The Next Flippening: More DAOs than Tokens

DAOs are communities, DAOs are ecosystems, DAOs are investments, there will be more DAOs than tokens.

Currently there are 1500+ tokens and ~50 DAOs (Across Molochs, Aragon, DAOstack as well as individual token DAOs). This is the next flippening I’m interested in, a flippening where DAOs outnumber tokens. The exact path to this flippening is still unknown & something we’re still discovering, but there are three key premises behind this prediction:

1. There are more communities than companies.

2. Small DAOs will be more fruitful than large DAOs.

3. A large portion of tokens will utilize this new DAO infrastructure that’s being developed.

To expand on these above points, firstly, DAOs can be formed around communities that more ‘traditional’ token couldn’t. A good example of this is what’s being planned with the Blockchain Association of New Zealand — spinning up a grant giving DAO, where different tiers of members contribute different amounts of DAI, focused on increasing the education & adoption of Blockchain technology in New Zealand. A community effort that can utilize the trustless & transparent nature of a DAO.

Secondly, the idea that small, purposeful DAOs will have more impact than larger, wider reaching DAOs. As has been seen by the Moloch implementations to date — MolochDAO, MetaCartelDAO, MarketingDAO & OrochiDAO to name a few. This idea was reiterated by Vitalik this weekend at ETHWaterloo after I asked a question during the Q&A referencing this idea, his take was that this stage of start small, develop and have lots of little experiments approach is going to be more fruitful over the long term.

1:35:59 — Vitalik expanding on big DAOs vs small DAO experimentation

Thirdly, the idea that many existing tokens will utilize some of this DAO infrastructure seems incredibly likely. Over $24 billion dollars has been raised on the back of different tokens, and it seems like as an industry we’ve started throwing away the baby with a bathwater full of tokens. Although clearly a number of these tokens had misaligned incentives, confusing launches and unfair distributions, it’s becoming progressively more clear that these DAO mechanics can help solve some of these issues.

As a massive supporter of the ‘tokenize the world’ idealism over the past few months/year there’s been a serious shift in the way people are discussing tokens, whether laughing at shitcoins at Devcon, VCs talking about how they haven’t seen a single good token model that doesn’t have burn mechanics at SFBW or whether just observing the current crypto twitter environment, tokens have lost their love.

One of the core reasons this has taken place is because these tokens were developed at a time where the concept of DeFi was yet to take over the world and there certainly wasn’t Multi-Collateral Dai (MCD) being pitched with a Dai Savings Rate (DSR) inbuilt into the the base, stable currency. Now that we have cDai, rDai and many more DeFi building blocks, it changes this game significantly. The composability of both financial & community lego blocks will create a new phase of ‘token economics’.

The way this rapid iteration is possible is because of the underlying philosophy & psychology of the Ethereum ecosystem, the concept we’ve been calling Decentralised Minimalism.

This concept encompasses taking one incremental step at a time towards the socially accepted best method. Best being defined by one of the most internet native, geographically & ethically diverse communities on the planet. This can be seen clearly in a few unique examples:

1. The DAO, Ethereum / Classic Hardfork: Social consensus was reached and the huge majority of Ethereum community & developer mindshare followed the ‘new’ Ethereum. Regardless of the Bitcoin community pushback to the fork, the uncertainty it brought or any other consideration, social change led the way.

2. The Moloch DAO iterations: By starting with the ‘minimum viable DAO’ and focusing on building value driven communities that can execute on collective outcomes, Moloch has been able to slowly improve, one social consensus or code addition at a time.

3. The way new technology/chains are thought of by the Ethereum community: Any amazing new 1,000,000 tps blockchain that actually manages to deliver a working product has three possible outcomes:

  • a. Everyone drops their development on top of Ethereum and instantly starts utilizing the new blockchain.
  • b. This new blockchain is implemented as a layer 2 (or somehow utilized) by Ethereum.
  • c. Technology slices from the new blockchain are implemented in the Ethereum core codebase.

Trying to argue that a. is the most likely outcome when compared to b. or c. is incredibly difficult. As Ethereum has shown us over the past few years, community is the important part, technology (especially open source technology) can always just be utilized by the most impactful community.

These three different points all broadly reference the same thing that we’ve seen time & time again in the space, what we’re developing here is the most adaptive community & technology in the world. Through holding truth & transparency as the highest values for our communication & technology selection.

One of the most influential iterations within MolochDAOs is the qualitative “people based” inflationary funding. As opposed to previously discussed block reward inflation, MolochDAOs implement what I’ll call ‘social inflation’ where shares are issued based on the social consensus of the DAO. If the DAO members agree that value has been added to the DAO, shares can be issued without any ETH/DAI entering the DAO, effectively deflating all other shareholders of the DAO.

A great example of this is the MetaCartelDAO where 1 share currently equals 0.87 ETH.

Now what does this social inflation have to do with tokens? Well, the suggestion is that many tokens should start to adopt this social inflation strategy. Although a ‘hard cap’ in total supply develops scarcity & store of value elements learnt from Bitcoin, this scarcity isn’t how to grow communities.

Bringing this all back, tokens need to become more iterative, in a cold, hard, decentralized world — without iteration you die. Between composable DeFi building blocks & the iteration behind the MolochDAOs, the majority of token models will likely begin to leverage these learnings as time goes on.

This iteration will continue to grow the DAO space at rapid pace, something we’re incredibly excited to see & participate in!

Axia Labs has been working with innovators, enterprise & token projects since the company’s inception in 2017. We try to interact with every working DApp, DAO & token that adds value to the ecosystem as well as building incentive mechanisms & governance structures for many of the most loved projects in the space!

Huge thanks Ven Gist, Peter ‘pet3rpan’ and all the rest of MetaCartel for the massive inspiration for the article.

Founder of Axia Labs —