An in-depth analysis of investing in DAO: potential, current status, and challenges in achieving investment democratization.

23-08-14 22:00
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Original author: Global Coin Research Team
Translation: Deep Tide TechFlow

Throughout history, the democratization of financial power has always been a struggle. The story of finance is filled with examples of a few people exercising power over the majority. From medieval merchant guilds controlling trade and excluding outsiders, to Wall Street titans in the 20th century often acting as gatekeepers of wealth creation, the financial world is characterized by persistent power imbalances.

A new chapter has arrived. Investment DAO has emerged. Its goal is to democratize investment, break down the barriers of traditional finance, and empower many instead of a few. Through blockchain technology, these organizations provide individuals with a new, more inclusive way to pool resources for collective investment.

In this report, we will comprehensively explore various aspects of investing in DAO and its potential. Our goal is to reveal the future of decentralized, inclusive, and democratic investment.

Why Choose to Invest in DAOs

To truly understand the revolution that investing in DAOs brings, we must first understand their unique characteristics and advantages.

Risk investment and investment DAO have unique characteristics and functions in the financial ecosystem.

Venture capital represents the traditional situation of investment, characterized by centralized decision-making. The advantages of this model lie in quick decision-making and the expertise of partners. However, the limitations of venture capital are obvious, as it is usually limited to recognized investors, excluding an important part of potential contributors.

In addition, the decision-making process of venture capital lacks the diversified insights provided by investing in DAOs, which may result in overlooked opportunities in niche fields. Furthermore, the traditional venture capital model requires significant time and capital investment from both investors and invested companies, which further limits its effectiveness.

Investing in DAO represents a shift towards decentralization. Unlike traditional methods, power is not centralized but decentralized, allowing all members to participate in voting and decision-making. As a result, these organizations leverage collective intelligence to discover promising opportunities in emerging fields.

The following table compares the characteristics of venture capital and investment DAO from the perspectives of purpose, decision-making methods, professionalism, accessibility, timeliness, and potential opportunities:

Classification of DAO Investment

According to their areas of interest, investment in DAOs can be classified into different categories. Let's introduce them one by one:

Comprehensive Investment DAO can include various types of assets, such as tokens, equity in startups, non-fungible tokens (NFTs), etc. The key feature of a Comprehensive Investment DAO is its flexibility and wide range of investment opportunities.

Examples of comprehensive investment DAOs include:

- Global Coin Research: A community-focused research and investment DAO, specializing in Web3.- Metacartel Ventures: Invests in DAOs and provides funding and support for early-stage projects in the Ethereum and broader Web3 ecosystems.- Spaceship DAO: a group composed of native cryptographers, founders, builders, and investors, investing in blockchain startups and emerging crypto networks.- BitDAO: The largest DAO guiding funds, supporting the growth of open finance, and helping decentralized token-based economies.

- The LAO: An investment DAO with a profit-oriented goal, supporting projects in the Ethereum and blockchain ecosystems.

Domain-specific investment DAO is a DAO that specializes in investing in specific fields or areas of interest. These DAOs leverage the collective knowledge and expertise of their members to make informed investment decisions within their chosen domain.

Examples of domain-specific DAOs include:

- Seed Club Ventures: Supports early founders building at the intersection of Web3 and community.- Layer2DAO: A second-layer scaling solution for investing in the Ethereum network.

- ZeroDAO: Supporting the growth of zero-knowledge technology.- Hydra Ventures: The first DAO fund that invests in other investment DAOs.

- BeakerDAO: Supporting the growth of decentralized science.

- Komorebi Collective: The first investment DAO dedicated to funding female and non-binary founders in the cryptocurrency industry.

Investment DAOs with a focus on NFTs are primarily dedicated to investing in NFTs. These NFTs can represent a variety of tangible and intangible items, ranging from digital art and music to virtual real estate and even rare physical items.

Examples of investment DAOs with a focus on NFTs include:

- Upside DAO: A investment DAO focused on Australia.

However, it is worth noting that despite the geographical focus of these DAOs, their members are typically global, leveraging the power of the internet and blockchain technology to bring together investors from around the world to invest in specific geographic regions.

Investing in DAOs has introduced a new investment structure that utilizes decentralized and blockchain technology. There are typically two types of membership options for investing in DAOs:

Once you join the club, the game begins. As a member of the DAO, you will participate in due diligence and conference calls with potential portfolio companies. You have the right to speak, vote, and decide whether the DAO will invest in a project, such as BitDAO. Other DAOs allow you to invest personal capital in a project, like Global Coin Research.

Some DAOs will use membership fees to invest different amounts in each project. Just like Hydra Ventures, Seed Club Ventures, and Flamingo DAO. Both of these approaches provide members with more control over their investment portfolios and risk levels.

Finally, members will wait for TGE so that their assets have liquidity. During this period, members can help the investment portfolio company succeed by marketing, recruiting, and providing other support to further increase the success rate of their holdings.

Investing in DAO Design Space

Although investing in DAOs is revolutionary, it also faces a series of challenges. As we delve into the complexity of these entities, we have identified six key areas that, if addressed, will greatly enhance their functionality and impact.

First, let's start with risk management. Like any investment entity, investing in DAOs comes with risks. However, in the world of DAOs, these risks are amplified due to their decentralized nature and the inherent volatility of the crypto market. Imagine if we could develop powerful risk management strategies specifically tailored for DAOs to protect the upside potential of investment portfolio companies. The impact would be transformative.

Next, let's consider the concept of dynamic voting rights. In the current system, voting rights are static and based on token holdings. But what if we could implement a dynamic system where voting rights are also influenced by members' contributions to the DAO? How would that work? Successful investment proposals or active participation in governance could allow you to have more say in the decisions of the DAO.

Next, there is the idea of a cross-DAO reputation system. Imagine a reputation system that can work across multiple DAOs, incentivizing good behavior and discouraging malicious behavior. Members can earn reputation points through positive contributions and lose points through negative behavior. This is like a credit score in the world of DAOs.

We also see the potential of the DAO Incubator program. Experienced DAO members can provide guidance and support to new DAOs, helping them address common challenges and avoid potential pitfalls. It's like providing a mentorship program for DAOs, creating a supportive environment for growth and learning.

DAO-to-DAO service is another area worth exploring. DAOs can provide various services to other DAOs, from technical services to governance consulting. This can create a dynamic ecosystem of DAOs supporting each other, fostering a sense of community and shared growth.

Finally, a DAO operations and legal toolkit is also needed. For DAOs, navigating the complex legal landscape can be a daunting task. A toolkit that includes template legal documents, relevant legal and regulatory guidance, and resources on how to operate and invest in DAOs would be beneficial for operators and could lead to a significant increase in investment in DAOs.

The exploration of investing in DAOs has opened up a new field in the financial world. Although this journey is partially unknown, the revolutionary potential has the ability to change the landscape of the investment industry.

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