Investing with DAOs for dummies
Learn how to start an investing club in just under 5 minutes !
Investing in Web3 assets nowadays can become quite burdensome for a lot of us, as prices of NFT assets such as BYC (Bored Ape Yacht Club) NFTs average around $100k. What if however there was a way to invest as a group, with friends or family. This would put less economic pressure as costs would be shared among the members of the group. It could also help getting the members more motivated, generate a sense of teamwork and togetherness.
Creating such an investment club is now possible through what are known as investment DAOs ! DAOs, as a reminder, are organizations that rely on the autonomous and decentralized nature of smart contracts, and where tokenholders participate in the management and decision-making of an entity. This entity can be a protocol like a decentralized exchange (Uniswap), a media outlet (Decrypt), or like in our case, an investment club! The advantage of structuring your investment group as a DAO is that it allows for safe, secure, and truly democratic decision making processes, all thanks to the power and reliability of web3 smart contracts.
Of course, there are numerous ways of organizing an investing club through DAOs, but here we will focus on a specific combination of web3 and DAO tools that enable a formal and robust investing structure.
Here are the three main components that are needed to create an investing club DAO:
- a community wallet shared among the members of the club which will contain the investment assets as well as the money pool used for free investing
- a control board for visualizing the transaction history, managing the status of members in the group, and summarizing the list of assets contained in the wallet in a decentralized manner
- a voting mechanism which allows members of the club to decide on major decisions collectively and democratically
Luckily, there are existing easy-to-use no code tools for each required mechanism!
Gnosis safe, a multisig wallet
The most fundamental requirement for purchasing and trading web3 assets is a crypto wallet. Of course, in the context of our investment DAO, this needs to be a shared wallet among multiple individuals. In order to ensure that no one member holds absolute and exclusive control over the wallet, Gnosis Safe provides a multi-signature (or multisig for short) wallet, that is a wallet that has multiple keys held by different people and requires more than one confirmation for any transaction to go through. This way you can safely create a community wallet for the the investment club where the access to funds is secure and decentralized.
Syndicate, a powerful DAO dashboard
Afterwards, you’ll want a way to both visualize any transaction, investment that goes through the DAO and manage the people who are members of the investment club. On top of that you’ll need governance tokens for the DAO that represent your stake in the organization. Doing all of this from scratch can be a hassle, but thanks to Syndicate you can directly access all of this features out of the box!
Through Syndicate, you can create your own ERC20 governance token, and members will have to deposit crypto assets (usually USDC stablecoins) in order to obtain the governance tokens and join the club. You can then link a Gnosis safe multisig wallet to the platform, and the previously deposited assets are stored in the community wallet, waiting to be used when your club decides to make an investment. Here’s an example of what the dashboard looks like once you have set up everything.
Snapshot, a simple free to use voting platform
One thing still remains to be done in order to have a fully functioning DAO, and that’s a voting mechanism. You could simply have open polls on a telegram channel or a discord server, but in order to have a more formal and robust solution you can use Snapshot.
Simply put, Snapshot is a voting platform that’s already used by major DAOs (Aave, ENS, Curve finance etc.) and which proposes a wide array of voting strategies. The major advantage of using Snapshot is that it can be linked to the ERC20 governance tokens that you have created with Syndicate. This allows for strategies where for instance 1 vote = 1 token and therefore the weight of your vote is proportional to your stake in the club (there are much more strategies than this but we’ll discuss about these next time).
Members of the DAO can be verified on Snapshot through their ownership of club tokens and make investment proposals that can be voted on. Here’s what it looks like:
Once the vote has passed, the investment transaction can either be made manually by the holders of the Gnosis safe wallet keys (usually the founding members of the club), or go through an automated and more secure process thanks to SafeSnap. SafeSnap is a tool developed together by Gnosis and Snapshot, and basically allows transactions to be executed automatically by the Gnosis wallet once a certain proposal on Snapshot has been passed, thus removing any human intervention and creating a truly decentralized investment process.
Now you’ve learned how to create your own investment club in a formal and robust way by using Gnosis safe — Syndicate — Snapshot. Good luck in your investments!
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