DAOs and NFTs — what in the interconnection is going on?
There are several blockchain-based technologies available today, but the key to their success lies in their active interconnection. The resulting network may not always be immediately apparent. This article aims to shed light on the relationship between DAOs and NFTs.
Recognizing DAOs & NFTs
Let’s start with some basics:
A DAO, short for Decentralized Autonomous Organization, is an internet-native, blockchain-governed, collectively owned organization. Unlike traditional organizations, DAOs do not have a central authority. Instead, they work towards a shared mission or goal, with their fundamental guidelines and governance outlined in a White Paper. Voting mechanisms, implemented through protocols, play a central role in these entities, ensuring transparent decision-making processes. Many DAOs have their own native tokens, which can be used as a treasury.
NFTs, or Non-Fungible Tokens, are unique, identifiable, valuable, and exchangable units of information stored on a blockchain. They can take various forms, with popular examples being colorful 2D images in JPEG or GIF format, as seen in projects like CryptoPunks. The diversity of token types allow for a wide range of possibilities and momentum.
The beginning
Although the concept of DAOs has been around since 2014, TheDAO was the first widely adapted implementation in 2016. This being 2 years before the ERC-721 token type was implemented on the same network, Ethereum. With at some point close to 14% of the Ethereum tokens available, it became one of the most popular crowdfunding projects until today. Unfortunately, it was hacked that same year and had to be dissembled. Nonetheless, it continues to influence on how value is distributed in the space.
DAOs in the Arts and Economy
The combination of a technological manifested networks and a built in applicable treasury, implies a great foundation for collective investing groups for buying digital goods, such as NFTs. Despite the fact that DAOs are widely used for collective investments in NFT projects, it’s important to keep in mind that in combination with NFTs, they are not exclusively NFT funds. However, most of the funds with the goal of profiting off re-sale value are neither collectively structured nor specifically decentralized. DAOs can serve a variety of purposes, including promoting the growth of up-and-coming NFT artists or cultivating a network or community. WhaleDAO, one of the first funds for NFT purchase as collective, began as a private collection by WhaleShark, before becoming a group endeavor to purchase NFTs. Instead of focusing of potential profit of resales, their objective is to create a sizable collection of NFT artwork that is significant on a worldwide scale. A path that lead to further advances regarding Collection DAOs.
In come DAOs with a specific art focus. One that operates within this framework, is UnicornDAO. As the founding members realized, that fewer than 5% of NFT artists were women by 2021, they decided to challenge the structural status quo using the tools offered by the Web3 ecosystem. Aside regular funding that the DAO receives, each member provides an initial membership fee when entering. Based on this, only works by persons who identify as women and LGBTQ+ are bought and collected by the DAO.
Consistency, which the technology framework may give, can change the canonization and the value assessment of individual artists over time. Or, as in the case of UnicornDAO’s work, entire social groups.
What all these examples have in common is the transfer to not only support of collective authorship, as it is the case with many NFTs. But also regarding collective ownership. In that sense, this quality is important since it democratizes individuals’ purchasing power when it comes to expensive pieces of art.
The potential for collective benefiting from the sales of NFT Art is reversed by NounDAO. They offer a single, one-of-a-kind NFT in their distinctive PFP style every day. The full earnings is transferred into the DAO’s treasury, which are eventually used to finance external projects. Why use a DAO? Considering that the consensus process for choosing which project to fund is based on the blockchain and uses automated smart contracts, this technology provides trust through transparency.
Collective Investment and Governance
Through their governance frameworks, which allow members to participate in the deliberation and execution of choices, DAOs enable communal investment decisions. Compared to conventional models, this communal decision-making enables a more inclusive and decentralized approach. DAOs let individuals to work together, compete, and create alongside other entities, promoting creativity and ownership.
Legal Framework and Fractional Ownership
DAO statutes, which give these companies legal standing and limit their liability in a manner similar to how LLCs do, were first introduced in Wyoming, Vermont, and the Virgin Islands. Additionally, within collector DAOs, fractional ownership models have developed, enabling people to own a portion of an NFT, making it more available and inexpensive.
Technological Landscape
The majority of DAOs are created on the Ethereum blockchain, however there are also DAOs on other blockchains, like Cardano and Solana. Contrary to popular belief, NFTs are not necessary to structure a DAO, as there are various models available. NFT integration is an option offered by token-based membership DAOs, but it is not necessary.
Challenges and Overcoming Them
For DAOs, the creation of novel methods and systems for the arts and society is a challenge. DAOs, however, can get past these obstacles by taking cues from many aspects of the outside world and recognizing that everyone has varied needs. They act as instruments for creating frameworks, non-hierarchical funding procedures, and accepting complexity.
Victoria Pluto is a researcher and Art Consultant. She is a Web3 Talent (DLT Talent and NFT Talent) with the Frankfurt School Blockchain Center .
