A For-Profit DAO model
With the composability of DeFi there is a near infinite design space for new and novel ideas and products. Many of these products rely on building a good pool of liquidity to enable a good user experience while maintaining decentralization. This means that liquidity contribution needs to be open and providers will expect a return. This leaves the builders of the platform without much of an opportunity to monetize its success for themselves. While some may build the product for the sake of it or secure a grant to do so, having appropriate incentives should greatly increase the pace of innovation.
I laid out some rough ideas in a few previous articles I will attempt to combine here into a model for a for-profit product deploying DAO.
Here are the requirements I am trying to meet
- Money to pay developers for their work upfront
- Open participation in providing liquidity and earning a yield
- Some long term upside for founders
When using the term DAO, I think the Moloch v2 code when released should be sufficient. I am unfamiliar with what legal requirements would need to be in place to launch this, and would welcome any feedback someone wants to share in this area. The example I am going to run through is one I think is probably pretty common. There is a product idea, people interested in launching that product, but they need dev help.
- Compile group of interested parties, launch DAO
- Require deposits and issue shares as all see fit (maybe those doing “work” get more shares, maybe its all even)
- Scope product and get quotes from developers/dev shops
- DAO picks devs and approves proposal to pay for work. This can be done by sending the funds from the treasury, issuing shares, or a mix
- Product is built and launched. Contributions to liquidity pool are only made from the DAO to start. This guarantees the early yield but is also a safety measure in case there is a problem with the application/contracts
- At a predetermined time or event (product usage hits X goal or Y date passes) liquidity pool contribution limitation is removed (anyone can contribute)
- All non-dao contributions are issued with a small tax (1–2%). This is discussed in more detail in the article above.
The DAO should experience better returns than those contributing later. The tax pays earlier contributors but is also a deterrent to short term liquidity provision. Immediately depositing and withdrawing would net a loss. Ideally the delay in opening contribution access will be enough to build some good traction for the product and a liquidity moat against a forked version with no tax implemented. The upside to the DAO is not as great as a major fundraise but hopefully it is sufficient to cover the costs of development and provide a profit to those who risked their time and assets to build the product.
Please drop feedback here or on twitter.
