May 30, 2023
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Sustainability: What do DAOs need to succeed in the long run?

CoinRegWatch014 mins

The growing presence of projects identified as DAO raises the question: What makes them sustainable across time and technology changes?

The rising popularity of decentralized autonomous organizations (DAO) reflects the growing tendency toward the creation of community-focused projects within the Web3 ecosystem. 

At its core, a DAO is an organizational structure that allows decentralized decision-making within a community.

Currently, there are over 4,000 of these projects in existence, according to the registration data of DeepDAO. With new tools available to make DAOs easier than ever, quantity can easily overtake quality within these communities and it begs the question of what will eventually make these projects relevant in the long run.

A basic ingredient

The basic structure for decentralized organizations seems to be similar to any other tech startup: It requires a service or product with added value, a community of users, treasury, a business development plan and marketing.

Speaking to Cointelegraph, Santiago Siri, founder of Proof-Of-Humanity DAO (PoH DAO) — the issuer of the Universal Basic Income (UBI) token — shared his special ingredient to make DAOs sustainable: a committed community:

“After building a participative community, we can find funding mechanisms, alliances with other DAOs, governance and participation mechanisms and so on. But without a community, the DAO is not real.”

The community focus is repeated all across the Web3 space, but just having a group of people signed up for your project will not be enough for it to thrive. 

As Siri explains, the real priority for a DAO is to give that community a purpose from an early stage. “What usually happens with a project without a soul or purpose, is that a bunch of mercenaries are going to get away with the money without generating value,” he said.

Community as the base of a decentralized structure also supports another rather important factor: funding.

How to fund a DAO

One step that DAOs commonly add to their economic plans for sustainability is tokenization. 

Speaking to Cointelegraph, Mitch Oz, DAO Steward for Giveth — a nonprofit organization and open source platform for decentralized projects — warned that tokenization is a rather dangerous step if done at the wrong time.

Recent: FTX’s collapse could change crypto industry governance standards for good

“Usually when people get the idea of launching a token it’s on the lines of launching an airdrop, building hype. Having a token, a transferable token, is not a great idea to start with and I think that is where a lot of DAOs fail,” he stated.

In his experience, Oz recommends to start small when it comes to creating a community token. “I think it’s very important to have some sort of token-weighted governance and start with a token that can’t be bought,” he said.

On the other hand, there’s also external financing DAOs can receive via grant programs and venture capital (VC) for tokenized projects.

Rather than the fine tightrope traditional first-time entrepreneurs used to walk to get their first approved financing, grant programs focused on supporting Web3 projects and their communities have now provided a new avenue to receive funding.

Talking to Cointelegraph, Ashley Dávila, venture capitalist at blockchain-focused venture capital firm Gumi Cryptos, explained that Web3 grants allow DAOs to remain financially independent when receiving external funding.

“Grants are generally no strings attached, so they are very attractive and can be seen as revenue. The overall takeaway is that grants are non dilutive and VC funding is dilutive”, she said.

Christian Narváez, venture partner at OP Crypto and founder of Web3 Familia DAO, told Cointelegraph that Web3 projects should begin their funding externally through grants before knocking on venture capital’s doors.

“I always recommend that Web3 projects that are building up, apply to grants within the blockchain ecosystem. It’s an effective way of getting capital without having to give equity tokens of your project,” he said.

Narváez added that there’s even a technique that allows Web3 projects to stay afloat before they are ready to take their project to a VC:

“It’s called grant farming, which basically is applying to many grants of different blockchains and raising capital in an equity-free way, allowing projects to maintain ownership as long as possible before they try to raise VC money.” 

While on the outside, a DAO may seem to run smoothly once it has built a community and received funding, achieving the decentralized dream is not as easy as idealists make it sound. 

DAO drama

Even as all voting and funding processes are dutifully registered on the blockchain, DAOs still struggle with fund transparency and the centralization of power.

Scandals around these issues were a prevalent topic at Devcon IV — an international event dedicated to the Ethereum community.

In one instance, members of the Harmony protocol aimed criticism at the Blu3DAO directive, claiming they had observed suspicious fund management and a possible conflict of interest within the founding team and their main sponsor, the Harmony protocol itself.

Inconsistencies of information from the DAO also raised alarms. Harmony’s forum also showed ties between the organization and the company MoneyBoss — which is owned by Blu3DAO founders.

The blockchain community response was mixed, with support from members of Blu3DAO and questions from users on Twitter.

Blu3DAO founders addressed these accusations shortly after they were published, facing more backlash from the blockchain community. The team also provided proof of their transactions on the blockchain a month after the event to discredit fund mismanagement reports and have carried on their operations.

Siri further dedicated a part of his time on stage at the event to clarify the so-called “DAO drama” that involved the alleged centralization of voting power in PoH DAO by their governance partner, the Kleros team.

Another example occurred in April when the FEI/TRIBE DAO — a merge between the FEI protocol and Rari Capital DAO — reached the headlines with an $80 million hack. Uncertainty fell over the organization’s community once the governance started a tumultuous voting process that went back and forth on the decision to cover the funds.

As crypto personality Cobie explained in a Twitter thread, the voting was highly influenced by the FEI protocol itself, which voted against the repayment of funds on a second vote. FEI founder Joey Santoro concluded that their case was an example of the current exploratory status of DAO voting and confirmed the protocol’s separation from Tribe DAO.

So, how to start with the right foot on this uncharted territory of DAO?

DAOs from the ground up

Many new DAOs are born from pre-existing communities, often without funds or a business plan. Because of this, founders and governors take different routes to get their projects off the ground.

Such is the case of Cryptonikas DAO, a new women-focused organization led by eight women from Latin America. According to their founder and director, Giselle Chacón, their key to staying on course has little to do with relying only on Web3 tools but rather with creating a strong foundation to become sustainable both as a community and as a business.

Speaking to Cointelegraph, Chacón referenced her own experiences as part of a different DAO before starting Cryptonikas, which led her to take a rather traditional approach with her own community.

“Now that we are a strong community and we have people who want to fund us, we have proceeded to create a company in the United States,” she said.

According to Cryptonikas’ product manager Rosa Jérez, registering the project as a C-Corp business is an effective way to ensure the legality of funding well before opting for grant money.

“A C Corp allows us to act as a private company, capable of generating income out of our commercial activities,” she explained.

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Jeréz also added that this would be the preferred structure for the DAO “until there’s massive adoption of the entire Web3 ecosystem.”

Currently, the ideal setup for the majority of the Web3 community is one of total decentralization and betting exclusively on the technological and financial resources within the ecosystem. As Chacón stated, the struggle is to have realistic expectations and get into the DAO space with eyes wide open:

“We don’t want to have an utopia. We want our DAO to be sustainable in time as a startup, so we don’t romanticize the process.”

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What are investment DAOs and how do they work?

What are investment DAOs and how do they work?

CoinRegWatch013 mins

Investment DAOs where crypto-rich buyers team together to back startups or make investments work based on governance rights enforced through smart contracts.

What is an investment DAO?

A decentralized autonomous organization (DAO) that raises and invests capital into assets on behalf of its community is an investment DAO. Investment DAOs tap into the power of Web3 to democratize the investment process and make it more inclusive.

DAOs can have their units in tokens that are listed on a crypto exchange. The community rules are agreed upon and governance is enforced through smart contracts. Governance rights (voting) can be prorated based on the holdings in the DAO.

Related: Types of DAOs and how to create a decentralized autonomous organization

A decentralized organization that invests in cryptocurrencies, real estate, nonfungible tokens (NFTs) or any other asset class has several functional differences from traditional investment vehicles. This is particularly true when the underlying investment opportunity is a crypto startup company. DAOs investing in startups differ fundamentally from traditional venture capital (VC).

Before elaborating on the differences between traditional VC and investment DAOs, let us understand how traditional venture capital works.

What is traditional VC?

A venture capital fund is founded and managed by general partners (GPs). GPs are responsible for sourcing investment opportunities, performing due diligence and closing investments in a portfolio company.

Venture capital is part of the capital pyramid and acts as a conduit that efficiently sources capital from large institutions like pension funds and endowments, and deploys that capital into portfolio firms. These large institutions, family offices and in some instances individuals who provide capital to a VC fund are called limited partners (LPs).

The role of the GPs is to ensure they raise funds from LPs, source high-quality startups, perform detailed due diligence, get investment committee approvals and deploy capital successfully. As startups grow and provide returns to VCs, the VCs pass on the returns to LPs.

Traditional venture capital has been a successful model that has catalyzed the growth of the internet, social media and many of the Web2 giants over the past three decades. Yet, it is not without its frictions and it is these that the Web3 model promises to address.

Challenges of traditional VC

As effective as the VC model has been, it still has its issues. They are not very inclusive and decision-making is quite centralized. VC is also considered a highly illiquid asset class by institutional investors.

Exclusive

The VC model is not as inclusive as it could be. Due to the amount of capital involved and the risk profile of the asset class, it is often only viable for sophisticated investors.

It is critical to ensure that investors appreciate the risk-return profile of their investments. Therefore, venture capital may not be the right fit for all retail investors. Yet, there are subsets of the retail investor community who are sophisticated enough for this asset class. Yet, it is often difficult for even sophisticated retail investors to be LPs in VC funds.

This is either because proven GPs are often hard to reach for retail investors or because the minimum investment into these funds is several million dollars.

Centralized

If participation as an LP is exclusive, even investment decisions are generally made by a small group of people that sit on the investment committee of the VC fund. Therefore, most of the investment decisions are highly centralized.

This often can be a limitation not only to investing globally but also to being able to identify hyperlocal opportunities in the last mile of the world. A centralized team can only offer so much in terms of originations (of investment deals) and deployment capabilities across the world.

Illiquid

The other key issue with traditional VC is that it is an illiquid asset class. Capital deployed into these funds is often locked in for years. Only when the VC fund has an exit, in the form of a portfolio company being acquired or going public, do the LPs get to see some capital returned.

LPs still invest in the venture capital asset class as the returns are generally superior to more liquid assets like bonds and publicly listed shares.

Let us now look at the Web3 alternative for venture capital — investment DAOs.

Advantages of investment DAOs

DAOs bring together Web3 ethos and the operational seamlessness of smart contracts. Investors that believe in a specific investment thesis can come together and pool capital to form a fund. Investors can contribute in different sizes to the DAO depending on their risk appetite and their governance (voting) rights are prorated based on their contributions.

Related: What are smart contracts in blockchain and how do they work?

How do investment DAOs address the shortcomings of traditional venture capital? Let us discuss the functional differences.

Inclusive access

Investment DAOs allow accredited investors to contribute in all sizes. By virtue of their contributions, these investors are able to vote on key investment decisions. Therefore, the processes of investing in the DAO and deciding on investments in the portfolio are both more inclusive.

Deal sourcing can be decentralized, just like governance. Imagine running a fund focused on technology for coffee farmers across the world. Having community members from Nicaragua to Indonesia certainly helps in sourcing the best last-mile investment opportunities. This allows investment vehicles to be more specialized, more global and yet highly local.

As these DAOs can be tokenized and investors are able to make smaller contributions. This allows them to choose among a basket of funds to which they can contribute and diversify their risks. Also, DAOs are more open to receiving investments from across the globe (with exceptions) than traditional venture capital.

Imagine an accredited retail investor with $100,000 wanting exposure to subclusters of Web3 and crypto startups. The investor can find an investment DAO focused on NFTs, decentralized finance, layer-1 cryptocurrencies and so on, to spread their investment across all these different DAOs.

Liquid investments

In traditional VC, LPs are not able to liquidate their positions in the fund before the fund offers an exit. Tokenized investment DAOs address that issue. Investment DAOs can have a token that derives its value from the underlying portfolio. At any point in time, investors that own these tokens can sell them on a crypto exchange.

In offering this functionality, investment DAOs offer returns similar to those of traditional VCs, albeit with a lesser liquidity risk. This makes them a better investment vehicle just based on the risk-return profile.

What’s the catch?

Every opportunity has its risks and vice versa; investment DAOs are no exceptions. Despite their structural superiority to traditional VCs, there are still areas that remain unclear.

For instance, due to the anonymous nature of crypto investments, it is often difficult to identify the sophistication of the investor. This means it is harder to protect investors from taking high risks on a volatile asset. This is a space that regulators are looking to address by governing how a DAO markets itself to bring investors onboard.

There are also challenges in setting up a DAO where the legal language is programmatically set into smart contracts. In traditional markets, these investment vehicles are often handcrafted by large legal teams. To rely on smart contracts to do that effectively poses a legal and a technological risk.

However, there are firms like Doola that offer services to bridge the legal gap between Web3 and the real world. Here is a table that illustrates key differences between the two approaches.

Investment DAOs are still works in progress. Yet, the model shows promise. Once the legal and regulatory risks are ironed out, investment DAOs could be the model that traditional VCs embrace.

Read More
How to incorporate a DAO and issue tokens to be ready to raise money from VCs

How to incorporate a DAO and issue tokens to be ready to raise money from VCs

CoinRegWatch013 mins

While DAOs can’t precisely replace traditional VCs, they can potentially disrupt the crypto industry.

What is a DAO?

A DAO, or decentralized autonomous organization, is an online-based organization that exists and operates with no single leader or governing body. DAOs are run by code written on a blockchain like Ethereum (ETH) and are owned and operated by the people who use them.

There are many different types of DAOs, but they all have one thing in common: they are decentralized, meaning that decisions about the organization’s future are decided by the collective group and not a single individual.

This decentralization is what makes DAOs promising, as it theoretically removes the possibility of corruption or manipulation by a single entity. Smart contracts (and not people) execute the terms and conditions of the organization, making them incredibly efficient and resilient to change.

How does a DAO work?

A DAO is a collection of smart contracts that live on the Ethereum blockchain. These contracts interact with each other to form the organization. They are written in such a way that anyone in the world can use them.

The code for a DAO is public, and anyone can view it to see how it works. This transparency is one of the key features of a DAO. Compared to traditional organizations, DAOs are much more efficient because there is no need for a middleman or central authority.

Another key feature of a DAO is that it is autonomous, meaning that it can operate without human intervention. This is made possible by using smart contracts, which can automatically execute tasks according to the programmed rules.

DAOs are self-governing and self-sustaining, meaning they can continue to exist and operate even if the original creators are no longer involved. This is another advantage of using smart contracts. They ensure the DAO continues to follow its original rules even if the people running it changes.

Some of the most well-known DAO tokens and platforms are Uniswap (UNI), Aave (AAVE), Compound (COMP), Maker (MKR) and Curve DAO.

Steps to raise money from VCs after incorporating a DAO

Write a white paper

After incorporating your DAO, you will need to write a white paper. A white paper is an essential document that explains what your DAO is, what it does and how it works. It should be clear, concise and easy to understand.

Your white paper will be used to convince potential investors to support your DAO, so it’s important to ensure it’s well-written and persuasive. To help you get started on writing your DAO’s white paper, check out our detailed guide here.

Create a pitch deck

In addition to a white paper, you will also need to create a pitch deck. A pitch deck is a short presentation that gives an overview of your DAO and its purpose.

Your pitch deck should be clear, visually appealing and easy to follow. It should also include information about your team, your progress to date and your plans for the future.

Create a website

The next step in raising money for your DAO is to create a website. Your website should be professional and informative. It should include your white paper as well as any other relevant information about your DAO.

It should also have a way for potential investors to get in touch with you. This could be through a contact form, an email address or a social media account.

Reach out to VCs

Once you have created a white paper, pitch deck and website, you can start reaching out to venture capitalists, or VCs. When contacting VCs, it’s important to be clear about your objectives and what you are looking for.

Some VCs may be interested in investing in your DAO if they believe in its mission. Others may be more interested in the financial return that investing in your DAO would give them.

Related: Venture capital financing: A beginner’s guide to VC funding in the crypto space

It’s also important to remember that VCs are busy people. They receive hundreds of pitches every week, so you need to ensure that your pitch stands out.

Negotiate terms

Once you have found a VC interested in investing in your DAO, you will need to negotiate the terms of the investment. This includes the amount of money the VC will invest, and the equity stake they will receive in return.

It’s important to remember that you are in a strong position when negotiating with VCs. After all, they are the ones who are interested in investing in your DAO. As such, you should aim for terms favorable to you and your team. This includes getting a large equity stake and a high valuation for your DAO.

Close the deal

Closing the deal is an important step in raising money for your DAO. Once you have negotiated the terms of the investment, you will need to close the deal. This involves signing a contract with the VC, as well as receiving the agreed upon amount of money. It’s a good idea to have a lawyer review the contract before you sign it.

Use the funds

Once you have closed the deal and received the investment, you will need to use the money wisely. This means spending it in a way that will help your DAO achieve its objectives. Some of the things you could use the money for include hiring employees, marketing your DAO and developing new features.

It’s also important to remember that you will need to report back to the VCs on how you are using the money. For this reason, ensure that your expenses and progress are all properly tracked.

Pay back the VCs

Eventually, you will need to pay back the VCs. This could be through a sale of your company, an initial public offering (IPO) or another exit strategy. Paying back the VCs is an important step in the life cycle of a DAO. It is also a good way to show them you are committed to your business and have faith in its future.

Related: What is an IPO? A beginner’s guide on how crypto firms can go public

Can DAOs replace VCs?

Are DAOs a viable replacement for venture capitalists? The answer is that it depends. VCs typically invest in early-stage companies and help them grow through the provision of capital, mentorship and connections.

DAOs can provide some of these same services, but they’re not well suited to invest in early-stage companies. This is because DAOs are decentralized and cannot make quick and decisive decisions.

VCs, on the other hand, are centralized and can make quick decisions that help early-stage companies grow. So, while DAOs can provide some of the same services as VCs, they’re not a perfect replacement. A VC is probably a better choice if you’re looking for an organization to invest in early-stage companies.

A hybrid future of DAOs and traditional VCs

DAOs are a new and innovative way of organizing people and resources. While they can’t exactly replace traditional VCs, they can potentially disrupt the industry.

We’ll likely see a future where DAOs and traditional VCs work together to support the growth of early-stage companies. For example, a DAO could provide the capital and resources while a VC provides the mentorship and connections.

Such a hybrid model would allow early-stage companies to get the best of both worlds: the capital and resources they need to grow, and the mentorship and connections they need to succeed.

VC DAOs already exist, proving that such a model is possible. One example is The LAO, a venture capital DAO. It focuses on early-stage blockchain projects based on Ethereum (ETH) and has funded over 30 projects so far. How it works is that governance remains a function of the blockchain while an external service provider takes care of the administrative and legal procedures.

Another good example is MetaCartel Ventures, a private VC DAO and a spin-off of the Ethereum ecosystem grant fund, MetaCartel. The VC DAO arm is managed by a board of “mages,” who conduct functions like presenting investment proposals, due diligence and voting on proposals. They mainly fund early-stage decentralized applications and protocols at the moment.

Read More
DAOs: A blockchain-based replacement for traditional crowdfunding

DAOs: A blockchain-based replacement for traditional crowdfunding

CoinRegWatch012 mins

Decentralized autonomous organizations are providing relief from some of the problems that plague fundraising.

The crypto space witnessed phenomenal growth in 2021. Buzzwords like nonfungible tokens (NFTs), decentralized finance (DeFi) and the Metaverse broke through to the mainstream and culminated in the crypto market peaking at over $3 trillion in November of 2021. 

NFTs redefined arts and how they are acquired. DeFi revolutionized how we lend and borrow. The Metaverse birthed an alternate universe that we could all live and work in virtually. Play-to-earn (P2E) games paid gamers to do what they love. 

Decentralized autonomous organizations, or DAOs, also had their moment to shine. 

One of the most out-of-the-blue crypto headlines of 2021 is probably ConstitutionDAO. A hurriedly assembled group of United States constitution-loving crypto believers. The group raised more than $47 million in Ether (ETH) to purchase an original copy of the United States constitution at auction. The group ultimately fell short in its bid but the audacity of that endeavor brought DAOs power to crowdfund to mainstream attention.

The ingenuity of that move and what it nearly accomplished provides a template for how traditional crowdfunding could be better managed. ConstitutionDAO got tens of thousands of addresses to donate $47 million without a marketing team or a dedicated growth director.

Beat that GoFundMe.

DAOs currently have over $10.5 billion locked in different treasuries with over 1.7 million token holders, according to data from DeepDAO. But, what exactly are they?

DAOs are a system of hard-coded rules that define which actions a decentralized organization will take. They are leaderless member-owned communities. A DAO is essentially a co-op that governs itself using votes tallied through blockchain technology. Smart contracts run the entire group. A native token is usually developed for a DAO and used by members to vote on proposals.

DAOs are next on the ladder of modern crowdfunding

Digital crowdfunding platforms like GoFundMe, Patreon and Kickstarter have enjoyed massive patronage over the past 10 years. This growth can be attributed primarily to the nature of crowdfunding which is set up with minimal risk. This risk is spread across all contributors of a particular idea or startup. 

Start-ups with financial needs will find that getting funding from traditional institutions is no easy feat. These institutions take on quite a lot of the risk involved in financing business ideas that could end badly. With a global economy still reeling from the pandemic, the accessibility and much less bureaucratic nature of DAOs as a tool for crowdfunding have been a primal factor in its growth.

Digitalized crowdfunding in the form of DAOs has eliminated some traditional limits of the financing form. The simplicity makes it a disruptive force to traditional crowdfunding methods.

Emmet Halm dropped out of Harvard to found DAOHQ. DAOHQ bills itself as the first marketplace for DAOs where users can find information about any DAO. The startup recently secured over $1 million in funding to develop the project.

Halm told Cointelegraph that the centralization of traditional crowdfunding sites like Gofundme will make DAOs a better alternative for investors. “I don’t think DAOs are going to replace crowdfunding sites, I think they have replaced them already,” he said, adding, “If you look at the kind of political pressure that sites like GoFundMe get for certain types of fundraisers, it makes them less attractive for raising funds.”

Recent: Blockchain and crypto can be a boon for tracking financial crimes

Blockchain technology allows for more reach

One perk of blockchain technology is that it is censorship-proof. This makes all applications built on blockchains censorship-proof as well. This removes restrictions that traditional crowdfunding sites might otherwise impose on individuals or businesses. In the United States, businesses are not allowed to raise more than $5 million in a year from crowdfunding websites.

GoFundMe does not process payments from China, Nigeria, Russia, Lebanon, Iran and a host of other countries. Nigeria is Africa’s largest economy while China is the world’s second-largest economy, yet residents of both economies can’t access the largest crowdfunding platform in the world. With blockchain technology, investors or donors from these countries can easily contribute to a DAO.

High flexibility and low regulation

The main goal of crowdfunding, being to raise capital to support a cause, can be hampered by stringent regulations. These regulations seek to ensure that all persons involved in a project are indemnified of the risk involved in funding a start-up. These measures are mainly counterproductive to startups due to the unstable nature of economies worldwide. New business policies and economic sanctions arise every minute that might weigh down heavily on startups. 

DAOs are highly flexible and so far have minimal regulations from authorities. Every member that joins the DAO shares the risk among themselves (depending on their financial contributions) should the purpose of the DAO fail to materialize. The members of the aforementioned ConstitutionDAO who requested refunds received their money back, although gas fees were lost.

The first page of the United States constitution.

It’s feeless (mostly) and leaderless

Most crowdfunding platforms are profit-seeking companies in their own right. You do not raise funds on their platform for free. Using conventional crowdfunding platforms exposes you to fees that vary by platform and can be a fraction of whatever amount you submit for a project. With a modern ecosystem and cryptocurrency protocols, you can send money across borders without paying neck-breaking transaction fees. 

DAOs also encourage public participation in a project as it leaves all decision-making processes to be made by all participants. This allows participants to have a sense of noteworthiness and let them be in charge of making their own decision based on popular support, or voting with the DAO’s token in this.

Furthermore, different crowdfunding platforms have restrictions on the type of marketing you can run to finance your cause. In February 2022, GoFundMe froze nearly $8 million in an account dedicated to Canadian truckers’ protests against COVID-19 vaccine mandates. With DAOs, such a restriction is virtually impossible. No third party sets the rule except the members of the DAO itself.

More work to be done

Crowdfunding is a tool for societal development, and DAOs are raising the bar, gaining legitimacy by the day and exploring different possibilities and breaking boundaries. As crypto adoption continues to grow, investors will look to explore hitherto unexplored niches in the industry. DAOs are an innovation whose time has come.

The decentralized nature of crowdfunding has made DAOs more popular over the years. As of April 2022, there were over 6,000 DAOs with a valuation of $10 billion in liquidity.

However, DAOs are far from perfect. Decisions can often take several rounds of discussions before they are concluded. The anonymity of members of a DAO platform also presents security risks of its own.

Last year, investors poured nearly $57 million worth of Ether into the dog-themed OlympusDAO fork, AnubisDAO, only for their funds to be rug-pulled.

AnubisDAO was named after the jackal-headed god of the Ancient Egyptian pantheon.

Related: Investors rug-pulled after pouring $57M into dog-themed OlympusDAO fork

The aforementioned concerns have led some to ask: Are all DAOs going to make it?

With thousands of DAOs already in existence and more launching every day, many wonder when/if the DAO bubble will burst. For Emmet, the so-called “80-20” rule will come into play:

“I think DAOs are here to stay, but we may have an 80-20 situation where 20% of the DAOs get 80% of the result, leaving the remaining 80% to fizzle out and maybe die.”

Read More
Crypto is going mainstream: Here’s how the future founders will build on it

Crypto is going mainstream: Here’s how the future founders will build on it

CoinRegWatch015 mins

Crypto is going mainstream, and crypto adoption will likely continue to increase in the years to come. But, in which specific areas?

Using cryptocurrencies for employee compensation

Several companies have already started paying employees in crypto. 

There are several advantages to using cryptocurrencies for employee compensation, especially for companies with a global workforce. First, cryptocurrencies are borderless, which means that crypto can be used to pay employees anywhere in the world.

Second, they are secure and irreversible, reducing the risk of fraud. Finally, cryptocurrency can be easily converted into local currencies, making them convenient for employees wanting to use them for everyday transactions. As more companies adopt this payment method, the use of cryptocurrencies as employee compensation will likely increase.

Access banking services with cryptocurrency

Over two billion people worldwide are currently unbanked, making access to banking services a luxury. 

For people in areas that may have less stable economies, using cryptocurrency can be a way to bypass traditional banking systems.

Several startups are already working on banking the unbanked via cryptocurrency, especially in countries with unstable economies. Kotani Pay and Leaf are examples of platforms that allow the underbanked in Africa access to essential financial services.

Cryptocurrencies can be used to send and receive money, pay for goods and services and more. They also offer security and privacy that traditional banking systems cannot provide. In the future, more platforms will hopefully be able to provide essential financial services in developing countries and war-torn areas through cryptocurrency.

Creating communities around NFTs and cryptocurrencies

One of the most exciting aspects of crypto is the ability to create and trade digital assets, or nonfungible tokens (NFTs). 

These tokens can be used to represent anything from physical assets to digital artwork, as well as collectibles like trading cards and sports merchandise.

NFTs have the potential to create thriving communities around them. For example, there are already a few games that allow players to trade and collect NFTs. These games include CryptoKitties, Gods Unchained and Axie Infinity.

The success of these games shows the increasing demand for NFTs and that people are willing to invest time and money into them. As more games and platforms that allow for the creation and trading of NFTs continue to be created, this trend will likely continue.

New use cases for NFTs are continually being developed and they have the potential to keep revolutionizing the way we interact with digital content. On Decentraland, for example, people can purchase real estate NFTs to own a patch of land in the Metaverse.

NFT communities will likely evolve into tribes within the Metaverse as people learn to navigate identities via avatars and virtual spaces.

Raising debt via DeFi platforms

The advent of decentralized finance (DeFi) platforms that facilitate loans with more manageable terms for both lenders and borrowers has opened up new opportunities for people and businesses to raise debt.

In times of crisis, debt is often seen as a necessary evil. Debt can provide short-term relief and help businesses stay afloat in difficult times. Currently, a few platforms allow businesses to raise debt via decentralized finance. These platforms include Dharma, dYdX and Compound.

Debt raised on these platforms is often used for working capital or covering operational costs. Since the interest rates on these loans are much lower than those offered by traditional lenders, businesses can benefit from the significant savings.

DeFi lending is likely to become even more popular in the coming years as businesses look for ways to get back on their feet post-pandemic. The ease of use and competitive interest rates make DeFi lending an attractive option for businesses looking to borrow money.

Structuring as a decentralized autonomous organization (DAO)

The concept of a decentralized autonomous organization, or DAO, is also something that will likely factor into the future of organizations. 

From governments to corporations, structuring as a DAO gives benefits that traditional organizational structures cannot provide.

DAOs, for one, can streamline complex workflows with the help of blockchain technology. Smart contracts can be used to facilitate tedious processes that require long paper trails, like filing permits, granting approval and so on.

DAOs can also dramatically cut red tape in companies and corruption in governments. Because every transaction will be encoded into the blockchain, records will be available to the public for their scrutiny at any time.

The way we work has already shifted, and it’s not far-fetched to imagine a future where companies are structured differently. A DAO is a fascinating concept that has the potential to change how we do business and should be watched closely in the years to come.

Crypto as a viable form of payment

Crypto has long been criticized for its lack of inherent value. However, the shift toward contactless transactions amid the pandemic has emphasized the value of digital currencies and blockchain technology in the modern world.

For this reason, merchants have been slow to adopt cryptocurrencies as a form of payment. As it gains widespread usage, however, we can expect to see more businesses accepting crypto in the future.

The global pandemic has changed the way a lot of us do business. The shift away from cash and face-to-face transactions toward digital cashless ones has introduced many people to the convenience of paying digitally. So, it’s no surprise that crypto is starting to gain traction as a viable payment option — one that will only continue to evolve.

While still in the early stages, large platforms such as PayPal, Visa and Mastercard have already started allowing clients to purchase and transact crypto through their platforms. PayPal can now be used to buy and transact crypto like Bitcoin (BTC), Ether (ETH), Bitcoin Cash (BCH) and Litecoin (LTC). 

Meanwhile, Visa allows users to conduct transactions with stablecoins on the Ethereum Network. Mastercard also announced the launch of its crypto card in late 2021 and is set to support most digital currencies in the years to come.

Merchants who are still on the fence about accepting crypto can rest knowing that it is here to stay. The cases for and against crypto as a form of payment are slowly evening out, and more businesses will likely start accepting it in the near future. In addition, businesses can save on transaction fees when using crypto as a form of payment.

Crowdfunding with a dedicated blockchain wallet

Online platforms are already being used widely to raise money for different causes and projects. 

Early hesitancy in the practice of investing money in new ideas has lowered, thanks to the increased availability of secure platforms.

We can expect this to continue well into the future, especially since crypto allows people to make smaller lower-risk investments without the fear of losing money. Small businesses and crypto projects looking to raise capital can continue to do so via methods that allow traders to invest in new blockchain projects.

Crowdfunding using a dedicated blockchain wallet allows the process to remain transparent, increasing the accountability of both traders and crypto companies to conduct their business securely. Fundraisers can also avoid paying third-party platforms’ fees without sacrificing donor confidence.

Using cryptocurrency for business equity

A lot of modern businesses nowadays give employees early shares of the company’s profits as equity. 

In the future, equity shares will likely come in the form of company cryptocurrency. This way, each business can form its own ecosystem that employees can participate in.

The use of company cryptocurrency will also enable businesses to bypass the fees such as floatation costs associated with more traditional equity-sharing models, so that’s another plus. 

It’s still the early days for company cryptocurrency. But, as crypto adoption continues to increase, we can expect to see more and more businesses adopting it.

What does the future hold for cryptocurrencies?

Cryptocurrency is going mainstream, as analysts project that the crypto market will grow exponentially over the next few years. 

There’s a lot to unpack about the reality of crypto going mainstream as the global adoption of cryptocurrency continues to increase. For one, the nature of crypto has always been at odds with many of the institutions we associate with “mainstream” big players such as governments, central banks and venture capitalists.

At the heart of crypto is decentralization, which also means transparency, immutability and security. Crypto was built on the heels of an economic crisis, meant to give back financial power to the people and avoid total economic reliance on fiat money and centralized banking.

Today, the push-and-pull between regulatory bodies and crypto organizations proves that crypto is indeed going mainstream. Regulation isn’t bad, but it’s intriguing to see how centralized institutions are trying to inject a bit of centralized order into the seemingly unruly and rebellious world of crypto.

With more and more countries legalizing cryptocurrency, and even some looking to follow El Salvador’s footsteps in making crypto legal tender, it’s clear that crypto will never fade into the background anytime soon.

Needless to say, the future of crypto is inextricably woven into the future of business, technology, and society in general. At the rate things are going, analysts project that the cryptocurrency market will have tripled in size by 2030 at a valuation of around $5 billion.

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Reputation DAO: Would you give up privacy for unsecured loans in DeFi?

Reputation DAO: Would you give up privacy for unsecured loans in DeFi?

CoinRegWatch05 mins

The platform intends on leveraging users’ personal financial information such as credit score and AML/KYC to help reduce the collateral needed to take out a DeFi loan.

An ambitious new decentralized autonomous organization (DAO) has built a data service for lending platforms that records a user’s financial reputation to reduce the amount of collateral needed for a loan.

It has partnered with Chainlink and that protocol’s founder Sergey Nazarov is an early backer.

Users of Reputation DAO will have traditional financial data such as anti-money laundering and know-your-customer (AML/KYC), credit scores and banking data tied to their account. The data is designed to help ease friction in obtaining a loan from a decentralized platform, but raises questions about security and the principles of zero-knowledge lending.

The Reputation DAO team told Cointelegraph its connection with those traditional financial authorities is “critically important to remove some of the trust barriers related to under-collateralized lending.”

Decentralized finance (DeFi) protocols such as AAVE (AAVE) and Maker (MKR) require users to put down at least 150% the value of the loan they wish to take out. This overcollateralization protects the protocols from insolvency in the case of liquidations due to volatility since the loans are made through zero knowledge smart contracts.

While the Reputation DAO team said “retail consumers are getting more comfortable with algorithmic loans,” it also pointed out that “institutional interest is growing at a rapid rate.”

That institutional interest is clearly demonstrated by the $222 million of seed and strategic funds invested in DeFi protocols since March 15 according to crypto fundraising tracker Airtable. Reputation DAO is one of those protocols and closed a $4.7 million seed round on April 13 led by Chainlink co-founder Sergey Nazarov and AirTree Ventures.

But for many DeFi users, tying sensitive financial data to a blockchain based lending platform raises security and privacy concerns. Some users may be more comfortable putting down higher collateral on a DeFi loan if the protocols do not have access to their information, thereby keeping their identity confidential.

Reputation DAO assured Cointelegraph that its partnership with the industry leading information oracle Chainlink, which uses the privacy-preserving protocol DECO, helps keep its users’ data secure.

Cointelegraph reached out to an active and successful DeFi investor who asked to go by the name “Unseo” for his thoughts. He said that he would be wary of using Reputation DAO to help get a loan. He argued that such a service “would make the DeFi system more fragile,” and that  “I’d be trusting the judges of other participants’ creditworthiness instead of going off math.”

“Even though I have good credit, I’d rather not use a more fragile system for the convenience of having a better utilization allowance.”

Related: First steps: Basic tips for getting started investing in DeFi

Time will tell how DeFi users will react to Reputation DAO’s value proposal.

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