Not Boring by Packy McCormick
Not Boring by Packy McCormick
The Dao of DAOs

The Dao of DAOs

What comes after NFTs? Let's go deeper down the Web3 rabbit hole

Welcome to the 675 newly Not Boring people who have joined us since last Monday! If you aren’t subscribed, join 40,671 smart, curious folks by subscribing here:

🎧 To get this essay straight in your ears: listen on Spotify or Apple Podcasts

Today’s Not Boring sponsor asks: Looking for a new investing app?

Unclear what J.R. Smith is looking for here. Perhaps a new investing app, in which case he may want to check out, the investing social network I’ve written about before.

Much like J.R. Smith’s jumper, the stock market can be unpredictable. Sometimes you just don’t want to be alone with your charts and numbers and that’s where Public comes in.

Public is an investing app AND a social network for talking about business trends, and the social features make it easy to share ideas in a fun way. Join me there by hitting the link below. Btw, if you’re looking to transfer your account from somewhere else, they’ll even cover the fees.

Switch to Public

*Valid for U.S. residents 18+ and subject to account approval. Transfer fees covered for portfolios valued at or over $150. See J.R. Smith is in no way affiliated with Not Boring or

Hi friends 👋 , 

The fun part about working for myself is that I don’t have a job description, but if I did, one bullet might go something like this: “Hang out on the internet and translate the most interesting things you find.” 

A few months ago, I started seeing tweets about NFTs. I had no idea what they were then, but the people working on the edges did, so I read and talked and thunk and wrote. I wrote to learn as much as anything. Now, NFTs are everywhere. Beeple’s Everydays sold at Christie’s for $69 million. Your grandmother probably owns some NFTs. It’s moving fast out there.

Now, all of those people who were tweeting and Clubhousing about NFTs are on to the next: DAOs. DAOs, or Decentralized Autonomous Organizations, are, apparently, what comes next.

Each new depth I plumb in the world of Web3, the more out of my depth I feel. When I told Jess Sloss, who runs Seed Club, that I was exploring DAOs, he wrote: “🐇  meet 🕳”. I’m at the very top of the hole, and exploring out loud. I won’t have all the answers, but hopefully, we’ll learn something together. 

Let’s get to it.

The Dao of DAOs

(You can click on ☝️ to go straight to the full post online)

The Ether (ETH) that hackers stole from The DAO on June 17, 2016 would be worth $6.6 billion today if it weren’t for the fork. 

Launched on April 30, 2016, The DAO was an early Decentralized Autonomous Organization (DAO) and venture capital fund. 11,000 people invested 11.5 million ETH, 14% of the total supply at the time, worth roughly $150 million, which they planned to collectively invest in crypto projects. 

Unlike a traditional fund, in which institutions and high net worth individuals (Limited Partners or LPs) invest money into a fund that other people (General Partners or GPs) invest into companies, investors in The DAO would be able to vote on proposals based on pre-set rules, established in smart contracts. Each person’s vote was weighted by the number of tokens they held, which was based on how much they had invested. If a proposed project received enough votes, the smart contract automatically triggered the investment of The DAO’s funds into the project’s ETH wallet.  

Two weeks into The DAO’s crowdfunding campaign, TechCrunch wrote, “The DAO is a paradigm shift in the very idea of economic organization. It offers complete transparency, total shareholder control, unprecedented flexibility and autonomous governance.”

Then, less than two months in, on June 17th, hackers hit The DAO and took out 3.6 million ETH. At the time, that amounted to around $50 million. Today, with ETH trading at $1,851, the stolen ETH would be worth $6.6 billion, placing it among the most expensive hacks of all time. 

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, answering this question: does the benefit of erasing the hack outweigh the cost of human interference on trust in Ethereum? To most, it did. While some people continued to use the Ethereum blockchain on which the heist had occurred, renamed Ethereum Classic, the Ethereum we all know and love is the forked version. If you look at the Ethereum blockchain today, you won’t find any trace of the heist. No harm, no foul. 

From NFTs to DAOs

Off-chain, there was some harm though: namely the death of DAOs’ early momentum. While you’re probably at least familiar with the terms Bitcoin, Ethereum, DeFi, and NFT, chances are, you don’t know what the hell a DAO is. In fact, the last 400 words probably read like gibberish. 

But DAOs are re-emerging, five years later, with a diverse set of use cases, a growing software toolkit, and new governance and incentive models. A bunch of smart people I follow have been talking about DAOs recently, as the “what’s next” after NFTs.

When Jill talks, I listen. So I decided to go down the rabbit hole, and it’s way deeper than I expected. 

NFTs are relatively approachable. They’re easy to capture in catchy headlines. “Expensive JPEGs?! LOL.” Because at their most basic, they’re simple: they make digital media ownable and collectible, and people sometimes pay a lot of money for them. 

DAOs sit a level above NFTs -- DAOs can own NFTs and create NFTs, plus do a whole lot of other non-NFT things -- and have more transformative potential than NFTs. An NFT is a piece of digital media; a DAO could be a whole media company.

Because they’re more complex, they’re not nearly as easy to capture in a headline, soundbite, or price tag. But that’s what we’re here for. 

This is the beginning of an exploration, a walk through my own process of figuring out what DAOs are, how they work, how they interact with the rest of Web3, what advantages they have, and where all of this might lead. We’ll start simple, and then we’ll build up: 

  • Enter the DAO

  • Ethereum and DAOs

  • Uniswap versus Coinbase

  • Forking SushiSwap

  • Progressive Decentralization

  • Why DAOs?

  • The 7 Powers of DAO

  • DAOs Today and Tomorrow

All roads lead to DAOs. A lot of the more exploratory pieces I’ve written -- Secure the BaaG, Power to the Person, We’re Never Going Back, The Value Chain of the Open Metaverse, and Conjuring Scenius -- pointed towards DAOs without me knowing it. Those pieces all asked a version of the question: how are we going to work, invest, create, and play together in an increasingly digital and global world? 

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

But wait. What’s a DAO?  

Enter the DAO 

Note: If you’re unfamiliar with Web3, or need a refresher, read The Value Chain of the Open Metaverse.

Let’s start with a definition. In her post, A Beginner’s Guide to DAOs, Scalar Capital’s Linda Xie gives a good one:

A decentralized autonomous organization (DAO) is a group organized around a mission that coordinates through a shared set of rules enforced on a blockchain.

A DAO is “decentralized” in that it runs on a blockchain and gives decision-making power to stakeholders instead of executives or board members, and “autonomous” in that it uses smart contracts, which are essentially applications or programs that run on a publicly accessible blockchain and trigger an action if certain conditions are met, without the need for human intervention. 

More simply, DAOs are a new way to finance projects, govern communities, and share value. Instead of a top-down hierarchical structure, they use Web3 technology and rapidly evolving governance and incentive systems to distribute decision-making authority and financial rewards. Typically, they do that by issuing tokens based on participation, contribution, and investment. Token holders then have the ability to submit proposals, vote, and share in the upside. 

If blockchains, NFTs, smart contracts, DeFi protocols, and DApps are tools, DAOs are the groups that use them to create new things. If they’re the what, DAOs are the how. They’re the Web3 version of a company or community. And as people experiment with new building blocks and structures, DAOs will have emergent properties that we can’t predict today. 

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. 

Ethereum and DAOs 

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. 

Vitalik linked to a piece he’d previously written for Bitcoin Magazine (which he founded in 2011) titled Bootstrapping a Decentralized Autonomous Corporation: Part I, in which he asks and attempts to answer the question: 

Can we approach the problem from the other direction: even if we still need human beings to perform certain specialized tasks, can we remove the management from the equation instead?

In the post, Vitalik refers to Bitshares’ founder Daniel Larimer's idea that Bitcoin is actually a sort of a proto-DAO, a new kind of decentralized equivalent to a traditional company: 

  • Shares ≈ Bitcoin 

  • Shareholders ≈ Bitcoin owners 

  • Employees ≈ Miners and validators 

  • Payroll ≈  Bitcoin rewards for adding blocks to the chain 

  • Marketing  ≈ All of those people with laser eyes pumping Bitcoin

But Bitcoin is limited. It’s kind of dumb. It doesn’t really know much, can’t really change itself, and doesn’t really do anything; “it simply exists, and leaves it up to the world to recognize it.” It really is like gold in that it sits there as people do stuff to it and assign value to it. 

More charitably, to analogize with an equally complex analogy (this is the nice thing about having smart readers!), ifBitcoin is like Artificial Narrow Intelligence (ANI), DAOs are like Artificial General Intelligence (AGI). Bitcoin does the thing that it was programmed to do really well, but DAOs can theoretically do anything really well. 

Vitalik said as much when he introduced Ethereum: 

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.

Bitcoin is digital money. Ethereum is a platform on top of which builders can create anything, from apps to entire organizations. 

Ethereum, Bitcoin, and other blockchains are Layer 1 in the Web3 tech stack. For Bitcoin, all of the magic happens at Layer 1, but with Ethereum, most of the magic happens in Layer 2, the protocol and smart contracts layer. 

Source:, examples mine

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 is an NFT protocol that lets any creator mint, own, and sell their work. The Uniswap protocol is a decentralized exchange that lets “developers, liquidity providers and traders participate in a financial marketplace that is open and accessible to all.” Mirror’s decentralized publishing platform “revolutionizes the way we express, share and monetize our thoughts.” 

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. 

Uniswap versus Coinbase

Just because something touches crypto doesn’t mean it’s decentralized, and just because something is decentralized doesn’t mean it’s a DAO. 

Coinbase lets people buy and sell cryptocurrencies, but in every other way, it’s like a centralized exchange on which you’d trade equities, bonds, currencies, or commodities. It matches people who want to buy at a certain price with other people who want to sell at that price, and takes a cut of each transaction for facilitating the exchange. 

As a company, Coinbase behaves like a typical centralized company does. It has investors, a board, and a CEO who makes decisions that shape the direction of the organization, for better or worse. Coinbase, not its users, choose which cryptocurrencies can be listed on the platform. Coinbase’s centralized nature makes it relatively simple to understand and use: just connect your bank account, deposit funds, and start buying crypto. That path works: Coinbase is going public in a direct listing IPO that will likely value the company north of $100 billion. 

Uniswap, on the other hand, is a decentralized exchange running on the Ethereum blockchain. Unlike Coinbase, Uniswap doesn’t even have a wallet; it’s purely an exchange and requires users to hold their crypto elsewhere. 

Since it’s decentralized, Uniswap doesn’t decide what can be traded, doesn’t provide liquidity, and doesn’t have a bank account. Instead, Uniswap is an Automated Market Maker with which users can trade directly through smart contracts that set the price based on available liquidity. There is no middleman, and Uniswap doesn’t choose which tokens can be traded on it. 

Instead, anyone can be a Liquidity Provider (“LP”) on Uniswap by locking up any pair of ERC20 tokens they choose (literally just putting them in a digital vault and not touching them for a while) -- say ETH and a stablecoin like USDT.  In exchange, they receive liquidity tokens that represent their proportionate share of the liquidity for that pair. When someone makes a trade on Uniswap, they pay a 0.3% transaction fee, which is paid out to liquidity providers based on the amount of liquidity tokens they hold. (To go deep, read this.)

Uniswap itself is just a protocol, and doesn’t take any of the transaction fee it charges. Until late last year, Uniswap was not a DAO. It didn’t have a token, or a market cap. 

Today, Uniswap does nearly $1 billion in daily volume, generates close to $30 million in daily transaction fees, and as of today, has a market cap of $17 billion. 

What changed? In August, things started to get forking wild.

Forking SushiSwap

Two roads diverged in a wood, and I—

I took the one less traveled by,

And that has made all the difference.

-- Robert Frost, The Road Not Taken

One of the beautiful things about decentralized protocols is that their code, smart contracts, and transaction histories are out in the open for anyone to see, audit, and even copy. That openness acts as a check and balance; it incentivizes good behavior and protocol optimization, because if enough people disagree with the way the team behind a protocol is doing things, or think they have a better way to generate value, they can fork it. 

That’s what Chef Nomi, the pseudonymous team behind SushiSwap, did to Uniswap. 

For the first two years of Uniswap’s life, it existed as a simple protocol, governed by the decisions of its founder, Hayden Adams, and the smart contracts on top of which it was built. It issued tokens to LPs that gave them their share of transaction fees, but those tokens weren’t tied to the protocol itself, they didn’t give holders a say in the governance of Uniswap, and ownership ended as soon as the LP stopped providing liquidity. 

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.”

Imagine writing that sentence in public as a traditional company: “Taking Facebooks’s source code and design...” That wouldn’t happen. But Web3 is different; forking is expected.  

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.” The introduction of the SUSHI token, and allocation of 0.05% to the token, means that token holders can participate in the upside even while they’re not actively providing liquidity. It rewards being in early or buying into SUSHI with a tradable token. 

Cool, so is SushiSwap a DAO? Nope. 

SUSHI provides economic participation, but it’s not a governance token (for now). It is working on a governance framework, the Omakase DAO, and plans to turn over control of the protocol to the community. For now, the community can vote on improvement proposals on Snapshot, but the votes are non-binding. 

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. Unlike SUSHI, UNI tokens give holders governance rights (the right to vote on proposals and to allocate UNI to grants, partnerships, and more). In the post, the Uniswap team wrote: 

Having proven product-market fit for highly decentralized financial infrastructure with a platform that has thrived independently, Uniswap is now particularly well positioned for community-led growth, development, and self-sustainability

Immediately upon issuance of UNI, UNI holders received ownership of: 

  • Uniswap governance

  • UNI community treasury

  • The protocol fee switch

  • uniswap.eth ENS name

  • Uniswap Default List (tokens.uniswap.eth)

  • SOCKS liquidity tokens

While Uniswap doesn’t allocate 0.05% back to UNI like SushiSwap does to SUSHI today, the community owns the “protocol fee switch,” subject to a 180-day timelock delay, and the community will be able to vote on whether to do so when that lockup ends. 

So where does that leave us? Uniswap was a protocol that became a DAO without a change in fee splits, and SushiSwap forked Uniswap to create a new fee split, but is yet to become a DAO.

The example brings up an important point: crypto companies don’t have to, and generally shouldn’t, be a DAO from day one. They can evolve. Unlike The DAO, which launched from day one as a DAO, both Uniswap and SushiSwap are going through what Variant Fund’s Jesse Walden coined “Progressive Decentralization.”

Progressive Decentralization

Jesse Walden is the person whose work I turned to most often when I’m trying to understand Web3 and the ownership economy. So when I asked Mirror’s Patrick Rivera a question that had been stumping me -- “How can you possibly expect to design great products by committee?” -- he unsurprisingly directed me to Walden’s piece on Progressive Decentralization. 

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

The early days of a crypto startup should look like the early days at any startup: a small, focused team putting all of their energy into building, learning, and iterating until they find product-market fit. If your product is shit, a community won’t save it, and will become disengaged regardless of token ownership. Look at how much time VCs spend with their winners versus their losers.  

Web3 startups actually have an advantage here -- because of the open nature of Web3, they can build and test quickly by snapping together existing smart contracts, code, and products into new ones. DeFi is called “Money Legos” for a reason; every time someone builds something new, that becomes a building block that others can use. The magic often comes from the way teams combine existing Legos, not from creating new Legos. 

“At this stage,” according to Walden, “there should be no pretense of decentralization — a core team is driving all product decisions by necessity, in the interest of finding product/market fit.” 

This was an unlock for me in the way I think about Web3 companies: I had grouped all crypto startups into a group I later learned is called “Decentralization Maximalists,” but in reality, that’s a very small subset, and the top crypto startups are more pragmatic than that. 

Many crypto startups raise traditional venture capital to fund product/market fit discovery, often under a Simple Agreement for Future Tokens (SAFT), a structure developed by Protocol Labs and Cooley that’s similar to Y Combinator’s SAFE, except that it converts into tokens instead of equity should the company issue tokens in the future. 

2. Community Participation

Once a company has achieved product-market fit, it should begin to experiment with getting more stakeholders involved more directly. 

Walden likens it to open source development, inviting participation from the community, giving bounties, grants, and other incentives, developing in the open, building community, and introducing rough consensus on decision-making. 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. 

On the fee side, there’s a trade-off between charging fees to users to give to contributors, or not charging fees until the platform has built up sufficient network effects. Since crypto services are open source, charging high fees could cause someone to fork your service, but not charging fees that you can pass on to contributors means that you don’t have money to incentivize contribution. The equilibrium state here is that protocols are minimally extractive, meaning that they charge just enough to cover costs. Uniswap, for example, charges just 0.30%, which they pay directly to Liquidity Providers. 

On the token side, teams can issue tokens to a small group of community members to experiment with governance dynamics. This is the training wheels period, during which the core team can still give themselves enough decision-making power that they can influence decisions towards their vision. At this point, they should also publish and solicit feedback on plans for distributing tokens that balance rewards for the core team and early contributors with continued incentivization for participation. New models are being tested daily using game theory, math, observed behavior, and conversation to build, test, and iterate on new incentive and governance models. That’s for another essay (or read a16z’s On Crypto Governance, watch this video on applying game theory, or read white papers like Maker DAO’s).

3. Sufficient Decentralization

After a team has successfully completed the first two steps, they’re ready to distribute tokens to the broader community. This is an alternative to a traditional IPO, SPAC, or acquisition, called “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. 

From this point forward, future development of the protocol is in the hands of the community. The core team might still influence decisions based on their standing in the community or the number of tokens they hold, but the rules in place in the smart contracts, and any modifications made based on community vote, will determine the future changes. Everything from new products, to hires, to fee changes, to marketing campaigns will be proposed and voted on by token holders. Congrats: your protocol has moved from hierarchy to DAO.  

But now that we know how to move a project from idea to DAO, we should probably answer another question that’s been nagging me: why are community participation and decentralized control desirable in the first place? 

Why DAO? 

If you believe that Decentralization Maximalists are just a small subset of the Web3 community, and that most people involved are logical, financially-motivated actors (why else would incentive design be so core?), then there must be an economic and strategic advantage to the DAO structure. 

In Progressive Decentralization, Walden highlights two advantages: 

1. Community Participation and Control Results in Limited Platform Risk. Chris Dixon argues that platforms start open to attract users and developers, and then begin extracting once they reach a certain size and scale in order to increase profits and maximize shareholder value.

DAOs are all about maximizing stakeholder value. The users and contributors are also the investors and owners. While community ownership seems weird and novel and almost hippie, it’s actually a more natural model than a few outside investors and board members dumping a bunch of money into a company and deciding what it should do. The reason we do it the way we do is that, until now, it’s been too hard to coordinate having a lot of small owner/stakeholders who all get a say in decision making. Technology is finally enabling the more natural model. 

Here’s a smell test: think about it in reverse. What would happen if we had started with broad community ownership and tried to introduce the current model of outside investor control? I think there’s no way people would let it happen. 

Done right, the DAO structure means that protocols and platforms remain aligned with stakeholders over time. 

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. 

(Walden warns, and I second, that this is new and that you can’t rely on this analysis - go talk to a lawyer if you’re thinking about issuing a token.)

Those are two solid reasons for considering a DAO, but alone, I don’t think they’re so compelling that an increasing number of entrepreneurs who’ve created humming economic engines would cede control to the community. There may be some people out there self-aware enough to build systems around themselves that check their future ability to extract value, but not that many. There must be some other advantages to the DAO model. 

What would Hamilton Helmer say? 

The 7 Powers of DAO

Right now, DAOs are in the experimental phase. The concept itself is working to find meta-product-market fit. At this stage, many people are drawn to create DAOs out of curiosity and a desire to experiment with new models of community participation, creation, and collaboration. DAOs don’t need to be better yet, just novel. 

Over the long-term, though, to meet Vitalik’s vision of companies without managers, DAOs will need to have competitive advantages over other forms of organization and governance. Going DAO should create moats, “those barriers that protect your business’ margins from the erosive forces of competition.” 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. 

DAOs give groups of people and organizations across the globe the means and incentives to pool resources in the pursuit of a greater goal. Theoretically, this gives them the ability to drive down costs for each new unit they produce or new user they accept. The DAO structure may also drive down labor costs by paying for many services as-needed, with less friction than a traditional organization. I only give this a 3/5, though, because there’s not as clear an inherent advantage to DAOs over traditional structures here. 

Network Economies: 5/5 Helmers

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

Network economies are where DAOs have the potential to thrive and knock off incumbents. This will be the strongest moat for successful DAOs. 

A canonical example of network economies is Facebook, which gets more valuable to you each time one of your friends joins because you can talk to them and see what they’re up to. DAOs, built on cryptonetworks that combine stateful protocols directly with money, provide network effects on steroids. With DAOs, users are owners, and every time someone else joins the DAO and/or uses the protocol, the user’s tokens theoretically get more valuable. Additionally, as the DAO gets stronger, more people build on top of it, which makes it stronger, which attracts more people, and so on. Ethereum has platform network effects, like Windows, but with financial steroids. Once a DAO picks up steam, it’s going to be very hard to reverse it. 

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.

To the extent that the DAO model itself is advantageous in other ways, DAOs can build strong moats against their incumbent counterparts just by nature of being a DAO. The DAO version of Facebook that rewards users for inviting new members, sharing their data, and contributing content has a moat against Facebook in that there’s not a snowball’s chance in hell Zuck would ever turn Facebook into a DAO. This one barely misses a fifth Helmer because while it’s a moat against traditional corporations, it’s not necessarily a moat against other DAOs. 

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.

This is a tricky one. On the one hand, DAO members would incur switching costs because the tokens they own in one DAO may become less valuable if they switch to a competing DAO, but as the SushiSwap example highlights, blockchain-based protocols can be forked into new, very similar protocols, that are compatible with incumbent protocols. While this scores low as a moat, the low switching costs are part of the beauty of DAOs: it creates a Darwinian dynamic in which protocols are constantly competing to keep their stakeholders happy and well-compensated.

Brand: 4/5 Helmers

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

Part of the reason that certain brands are able to charge higher prices for the same item is that people tie their identity to those brands. Wearing a Tiffany bracelet says something different than a regular silver bracelet. Similarly, people will tie their identity to the DAOs in which they’re a contributing member and of which they’re an owner. If you consider Bitcoin a DAO, think about all of the people whose identities are tied up in owning Bitcoin. They’re willing to market Bitcoin, buy dips, and bash non-believers for free. 

This doesn’t get the coveted fifth Helmer because that cuts both ways. Emotions are high, and if the DAO does something members don’t agree with, they might run away quickly. The Moloch DAO, which awards grants to advance the Ethereum ecosystem, even has a “rage quit” mechanism built-in, through which a member can rage quit and withdraw their tokens if they don’t agree with a particular community decision. 

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. While many DAOs employ or otherwise compensate people for their contributions, there are many instances in which people contribute to the DAO just to make it, or the blockchain on which it’s built, more valuable. The Moloch DAO gives grants from its members’ own pooled ETH in order to make ETH more valuable, and can submit proposals to do free work to make Ethereum better. Those engineers’ time is independently 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. On the one hand, DAOs inherently and literally have embedded organization and activity sets -- they’re programmed into the smart contracts themselves -- however, for that same reason, they’re not defensible against other DAOs or protocols. The challenge with making your Legos and instruction manuals public is that anyone should be able to copy and paste your processes. The best governance and incentive structures will be copied and tweaked. 

Taken together, by granting economic incentives to a DAO’s users, contributors, and broader ecosystem of stakeholders, and giving those stakeholders a say in the DAO’s governance, DAOs have the opportunity to build incredibly powerful moats. The strongest is network effects -- once a DAO hits escape velocity, it will be hard to take it down, particularly given the fact that community governance means it should be able to adapt and evolve in a way that the community believes will create the most long-term value. 

That said, DAOs should be wary of using those moats to get too comfortable. They shouldn’t extract too much value, grant too much power to too few stakeholders, move too slowly, or do anything else that might piss off a sufficiently large piece of the community. If they do, they give others an opening. The threat of forking is ever-present. It’s survival of the fittest. 

DAOs Today and Tomorrow

After clawing their way back from the jaws of the hack of The DAO, DAOs are just starting to find their footing. It’s very early days. 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.

Already, though, fascinating experiments and movements are taking place. 

Louis Grx highlights a few of the different types of DAOs, including: 

  • Creator DAOs: Jarrod Dicker, Patrick Rivera, and Brian Flynn wrote about the potential for creators to own their work, and share the upside with their true fans. There are no major examples of Creator DAOs today, but I suspect some of the people minting NFTs today will launch DAOs tomorrow that lets fans invest instead of subscribe.

  • Protocol DAOs. DeFi Protocols like interest rate protocol Compound and liquidity protocol Aave, let crypto owners earn on billions of dollars worth of assets and share financial rewards and governance with their communities. 

  • Tokenized Communities. Tokenized communities took a hit last week when social money platform Roll was hacked. Unlike The DAO, though, the hack didn’t kill tokenized communities, it made them stronger, as disparate communities and their members came together to make the impacted people whole. Richard Kim’s RNG is a leading example of a Tokenized Community, as is FWB, founded by Miquela creator Trevor McFedries.

  • Investor DAOs. Here, we come full circle. The LAO is picking up where The DAO failed. Its members have contributed 14,809 ETH to invest in blockchain-based projects, including other DAOs, like Flamingo, which itself invests in NFTs.  

Like NFTs, the early experiments happening now likely represent a small sliver of their future potential. It may be decades before we see a DAO compete with multi-hundred-billion dollar public companies -- a decentralized ride sharing network or app store that charges minimally extractive fees -- or it may come sooner than we think. Jack has been on a roll recently and loves crypto (he even sold his first tweet as an NFT); maybe he’ll be able to get Twitter’s decentralized network, Blue Sky, off the ground and turn its ownership and governance to the community.

More likely, it will start small and evolve. Companies that are buying Bitcoin on their balance sheets and minting NFTs (I see you Charmin and Taco Bell) today might experiment with DAOs for a small project or company function in the near future. As more DAO tools emerge, it will become easier and easier to run small tests. Already, the DAO Lego Kit is filling out:

New tools mean more access. Seed Club can even help you navigate it all. It’s easier than ever for new companies to build, experiment, learn, iterate, remix, rebuild, test, find product-market fit, involve their community, and one day, exit to their community. 

The energy in the space is contagious, and the community is wildly inclusive and helpful. That might be the ballooning crypto balances talking, but they kept building during the last crypto winter and will keep building if and when there’s another. 

After getting ETH pilled and going down the rabbit hole, I’m more confused than before, more curious than ever, and incredibly excited to see what people build in this space, together. I kind of want to experiment with a Creator DAO of my own. I don’t know what shape DAOs will ultimately take, which governance and incentive models will prevail and attract the most energy, or when we’ll see a trillion-dollar DAO, but it feels like an inevitably. 

DAOs are novel, and they just feel kind of hippie. Giving ownership and control of a project or company to the community is just not how things are done. The more I think about it, though, the more I think that stakeholder ownership is the natural state of things, and that we just haven’t had the technology or models to coordinate such widely distributed governance and ownership before. 

Given a tabula rasa and all modern technology, I think we’d design a system that looks a lot more like a DAO than one with heavily concentrated board control.

I’m starting to believe we’ll get there. Enough smart people with enough passion, tools, voice, and incentives, combined with a friendly survival of the fittest culture, can rapidly experiment their way to the next big thing. The world is going to be a very different place when they do. 

In the spirit of transparency and sharing value, here’s a doc with all of the source material I used in researching this piece: DAO Links. Enjoy the trip down the rabbit hole.

Thanks to Patrick, Jess, and Ryan for being my Web3 sherpas, and to Dan for editing!

How did you like this week’s Not Boring? Your feedback helps me make this great.

Loved | Great | Good | Meh | Bad

Thanks for reading and see you on Thursday at 1:30pm EST,


Not Boring by Packy McCormick
Not Boring by Packy McCormick
Business strategy, but not boring, delivered to your ears and your inbox every Monday and Thursday morning.