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1. The definition and origin of DAO

DAO is Decentralized Autonomous Organization, translated as "decentralized autonomous organization". DAO is a decentralized organization that enables participants to vote for consensus decisions on organizational resources, event execution, and fund allocation through smart contracts and governance coins.

DAO has a Treasury (vault), and no one has the right to control these funds without the DAO review process. All capital expenditure rules are written in DAO's smart contract through code. DAO decisions are governed by proposals and voting to ensure everyone in the organization has a voice.

The reason for the exploration of DAO is mainly derived from the core idea of ​​blockchain: group consensus. The underlying infrastructure of Web3 is pursuing trusted network, trusted computing, and trusted storage. These infrastructures have initially been able to support the new business application model of Web3, and naturally have to keep up with the governance structure, so decentralized autonomous organizations are needed (DAO) to complement trusted governance.

• Compared with the traditional organizational structure, DAO has the following advantages:

• More transparent: Real members/users of the community can vote through governance tokens, and can also view votes, resolutions and developments, etc.;

• More reliable: DAO has no single point of failure, no cost of trust, and only needs to trust the code of the DAO smart contract, which is 100% transparent and verifiable by anyone;

As a new paradigm of organization in the Web3 field, DAO undertakes the important mission of reshaping the governance structure.

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2. Governance tools of DAO

In order to achieve group consensus efficiently and orderly, DAO generally needs to use many basic tools in the process of decentralized governance, mainly including the following five categories:

1. DAO Launcher

DAO Launcher is a functional framework, mainly used to create DAO, run DAO, vote, etc., among which Aragon and DAOhaus are the current mainstream. It is also possible to deploy DAO without a starter, but this will increase the development difficulty and workload of the community.

2. Identity authentication class

There are many kinds of identity authentication DAO governance tools according to their purpose, some are to find community contributors, and some are to find accurate users.

BrightID is a solution to know if someone has only one identity in one system. It can solve the problem of uniqueness of identity. POAP (Proof of attendance protocol), also known as "Proof of Attendance Protocol". Used to mark participation or attendance at an event. Participate in activities, get NFT commemorative badges, and put your life experience, community experience and achievements on the chain.

3. Organization and coordination

Organizational coordination includes organizational collaboration and community communication. Among them, the collaboration tools of DAO mainly include The DAOist, Radicle, etc., among which Radicle is a decentralized code collaboration network built on an open protocol; the community communication tools mainly include Discord, Twitter, Telegram, etc.

4. Proposal Governance

Proposal governance includes initiating proposals, voting statistics, and collaborative execution. Among them, Snapshot is commonly used for voting, which is a lightweight governance tool used to initiate proposals and votes. It can only be used to initiate proposals and votes, and has no other functions; in addition, DAO’s data aggregator and visualization tool Boardroom is also A common tool where DAO members can vote on proposals, as well as view voter profiles and governance activity.

5. Fund management

The governance tools of DAO are of great help to promote the steady development and efficient operation of DAO, and to a certain extent explain "how DAO works".

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3. Development status of DAO

According to DeepDAO statistics, in terms of DAO funds, the current DAO Treasury funds have exceeded 9.1 billion US dollars, of which there are 89 DAOs with an AUM of more than 1 million US dollars, nearly 56 with an AUM of more than 10 million US dollars, and nearly 15 with an AUM of more than 100 million US dollars. . In terms of users, the total number of governance token holders exceeds 1.7 million, and active DAO participants are 660,000. The development status of DAO, on the whole, still has a lot of room for growth.

1、Protocol DAO 

According to the organizational purpose of DAO, the current DAO can be mainly divided into the following types:

The mainstream value embodied by DAO appears in the form of Protocol's native governance token. After many DeFi protocols mature, they will usually transform into a DAO governance model, returning some or all of the decision-making power to the community, so that the governance tokens issued by them can really play a role. For example, MakerDAO, Compound, Curve, SushiSwap, BitDAO, etc.

The top 10 funds in the current DAO Treasury are mainly DeFi Protocol DAOs.

The transactions of protocol DAOs are relatively simple, and the general process is to initiate proposals, vote, and execute governance. However, the governance rights of protocol DAOs are often closely related to interests. There have been many incidents of governance attacks launched through the DAO mechanism in the DeFi field. for example:

Curve Finance was attacked by the USDM team Mochi Protocol: Mochi Protocol used a large amount of governance currency COCHI INU to over-collateralize Mochi Protocol to generate stable currency USDM, and then went to the USDM-DAI stable currency pool on Curve to exchange a large amount of DAI, in order to obtain more attack income, the team then used DAI to purchase a large amount of Curve Finance governance currency CVX, and then launched a governance attack on Curve Finance-initiated a proposal "to increase the mining yield of the USDM-DAI pool", and passed CVX voted to approve the proposal. This attracts more funds into the pool, until the USDM-DAI stable currency pool reaches a liquidity of 100 million US dollars, the project party will mortgage a large amount of Mochi to generate USDM, and then exchange it into DAI through the stable currency pool, thereby obtaining about 30 million Dollar.

2、Venture DAO

In this case of governance attack, Protocol DAO’s governance currency was fully utilized. It’s just a pity that the governance rules of DAO were first researched clearly by malicious attackers.

The earliest The DAO was actually an investment DAO. The world's first DAO project in 2016 - The DAO - is a decentralized venture capital fund. The DAO is the first demonstration of how a decentralized organization running through code can govern itself. During the financing period of Venture DAO, a total of 11,000 people invested 11.5 million ETH. Participants provided ETH to The DAO and received DAO tokens. These tokens represent the economic interests and voting rights of the holders in The DAO. Unfortunately, there was a serious loophole in The DAO's smart contract, which caused the funds in The DAO contract to be drained by attackers, and also caused DAO's attention to drop to freezing point.

Delphi InfinNFT

Recently, Venture DAO has become more and more popular. Let’s introduce the current development of Venture DAO in the market with two projects, Delphi InfinNFT and CultDAO. The former Venture DAO was created and incubated by a well-known traditional VC, while the latter was created anonymously by the encryption community.

Delphi Digital, a cryptocurrency investment and research company, has established an NFT Venture DAO based on the Syndicate platform - Delphi InfinNFT. The fund will invest $5 million in NFT-related projects. Including NFT, DAO, social tokens and NFT market, etc.

CultDAO

It is worth mentioning that in addition to Delphi InfinNFT, the Syndicate platform also has several Venture DAOs: DEO Founder Collective, Komorebi Collective, Terra Ecosystem and Audacity Fund, etc. Syndicate Protocol is a DAO framework supported by Ideo CoLabs. Services include: formation of off-chain legal entities, customization of on-chain smart contracts, ongoing management services, etc.

CultDAO is a decentralized venture capital organization that benefits investors through crowdfunding investment projects and obtaining project share. CultDAO’s investment funds come from the transaction tax of CULT tokens. CultDAO charges a 0.4% tax on all CULT transactions. When the value of the tax is equal to the value of 15.5 ETH in the market, CultDAO will use 13 of the ETH To invest in a project, the remaining 2.5 ETH is used to repurchase CULT and then burn it.

CultDAO issues CULT tokens, pledge CULT to obtain dCULT, the pledge certificate dCULT, and the top 50 dCULT holdings can become "The Guardians" (guardians), they have the right to initiate proposals for DAO, but not the right to vote on proposals; The rest of the dCULT holders except the top 50 are called "The Many" and have the right to vote on proposals but not to initiate proposals.

Under normal circumstances, CultDAO’s investment in the project is proposed by The Guardians and voted by The Many. If the proposal is passed, the CultDAO Treasury will allocate 13 ETH for investment; if it is not passed, the proposal will be terminated.

The CultDAO project has attracted the attention of the crypto circle some time ago because of the skyrocketing price of its token CULT and its "huge but anonymous founder in the industry". Recently, it has successively passed investment proposals for Arc Finance and MoonDAO. However, it is worth noting that, compared with the investment scale of most Crypto Funds, the amount of funds invested in a project of 13 ETH in the primary market does not seem to be very competitive.

3、Creator DAO

In addition to the above two projects, there are also Venture DAOs such as Metacartel, The LAO, and FlamingoDAO that have developed relatively well. The space is limited, so I won’t repeat them here. At present, the narrative logic and development direction of Web3 largely depend on the top venture capital institutions, and perhaps the voice of Venture DAO will gradually emerge in a few years.

Creator DAO is where creators gather their most loyal fans in an exclusive community. This exclusive club can only be accessed through the token of Creator DAO, usually this token is NFT. Creator DAO allows creators to make a living without relying on centralized platforms and paid placements, and can build a more sustainable source of income. It is also a path to full creator-fan empowerment.

4、Guild DAO 

There is no phenomenal Creator DAO yet. IreneDAO was initiated by Irene Zhao. It has a little shadow of Creator DAO, and it has been relatively successful in marketing. However, IreneDAO has no clear terms to stipulate the value and use of NFT, nor has it set up a DAO Treasury to manage funds based on the votes of DAO members. Therefore, although IreneDAO claims to "completely change the creator economy with a simple way of making money, and 100% of the proceeds are used for charity and DAO operation", it still lacks the necessary features of more Creator DAOs.

Guild DAO is a kind of guild governance DAO, which currently focuses on game guilds. There are mainly guild DAOs such as Yield Guild Games, Path DAO, and Good Games Guild.

5、Charity DAO

Taking YGG DAO as an example, analyze the governance model of Guild DAO. YGG DAO implements DAO governance in the form of customized SubDAO (sub-DAO) for participating games. For example: League of Kingdoms (YGGLOK) and Splinterlands (YGGSPL), etc. Each sub-DAO will have its own independent economic model and governance model, but still contribute revenue to YGG DAO as a whole. Each sub-DAO has an exclusive responsible player to manage the corresponding game assets and tokens, and can borrow NFT from the YGG treasury. However, YGG's management method is still relatively centralized in nature, and the misappropriation of assets requires at least two of the three co-founders to sign.

Charity DAO should be easy to understand, it can accept donations from anyone in the world, and use these funds in the form of DAO to do charity transparently and credibly.

Four. Summary

Four. Summary

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DAO is a new paradigm of organizational structure in Web3. From the narrative logic of Web3, this is a subversive social structure paradigm revolution, which will reshape the social governance structure and the underlying business model. To realize the paradigm change of Web3, at least the following three revolutions must be realized:

First of all, the infrastructure of Web3 must be improved. The most important infrastructure includes trusted network, trusted computing and trusted storage, so Layer1, Layer2, CrossChain, Tokenbridge and Storage are very important, and they are also the first basic protocols built in the industry;

Second, build the core components of Web3. The decentralized autonomous organization DAO realizes the trusted governance of Web3, and FT, NFT, and Stablecoin together constitute the economic system of Web3;

Finally, it must be empowered in various application scenarios. Starting from changing the financial industry, Web3 will gradually reshape the business models of various industries, such as Finance, Game, Social, Metaverse, etc.

The development prospect of DAO is promising, but DAO is not a panacea for all organizational problems. To achieve sustainable development, a DAO must at least have the following three basic elements:

First, DAO must have a reliable common goal. This group of people gathered in a decentralized organization must have a reliable, clear, and common goal. The size of this goal and the length of the realization cycle determine the scale and life cycle of this DAO. A group of people do something that can truly create value, and only by starting with the end in mind can we make steady progress;

Second, DAO must have a rigorous governance mechanism. DAO is an autonomous organization. Most DAOs are free to enter, and you can exit at any time. In this case, there must be a set of strict governance rules to ensure the orderly and efficient operation of DAO. Credible governance is not blind trust, it is distrust, does not test human nature, and is bound by a complete smart contract mechanism;

Third, DAO needs an effective economic incentive mechanism. DAO is jointly determined by proposals, smart contracts and Treasury to determine the economic incentives for community contributors, and the rewards may be stable coins, governance tokens/protocol native tokens. Most people in this world "believe because they see it", and only a few people "see it because they believe it". Therefore, DAO still needs to set up an effective economic incentive mechanism to balance the relationship between the contribution and income of DAO members.