(2021-03-23) Mccormick The Dao Of Daos

Packy McCormick: The Dao of DAOs.: all of those people who were tweeting and Clubhousing about NFTs are on to the next: DAOs. (you say that like it's a good thing)

DAOs, or Decentralized Autonomous Organizations, are the next step down the rabbit hole.

Launched on April 30, 2016, The DAO was an early Decentralized Autonomous Organization (DAO) and venture capital fund.

investors in The DAO would be able to vote on proposals based on pre-set rules, established in smart contracts

Then, less than two months in, on June 17th, hackers hit The DAO and took out 3.6 million ETH

The hackers aren’t billionaires today, though. The funds were put on a 28-day hold based on the terms of the smart contract, which gave The DAO and the broader Ethereum community nearly a month to figure out what to do. After a contentious debate, the Ethereum core team, led by Vitalik Buterin, released a hard fork of the Ethereum blockchain. It was essentially a new version in which everything was the same, except in the forked version, the heist never happened.

The Ethereum core team couldn’t force people to move over; people voted with their feet

some people continued to use the Ethereum blockchain on which the heist had occurred, renamed Ethereum Classic

DAOs are re-emerging, five years later, with a diverse set of use cases, a growing software toolkit, and new governance and incentive models

An NFT is a piece of digital media; a DAO could be a whole media company.

If Power to the Person was about how much a single individual can accomplish alone, DAOs are about how much we can do together

DAOs are a new way to finance projects, govern communities, and share value.

Supporters believe DAOs have the potential to reshape the way we work, make group decisions, allocate resources, distribute wealth, and solve some of the world’s biggest problems. DAOs are why Ethereum was created in the first place.

In the beginning, there were DAOs. Vitalik Buterin, the co-founder of Ethereum, mentioned Decentralized Autonomous Organizations in the introductory paragraph of the Ethereum White Paper in 2013.

even if we still need human beings to perform certain specialized tasks, can we remove the management from the equation instead?

What Ethereum intends to provide is a blockchain with a built-in fully fledged Turing-complete programming language that can be used to create "contracts" that can be used to encode arbitrary state transition functions, allowing users to create any of the systems described above, as well as many others that we have not yet imagined, simply by writing up the logic in a few lines of code.

Ethereum, Bitcoin, and other blockchains are Layer 1 in the Web3 tech stack

The second layer is where builders create Lego blocks of protocols and smart contracts that can be arranged in countless combinations and formations to do anything from mint art to trade crypto, directly, without the need for a third-party.

Zora, Mirror, and Uniswap are all protocols, but not all protocols are necessarily DAOs, and vice versa. To understand the difference, let’s start by comparing a centralized platform and a decentralized protocol, and then we’ll move on to the evolution of a decentralized protocol into a DAO.

Coinbase lets people buy and sell cryptocurrencies, but in every other way, it’s like a centralized exchange

Uniswap, on the other hand, is a decentralized exchange running on the Ethereum blockchain

Uniswap is an Automated Market Maker with which users can trade directly through smart contracts that set the price based on available liquidity.

Uniswap itself is just a protocol, and doesn’t take any of the transaction fee it charges. Until late last year, Uniswap was just a protocol, not a DAO

SushiSwap launched in August 2020 as an evolution of Uniswap to change that.

In a blog post, the SushiSwap team wrote (emphasis mine): “Taking Uniswap’s elegant core design, we’ve added community-oriented features that we believe help improve the design of the protocol, as well as provide further benefits to the actors involved.”

SushiSwap is similar to Uniswap in almost every way except one: on SushiSwap, the 0.30% fee is split, such that “0.25% go directly to the active liquidity providers, while the remaining 0.05% get converted back to SUSHI (obviously through SushiSwap) and distributed to the SUSHI token holders.”

so is SushiSwap a DAO? Nope.

You know what is a DAO now? Uniswap. As a response to the SushiSwap fork, in order to keep people from migrating to the forked protocol, Uniswap announced the long-anticipated UNI token on September 16, 2020.

Progressive Decentralization... Jesse Walden

Walden wrote that it doesn’t make sense to try to design products by committee or give tokens from day one. Instead, Walden laid out a framework for tackling decentralization as a three-step process with the “goal of building a sustainable, compliant, and community-owned product”:

1. Product-Market Fit

At this stage,” according to Walden, “there should be no pretense of decentralization

2. Community Participation

Even non-open source companies like Twilio and Stripe built a strong competitive advantage by creating a community among the developers who build on their APIs.

Unlike Stripe and Twilio, though, which don’t hand equity out to their developer communities, at this point, crypto companies can and should start thinking about how to use fees and tokens to incentivize ongoing contribution to supercharge community involvement and loyalty.

3. Sufficient Decentralization

“Exit to Community,” and is the point at which a project or company becomes a DAO.

This is done by triggering a smart contract that mints and distributes tokens based on predefined rules determining everything from who gets how many today, to how tokens will be distributed in the future, to what economic and governance rights token ownership confers.

Why DAO?

In Progressive Decentralization, Walden highlights two advantages

1. Community Participation and Control Results in Limited Platform Risk

DAOs are all about maximizing stakeholder value. The users and contributors are also the investors and owners

2. Regulatory Compliance

Crypto tokens can be deemed securities under the Howey Test, which would make distribution challenging and expensive, but analysis suggests that tokens might switch from security to non-security if they eliminate information asymmetry and dependence on the core team to create value.

alone, I don’t think they’re so compelling

*There must be some other advantages to the DAO model.

What would Hamilton Helmer say?*

The 7 Powers of DAO

In 7 Powers, Hamilton Helmer lists seven sources of competitive advantage

Let’s take a look at where the DAO structure might help teams build moats.

Scale Economies: 3/5 Helmers

A business in which per unit costs decline as production volume increases

Network Economies: 5/5 Helmers

The value of a service to each user increases as new users join the network.

Counter-Positioning: 4/5 Helmers

A newcomer adopts a new, superior business model which the incumbent does not mimic due to anticipated damage to their existing business

Switching Costs: 2/5 Helmers

The value loss expected by a customer that would be incurred from switching to an alternative supplier for additional purchases

While this scores low as a moat, the low switching costs are part of the beauty of DAOs

Brand: 4/5 Helmers

The durable attribution of higher value to an objectively identical offering that arises from historic info about the seller.

Similarly, people will tie their identity to the DAOs in which they’re a contributing member and of which they’re an owner.

Cornered Resource: 4/5 Helmers

Preferential access at attractive terms to a coveted asset that can independently enhance value.

A DAO’s community is its cornered resource

The Moloch DAO gives grants from its members’ own pooled ETH in order to make ETH more valuable

Process Power: 2/5 Helmers

Embedded company organisation and activity sets which enable lower costs and/or superior product.

This is another “Good for the ecosystem, bad for the moat” rating.

DAOs Today and Tomorrow

According to DeepDAO, the top DAOs have only $952 million in assets under management. That would rank all DAOs’ assets combined as the 86th most valuable cryptocurrency by market cap.

Louis Grx highlights a few of the different types of DAOs

It may be decades before we see a DAO compete with multi-hundred-billion dollar public companies.