As you’ve probably seen, DAOs are the hot thing in web3 right now.
Platforms are popping up left and right with DAO in the name - Blimp
DAO, Links DAO, Moon DAO and City DAO to name a few. Does starting a
twitter and discord and adding “DAO” to your name actually make you a
DAO? No, but it might help you win a few followers.
While you’d be right to approach this new fad with caution, many of
these DAOs are actually making a good faith effort to unlock the power
of what is an exciting new way to organize people and pool talent.
Unfortunately due to the lack of quality tooling (which we are working
to fix at Barracuda!), it’s not as easy as it should be to run a DAO as
it should be.
In this article we’ll explore the benefits of DAOs to creators, community members, and investors and why this fad is here to stay.
We can’t talk about the merits of a DAO without background on the
existing corporate structures. Today, the common playback is to (1)
create an LLC (2) fundraise via a community building site like
Kickstarter or through private investment options venture capital.
Prior to the invention of the LLC in 1977 in Wyoming, people who were
looking to start a business could either create a sole proprietorship or
a corporation. While Sole props are easy to set up, they can be risky
because the owner’s personal assets are not protected from issues with
the business. If your trucking company gets in an accident, you could
lose your house in a lawsuit filed against the company. Corporations
offer liability protection to the owners but are expensive and onerous
to set up. They require annual board meetings and diligent record
keeping. Moreover, Corporation owners face double taxation as the
corporation pays taxes and the owners are taxed again when they receive
payouts from the corporation. The LLC was created as a hybrid to enable
business owners the flexibility and tax benefits of a sole prop with the
liability protection of a corporation.
Starting your LLC is straightforward - you can do it for $500 in a few
days with Stripe Atlas.
In today’s market, you can raise a private seed round from VC’s with no
more than a pitch deck. Crowdfunding via kickstarter is also an
attractive option, although the site takes a 5% cut.
Regardless of your company type, people management is common across the board. The CEO, and other C Suite executives sit at the top. Individual contributors sit at the bottom. As the company grows, layer upon layer of middle management is slopped in between.
The DAO was launched in 2016 as a pooled venture capital ethereum
investment vehicle. Over 18,000 people contributed
to one of the most successful crowdfunds of all time
. The DAO raised over $150M which was 14% of the total ether supply at
The DAO was created with transparency and community empowerment in mind.
The funds were controlled by collective vote of the community - removing
the need for centralized fund managers who would take a cut and
potentially misuse funds. In exchange for eth, contributors were given
DAO tokens which represented their ownership stake and voting rights.
As is common in web3, all of the code was open source and could be
verified by the community. Changes to the code, in addition to capital
investments, had to be confirmed by community vote. Any proposal that
saw greater than 20% participation and majority approval passed.
The DAO founder’s did not full democracy though - all proposals had to
be vetted by a group of “curators” before they could go to community
The DAO failed because security gaps in it’s smart contract allowed a
hack of epic proportions. You can read more about that hack and the
. While the hack led to the downfall of the DAO, the project showed the
potential of this new organizational structure and has paved the way for
They demonstrated the potential of crypto community crowdfunding. They showed that people could contribute to a shared vision without well defined roles and management structures. And they ended up allocating funds to very promising projects because the collective research and analytical abilities of the group led to solid decision making.
What does a DAO get you that a traditional corporate structure doesn’t?
We are just scratching the surface of the ways that DAOs can
revolutionize the way we work together. When kickstarting any new
project, you should seriously consider whether a DAO is for you. While
not everything needs (or should be) a DAO, many of the great companies
of the next 20 years will be. If you’re ready to start a DAO, or just
want to discuss whether it’s right for your project, we are happy to