OWN Insights 07: The Financialization of DAOs and DID
Enjoy the latest OWN Insights, by our Americas Ecosystem Lead, Erick Pinos.
Welcome to the OWN Insights series, where we invite industry leaders to take us on a thought provoking journey through the Web3 space. Throughout this series, industry leaders will be sharing a space, communicating their thoughts, and helping us to better understand the new iteration of the internet. Please enjoy this article written by Erick Pinos, Americas Ecosystem Lead at Ontology.
Web3 is an interconnected set of technologies, protocols, concepts, and frameworks that represent the next stage of a more decentralized Internet. These past few years, we saw glimpses of a Web3 enabled future through Decentralized Finance (DeFi) and Non-Fungible Tokens (NFTs). Both of these technologies enabled new kinds of online peer-to-peer interactions. DeFi allowed users access to financial instruments without meddling middlemen, and NFTs enabled provable ownership of virtual goods such as in-game assets, digital art, or intellectual property.
However, DeFi and NFTs are just two verticals of Web3. Other important verticals include Decentralized Autonomous Organizations (DAOs) for decentralized coordination in the creation of Web3 infrastructure, and Decentralized Identity (DID) for the self-sovereignty of one’s own data while interacting with Web3 services. We can predict what it will take for these remaining Web3 pillars to see similar adoption by studying the history of how the more well-known pillars saw rapid adoption.
DeFi
While DeFi became the most popular blockchain use case in late 2020, many of the most popular DeFi projects existed for years before. MakerDAO launched in 2017. Uniswap, Compound, and Aave launched in 2018. 1inch launched in 2019, and so on. You could use these services for their intended purposes, but it wasn’t until yield farming programs were put into place that usage took off.
Indeed, yield farming took the crypto world by storm in 2020. The prospect of earning tokens with your assets made many a millionaire and captured the attention of many new DeFi projects looking to grow a user base very quickly. As a result, a slew of projects launched in a short amount of time and aimed at capitalizing on this phenomenon. From decentralized exchanges and liquidity aggregators to decentralized lending and derivatives, almost any DeFi project could receive a massive boost in users and total value locked from offering token incentives to provide liquidity to their platform.
It’s no surprise that offering financial incentives will draw in a large user base, but what about retention? Unfortunately, many DeFi projects implemented yield farming unsustainably, issuing massive rewards through inflation of their own governance tokens, resulting in high but short-lived APYs at the expense of their project’s token holders.
NFTs
As the DeFi hype died down in 2021, attention moved to NFTs. It was possible to mint NFTs back in 2017, but it was technically challenging to do so. Even after no-code NFT minting tools became easier to use in 2020, pioneered by NFT marketplaces such as Rarible, it wasn’t until 2021 when prominent artists like Beeple repeatedly sold NFT art for tens of millions of dollars a piece that content creators from all over rushed to mint their art as NFTs in the hopes of earning an income through this new medium. PFP projects pushed the NFT hype forward even more. Why sell one or a few NFT art pieces when you can sell 10,000 programmatically generated variations of the same image?
For better or for worse, the financialization of a Web3 technology accelerates its adoption.
That leaves us with DAOs and DID. There are many Web3 projects that use these technologies today. But unlike DeFi and NFTs, DAOs and DID have yet to see adoption on a similar scale, and I believe it is mainly due to the lack of financialization of these technologies. Once it becomes straightforward as to how users can make money with this tech, we’ll see similar hype cycles and corresponding corrections on the likes of DeFi and NFTs.
Lets see some examples of what such financialization would look like.
DAOs
There are many no-code tools that allow for communities to spin up their own DAOs, such as Snapshot for decentralized proposal-making and voting, and Gnosis for multi-sig management of a group’s treasury. In today’s DAOs, community members vote on governance decisions, elect committees, serve as signers on its multisig, etc. But how are they compensated for their time and contributions? Making participating in a DAO financially sustainable for participants is key for mass adoption.
One such way is through the standardization and automation of bounty programs. Manual bounty programs are cumbersome, with bounty creators needing to write out assignments and claim forms to manually review and disburse payments. If DeFi projects had to onboard liquidity providers one at a time, then manually sit down and disburse yield farming payments to each one, they would have never grown as big as they did as quickly as they did.
Similarly, bounty programs need to be re-invented like an assembly line. Bounties need to become standardized and easy to post, find, take, review, and integrate back into the main project. We also need to expand the idea of what constitutes a bounty to include tasks and micro-tasks. Designing a logo, voting in a proposal, reposting a tweet, and serving on a committee all should be valid bounties with different scopes and rewards. Once bounties become standardized and processes become automated, there could be as many bounty hunters as there were yield farmers.
Decentralized Identity
Currently, data brokers make billions of dollars off of peoples’ data collected via countless terms of service agreements and privacy policies signed every day. You see none of that revenue, and in some cases you can’t even opt out of having your data sold by these data brokers.
DID is a system that attaches decentralized identifiers (DIDs) for people, entities, and objects with verifiable credentials (VCs) that store properties about those identities. This new structure allows for users to hide their data, selectively reveal it only when necessary, and even charge to access it. This opens up a host of new monetization strategies for users. If you owned your own data, you could benefit from directly selling it. Examples are earning revenue for consensually selling your own data for surveys, targeted advertising, studies, and more.
Scalability comes through the automation of these opportunities and programmatic access to such trusted and verifiable data, with streaming payments sent to the provider on a per-use basis. Such a process is not possible without a solid Web3 foundational infrastructure. It needs to become easier for projects to buy datasets directly from the community directly than from buying datasets from data brokers. And, on the user side, it needs to become easy for users to record and sell their data repeatedly easily to as many buyers as they would like.
Conclusion
There are a plethora of Web3 technologies and even more projects implementing them. Financialization of these technologies isn’t all that matters to drive mass adoption, but it is a powerful driving force. We must take great care in implementing it sustainably and with properly aligned incentives in place to ensure Web3 develops optimally.
We are in the early stages and are just beginning to see glimpses of what a Web3 enabled future looks like. But, using the recent past as an example, we can predict what it will look like and what we need to get there.
OWN (Ontology Web3 Network) Infrastructure is a series of blockchain protocols and products that provides the much needed tools to create an interconnected, interoperable global blockchain ecosystem. The infrastructure is bringing trust, privacy, and security to Web3 applications through decentralized identity and data solutions.
Aimed at allowing Web3 developers to quickly build Web3 applications, saving them from creating basic functions from scratch, OWN includes the Ontology blockchain, ONT ID framework and more. Individuals can also seamlessly and quickly access Web3 through products such as ONTO Wallet.
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