Types of DAOs: Investment, NFTs, Exchanges

Unlocking New Forms of Coordination

Though blockchain technology is perhaps best-known for enabling the creation of new types of digital money like cryptocurrency, it can also be used to facilitate powerful new forms of collaboration and coordination. Decentralized autonomous organizations — referred to as DAOs — are one example of how this potential is being put to use.

DAOs are blockchain-native communities that reject the organizational principles of traditional institutions. Unlike conventional organizations, DAOs reject managers, CEOs, and hierarchy. Instead, DAOs are owned by their members, who collectively make decisions and manage their organizations’ funds. DAO participants do so by creating and voting on proposals, which are transparently executed, usually via smart contracts found on blockchain platforms like Ethereum, Cardano, and Solana. Members typically join DAOs by purchasing their tokens on centralized or decentralized exchanges (DEXs).

Investment DAOs

Because DAOs are fundamentally a means of organizing people and coordinating behavior, they can be used for almost anything. However, the first DAO, which was called The DAO, was devoted to investing. Launched in 2016, The DAO aimed to be an investor-directed venture capital (VC) firm and raised USD $150 million worth of ether (ETH), however it was famously hacked before it could begin its mission.

Learning from The DAO’s mistakes, several projects have sought to resurrect the idea of a member-directed DAO investment fund, including: BitDAO, the LAO, Seed Club, DeFi Alliance, and ConstitutionDAO among others. Some projects, like BitDAO and The LAO, aim to pool member capital for the purpose of investing in a variety of crypto projects and share the profits of their investments among all members. Seed Club and DeFi Alliance function more like accelerators — they invest in projects and provide them with guidance. Other Investment DAOs, such as ConstitutionDAO, formed with a single purpose. In ConstitutionDAO’s case, members sought to purchase one of the original copies of the U.S. Constitution. When their bid was unsuccessful, members were offered a refund.

NFT DAOs

The non-fungible token (NFT) community also makes use of DAOs. Groups such as PleasrDAO, FlamingoDAO, and FingerprintsDAO focus on collecting and investing in digital art NFTs and have amassed substantial collections. These NFT DAOs also experiment with community art ownership through fractionalizing NFTs. This means that they divide NFTs into pieces to allow for collective ownership.

Additionally, some NFT projects have formed DAOs to allow their collectors to influence the development of projects and how they make use of their funds. Examples include generative NFT DAO projects like NounsDAO and SquiggleDAO, as well as MeebitsDAO. Instead of purchasing a token to join the DAO, users must hold an NFT from the project’s collection.

Protocol DAOs and Exchange DAOs

As the idea of community-led governance has gained momentum in crypto, DEXs (peer-to-peer (P2P) marketplaces that allow users to buy and sell crypto without an intermediary) have also warmed to DAOs — as have decentralized protocols for related use cases such as crypto lending and decentralized applications (dApps). Protocols such as Uniswap, SushiSwap, and Curve utilize DAO governance to enable their users to influence the development of their projects, define the parameters of features, and tinker with incentive structures. To join these top DAOs, users simply purchase the protocols’ tokens.

The Future of DAOs

While the above DAO use cases are perhaps some of the most widespread, DAOs are increasingly being used for an even broader range of applications, including philanthropy, community-building, decentralized social media, and beyond.