DAOs 🏢 (Part 2) + First episode of the Perfunktory Podcast
The Original 'DAO'. Different types of DAOs and their memberships + podcast episode
Hi, Ravdeep here. 👋
Perfunktory is a newsletter that aims to break down trending subjects in the field of Music, Technology, Gaming and Culture as perfunctorily as possible. We also have a podcast in the works which can be found here on Spotify, Apple Podcasts and Google Podcasts.
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Welcome to a new edition of the Pefunktory newsletter. Thank you for giving so much love on the first part of this topic and on the first episode of the podcast. I had a lot of fun recording it but trust me, it is not easy at all 😅 If you haven’t heard it yet, check it out on one of the links below:
What’s The Hype with NFTs?
Apple Podcasts: Click Here
Google Podcasts: Click Here
Alright, time to get back to DAOs. In the last part, we discussed what DAOs are, how do they work and why we need them + a quick look at the differences between DAOs and traditional organisations.
For this issue, we’re going to get into more technical details, talk about the original DAO, types of DAOs and the different types of memberships. Let’s begin!
Story of the original ‘DAO’ 🏚
The DAO was an organisation that was designed to be automated and decentralized, acting as a form of venture capital fund based on an open-source code and without a typical management structure. To be fully decentralized, the DAO was unaffiliated with any particular nation-state, though it made use of the ethereum network.
The developers of the DAO believed that they could eliminate human error or manipulation of investor funds by placing decision-making power into the hands of an automated system and a crowdsourced process. The DAO was designed to allow investors to send money from anywhere in the world anonymously. The DAO would then provide those owners tokens, allowing them voting rights on possible projects. It launched in April 2016, after a month-long sale of tokens, raising more than $150 million in funds.
In June of that year, hackers attacked the DAO based on vulnerabilities which were published in a paper back in May 2016. The hackers gained access to 3.6 million ETH, worth about $50 million at the time. Some investors of the DAO suggested ways of addressing the hack while others were calling for the DAO to be permanently closed. The DAO operated in ambiguous territory about whether or not it was selling securities, as well. Further, there were long-standing issues regarding the way that the DAO would function in the real world. Investors and contractors needed to convert ether into fiat currencies, and this could have impacted the value of ether. in September 2016, several prominent digital currency exchanges de-listed the DAO token, marking the effective end for the DAO as it was initially envisioned.
Types of DAOs 🗂
Although the original DAO did not work, it did give way to the thought that something like this can work out in the future. These are some of the broad categorisations of DAOs:
Protocol - Protocols distribute a governance token (we’ve covered this in the last part of this topic) enabling their past and present users to vote on network decisions.
Project - These organisations are closest to traditional firm structures. The organisation develops and ships products and services, aided by token economics and incentives. Revenues flow back into the treasury governed by the tokenholders.
Investor - Stakeholders pool capital into these organizations and receive a voting share to decide on what the DAO should invest in. Owners pool their knowledge and expertise to build a portfolio of investments aligned with their investment objectives. (This was the concept of the Original DAO)
Curator - A similar structure to the investor DAO but with a more specialized focus on asset and NFT art curation at the moment.
Creator - A creator fractionalizes an NFT that represents a valued asset they created and distributes the ownership to a number of fans and supporters.
Community - Tokenized communities can organize around a shared interest or person, and use a DAOs token to gate a certain social space, like a Discord server or a Telegram group.
Guilds - These entities focus on talent coordination to provide a high-quality, contracted service to a buyer. Freelancers and individual contributors benefit from the organization’s distribution and marketing channels and their ability to connect top talent with top projects, allowing contributors to work broadly across the ecosystem.
Types of DAO Memberships 📝
Let us look at the different types of DAO memberships that exist which will give you further insight into the possibilities with this model:
Token-based Membership 🎟
Usually permissionless, these governance tokens can be traded on a decentralised exchange. Others must be earned through providing liquidity or some other ‘proof of work’. Holding the token grants access to voting.
Eg. To govern decentralized protocols and/or tokens themselves.
Share-based Membership 🎫
Permissioned but still quite open. Any prospective member can submit a proposal to join the DAO, usually through an offering in the form of tokens or work. Shares represent direct voting power and ownership. Members can exit any time with their proportionate share of the treasury.
Eg. Used for human-centric organisations like charities, investment clubs etc.
Personally, I believe just like for every other piece of technology that exists, the best bits of DAO will further evolve into making a system that a big chunk of the population will adopt in the coming years. Heck, even I am interested in starting a DAO and see how things work. I will be sharing more on how to join a DAO and how to build your own DAO on Perfunktory’s Instagram and Twitter. Be sure to follow us there and on Twitter to stay up to date with everything.
I hope you enjoyed this issue and the podcast. I would love to get your feedback and recommendations on what we could improve.
Thank you and have a brilliant week ahead. Would be great if you could share the newsletter and podcast with your friends and family as that helps a lot and hit that little heart button!