The New Yorker: DAO Becomes the Latest Trend in the Crypto Industry

Original Author: Kyle Chayka

Original Title: "The Promise of DAOs, the Latest Craze in Crypto"

Original Translation: Wu Says Blockchain GaryMa

From Spice DAO to the Definition and Operational Structure of DAOs

In November last year, an online group called Spice DAO purchased a "director's bible," a copy of Alejandro Jodorowsky's Dune. Dune is a film adapted in the 1970s but became famous for not being successfully released. Spice DAO paid nearly $3 million at the auction, about 100 times the estimated price of the book.

DAO stands for "Decentralized Autonomous Organization," a term that is becoming increasingly popular in the cryptocurrency world, referring to a group of people pooling funds to accomplish specific tasks. They are the "wealthy digital flash mob," members of FWB told me, and in recent months, DAOs have been able to rival NFTs as the hottest blockchain technology concept.

Spice DAO has launched its own cryptocurrency token called Spice (referring to the mysterious substance in the Dune sci-fi universe) and sold it, raising over $700,000 to purchase the book. The remaining amount was personally covered by Soban Saqib, one of the DAO's co-founders.

The organization's plan is to create its own film version, with creative decisions made by token holders voting. Currently, there is one problem: owning a vintage art book is by no means equivalent to owning the intellectual property rights to Dune. The members of the DAO have no more permission to produce Jodorowsky's film version than they do to make the next Marvel superhero movie.

Spice DAO's unfinished product is just one piece of evidence of the "reckless behavior" in the cryptocurrency economy. In November last year, an organization called ConstitutionDAO raised $47 million in cryptocurrency to bid for one of the thirteen existing original copies of the U.S. Constitution, only to lose the auction to Citadel's CEO Ken Griffin.

Other DAOs have announced plans to purchase a golf course (LinksDAO) and an NBA team (Krause House DAO); one company named CityDAO has purchased land in Wyoming. But these sensational stories are just a part of the thriving DAO phenomenon.

By definition, DAOs are a simple business structure, similar to a limited liability company. They typically consist of custom cryptocurrencies and online community spaces (like chat rooms on Discord). The community engages in internal discussions and then votes on decisions using tokens on applications like Snapshot, much like putting a piece of paper into a cardboard box to elect a class leader. The more funds you contribute, the more pieces of paper you get.

The promise of DAOs is that the decision-making of an organization will be determined by a broad group of members rather than a few elite individuals on a corporate board. In the internet age, this structure is more promising, creating an ecosystem for digital startups outside Silicon Valley.

Risks and Changes Facing DAOs

The history of DAOs began in April 2016 when an organization called The DAO launched and raised about $150 million worth of Ethereum in exchange for a token called DAO. The goal of the DAO was to act as an investment company, reallocating funds to profitable companies and projects, with the organization's tokens representing votes on where to invest. In theory, profits would flow back to token holders, similar to stock dividends, but outside of regulated markets.

However, in June 2016, hackers stole about a third of The DAO's funds, leading to the internal collapse of the DAO. The following year, the SEC issued an investigation stating that tokens like The DAO's should face regulatory requirements similar to securities.

Legal professor and co-founder of Tribute Labs Aaron Wright told me, "A year and a half ago, I had an idea, we should restart DAOs in a way that complies with U.S. law.

Tribute supports a network of DAOs, such as Flamingo, which collects NFT artworks, and Neon, which invests in metaverse assets, including digital fashion pieces and avatars. All members of Tribute's DAO network are accredited investors, and tokens can only be transferred to other members.

Tribute's DAOs network has raised approximately $101 million worth of Ethereum in total. Supporters of DAOs believe that these groups allow amateurs to participate in organized venture capital. We are witnessing the emergence of this hive-minded thinking, not the wisdom of the crowd, but the wisdom of smaller, curated groups in the game. He believes that DAO capital can replace tech venture capital firms, music executives, or Hollywood producers in funding new projects, such as companies, albums, or blockbusters."

In contrast to attracting investors with excess funds, some independent DAO users are more interested in attracting digital workers with spare time and energy. For example, FWB is an online community driven by its namesake currency, functioning like a digital VIP lounge for creatives. To join, you must purchase tokens.

Members chat on Discord, attend physical gatherings, and develop projects together, such as a crypto ticketing app or a new beverage. The result is a decentralized brand identity.

Shareholders vote to approve codes of conduct, approve monthly budgets, and collaborate with other companies. Because the blockchain records are transparent, the results of each vote are public. Anwar, the "Community and Culture" head of FWB, describes the group as a "creative incubator," and joining it "is almost like joining a fraternity." If this sounds a bit vague, it may be a result of the decentralized ethos: when no one person makes decisions, it is hard to stick to a mission.

Value Creation and Economic Models of DAOs

Ethereum co-founder Vitalik Buterin said in a recent interview, "You can't just create a DAO for the sake of being a DAO. You need a DAO to do something."

But for DAOs like FWB, the ultimate achievement is the community itself, which also faces a series of challenges. Sarah Moosvi is a co-founder of aGENDAdao, an organization that supports transgender and non-binary digital artists collaborating with blockchain.

She told me that the decentralized model is "defective in some ways" just like traditional corporate structures. In theory, workers have no bosses, but the organization still has to decide who gets rewarded for their work. In Moosvi's words, this is "labor rights." If rewards are primarily realized through internal tokens, similar to how companies pay tokens, then it can only support those who do not need immediate economic compensation.

Several larger startups have begun experimenting with DAO governance. Last August, the NFT marketplace SuperRare sent tokens to users based on their trading volume on the platform. These tokens are used to select which users can open new storefronts on the platform.

Other crypto companies, such as the cryptocurrency exchange Uniswap and the Ethereum Name Service (ENS), which provides .eth domain names, have created their own governance tokens for users. From the user's perspective, Moosvi says, "By trading on your platform, you take a percentage from my activity, and I hope to gain some return from it."

In theory, these governance tokens are not financial instruments like company stocks, but that hasn't stopped many users from making a fortune on the secondary market.

Currently, the symbolic significance of DAO tokens outweighs their actual authority; most companies still worry about the transfer of digital assets. However, some are very interested in translating the internet utopianism of cryptocurrency into the real world.

For example, Cabin is a DAO that started outside Austin, Texas, to manage a set of houses. The organization's co-founder Jonathan Hillis previously left his job at Instacart and built a house in the countryside. He brought some friends to live there, and they had an idea to create a residency program for other tech creators. Hillis told me, "We didn't want to be a DAO; DAO tools are the best tools to accomplish what we want to do."

Cabin created a token, sold it to crowdfund a budget, and allowed holders to vote on who would receive residency rights. One participant, Julian Weisser, later helped create ConstitutionDAO in the cabin. Now about 280 holders can vote on the future of Cabin.

Hillis describes Cabin as a "decentralized city," aiming to establish spaces around the world and connect them through digital tools. It now has subgroups "guilds" responsible for various tasks. Like many DAOs, Cabin still seems a bit like a fantasy, an emerging community seeking an outlet for explosive energy. Hillis says that with any technology, the underlying infrastructure eventually becomes invisible. Ultimately, the DAO framework is more important than the actual work the organization accomplishes.