GiD Report #190 — The age of DAOs

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GlobaliD

6 min readDec 14, 2021

Welcome to The GiD Report, a weekly newsletter that covers GlobaliD team and partner news, market perspectives, and industry analysis. Check out last week’s report here.

This week:

The age of DAOs
The billionaire v. the DAO
Could DAOs replace corporations?
DAOs in action
This week in web3
Stuff happens

1. The age of decentralized autonomous organizations

Or DAO for short.

Over the summer, the sole copy of WuTang album, Once Upon a Time in Shaolin, was acquired by PleasrDAO (from the U.S. government via Martin Shkreli).

Some DAOs, like Friends With Benefits, are purely social.

Other DAOs, like many of today’s DeFi platforms, are powering tomorrow’s finance.

Could Fortune 500 corporations one day be set up as DAOs? (More on that later.)

Chris Dixon believes that networks should inherently be run as DAOs (rather than corporations). It’s about incentives.

DAOs are “the ultimate combination of capitalism and progressivism,” says Mark Cuban.

In many ways, DAOs represent the spirit of web3. When provided the proper tools — digital money and non-custodial wallets, governance, smart contracts, decentralized identity — we can start to reimagine the future and challenge the old ways of doing things.

2. The billionaire versus the DAO

And the billionaire’s son.

I’m not sure if you could paint a more fitting picture.

On one end, you have hedge fund manager Ken Griffin, worth an estimated $20 billion — the poster boy for traditional finance. On the other, ConstitutionDAO, a loosely organized crypto community on Discord started by two Atlanta-based Millennials working in finance, Austin Cain and Graham, who collectively raised $40 million.

It wasn’t enough:

Why did Citadel founder Ken Griffin buy a copy of the U.S. Constitution last month for $43.2 million? His son told him to.
“I was sitting at home in New York and my son calls me to say, ‘Dad, you have to buy the Constitution,’” Griffin said in an interview after a luncheon hosted by the Palm Beach Civic Association at the Florida city’s Four Seasons hotel. Griffin didn’t give his son’s specific reason for wanting his father to make the purchase.
…
“I told myself, ‘I am going to own this,’” he said. “I don’t do that very often.”

Goliath wanted to win, and he did.

3. Could DAOs replace corporations?

There’s still a lot to figure out:

DAOs could be another way to form LLCs, but can they really replace companies? Crypto-friendly Wyoming passed a law in July allowing people to create an LLC with a DAO that has an Ethereum address. If a conflict arises in a DAO, a judge in Wyoming could rule on a dispute. But this wouldn’t work if one of the parties is outside of Wyoming, Jackson said: That aspect of the law hasn’t been tested.
It’s not either/or. Some DAOs need to register as LLCs and have done so. The LAO is a Delaware-registered LLC that is “primarily administered via an online application (a ‘DApp’) and related smart contracts,” its website says. In other words, the DAO structure provides coordination and voting, but sits on top of the LLC structurally.
One group, CityDAO, purchased 40 acres of land in Wyoming under the law seeking to build a blockchain city. However, after Wyoming recognized another DAO, American CryptoFed, the SEC in November blocked the DAO’s token registration due to a “materially deficient and misleading registration form.” In other words, even if a state recognizes a DAO, it may still need SEC approval to register its tokens.
…
The biggest challenge for DAOs may be their legal status, which is still unclear. “As with many ‘innovations’ in crypto, the primary novelty here seems to be ignoring laws,” Thompson said.

Relevant:

4. DAOs in action

The EOS community isn’t satisfied with Block.one, the company that created the network (co-founded by Brock Pierce). Now they’re taking action:

The EOS community today elected to stop ongoing payments to Block.one — the company that originally designed the network — over claims that it is no longer acting in the network’s best interests.
Those running have stopped the issuance of 67 million EOS ($250 million) that was set to be distributed over the next six to seven years. This will also affect Brock Pierce — a co-founder of stablecoin issuer Tether and co-founder of Block.one — since Block.one said he would have received around half of the tokens.
“Through a super majority consensus, the EOS network has taken its future in its own hands by voting to fire Block.one and stop vesting tokens to them. This begins a new era for EOS and highlights the power of the blockchain to enable a community to stand up against corporate interests that don’t align with theirs,” said Yves La Rose, leader of the EOS Network Foundation.

But DAOs in action can also mean inaction. Democracy can be messy:

SushiSwap, the decentralized cryptocurrency exchange that started with a scandal, is facing a crossroads as infighting among developers has investors seeking to reorganize the supposed autonomous organization.
Two large owners of Sushi tokens, which gives holders governance rights over how the protocol operates, submitted a proposal to restructure the project that may be considered for adoption as early as this week. The plan suggests establishing a more formalized entity to manage the effort, and checks and balances to ensure the proper spending of funds.
SushiSwap was supposed to be “a community-built open-source ecosystem,” in which users could trade directly with each other, without intermediaries, and make operational decisions. But it turned out to be largely controlled by a handful of mostly anonymous developers, who sometimes bypassed community votes and have been seeking to increase their compensation. The discord has led to the trading of accusations of extravagant spending and self-enrichment without community approval or oversight, and the quitting of the exchange’s chief technology officer Wednesday.
“It is physically impossible for every decision a DAO makes to go to a public vote,” Jeff Dorman, chief investment officer at crypto investment firm Arca, which is one of the sponsors of the restructuring proposal, said in an interview. “We are using Sushi as a microcosm for what all DAOs should look like in the future.”

Relevant:

GiD Report #190 — The age of DAOs

1. The age of decentralized autonomous organizations

2. The billionaire versus the DAO

3. Could DAOs replace corporations?

4. DAOs in action

5. This week in web3

6. Stuff happens

Written by GlobaliD