. Because of this, investors can now choose from a wide range of funds to put their money in. Moreover, unlike traditional venture capital firms, decentralized autonomous organizations, or DAOs, are more likely to accept investments from private parties in many countries.

Hectagon, for example, is one DAO that users can join, allowing them to invest and contribute to projects that Hectagon is invested in. Investors may participate in projects by purchasing HECTA on the Hectagon website and staking HECTA to earn staking incentives. In this case, the $HECTA listing on the Hectagon website is generally less than the market price, but consumers must wait a while to obtain it.

Users that get HECTA have the option of staking it for a governance token (gHECTA) and collecting staking rewards every 8 hours. On the other hand, users may engage in investing activity via the Hectagon Investment Portal. gHECTA shareholders may vote to choose the Investment Committee board and professionals who will help with the investment process.

They also have a say in which projects are funded by participating in a public vote and commenting on the selection process. Users may also engage in the Governance process by suggesting modifications to the protocol via Hectagon Forum, Discord, and Snapshot. Qualified recommendations will be presented to the gHECTA owner community for approval and implementation.

Hectagon and its portfolio will publish quest requests on the Forum and Discord, with prizes for those who complete them. As a result, people may contribute to it and gain incentives. These queries often indicate the kind of value-added activities that a web3 startup requires.

Conclusion

DAOs can create a positive change in the investment landscape for crypto users. DAOs improve accessibility and liquidity for potential investors.