After years of innovation and precipitation, will 2022 be the first year of the outbreak of DAO?
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1. What is DAO
At the end of 2021, many investors set their sights on DAO when looking forward to the market opportunities next year. The full name of DAO is Decentralized Autonomous Organization, namely: decentralized autonomous organization. In a community governed by DAO, users are both contributors and administrators of the community, and participants will achieve autonomy in accordance with the rules set by the smart contract, so as to achieve organizational fairness and efficiency. Simply put, the consensus mechanism of the public chain may be the earliest DAO. The Bitcoin and Ethereum networks are composed of nodes, and each node obtains the right to confirm the ledger information by contributing its own computing power, thereby realizing the maintenance and governance of the network. At the same time, the network will optimize and upgrade the network according to the wishes of the nodes, so as to continuously adapt to the needs of users, and the governance is highly transparent. This is DAO.
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2. Development of DAO
As a native concept of the decentralized world, DAO can be divided into two parts: infrastructure and application. The infrastructure provides developers and users with basic tools such as identity authentication, communication tools, and fund management, which are the key elements for developers to establish DAO. On the application side, DAO can exist in any form, and its decentralized nature makes it compatible with many forms of innovation: investment, donation, crowdfunding, social, media, etc. Driven by innovators, this new form of organization is slowly changing every aspect of the decentralized world.
1. DAO infrastructure
In 2016, a hacker attack caused the newly established The DAO to lose more than 70 million US dollars. The innovation of blockchain applications requires a sound code and a stable ecology as the basis. As the completeness of smart contracts is gradually improving, the DAO infrastructure is also gradually maturing. Starting from the user group, a mature DAO needs to have six basic elements: identity authentication, organizational tools, social communication, user voting, fund management, and financial tools. Over the past five years, developers have brought a number of directly accessible "Lego bricks" to the market.
Overall, the current DAO infrastructure is still relatively simple. There is still a lot of room for improvement in identity authentication, user voting, decision execution, and revenue distribution. For example, in terms of user identity, most user groups still stay on MetaMask, such identity credentials are too crude. The shortage of the industry also means huge opportunities, and developers who are ahead of the game are already making attempts: ENS supports the unification of multiple addresses in DID, CyberConnect provides portraits based on the behavior of participants on the chain, and Aster will combine traditional social media with on-chain identities Aggregation, these innovations enrich the blank of "identity authentication" in the decentralized world. It is foreseeable that in 2022, there will be a large number of innovators to improve the "Lego building blocks" of DAO and fill the gaps and deficiencies in the industry ecology. The first thing that stands out is to improve the user experience of the Web 3.0 world, making On-chain activities in a decentralized world are more interesting: identity authentication is concrete and intuitive; proposal voting takes into account execution efficiency and fairness; decision-making is flexible and transparent; financial tools are diverse and reasonable.
2. Ecological construction of DAO
DAO is the most important form of organization in the encrypted world. Developers also use their own whimsy to build DAO applications. Compared with the combination of DAO in the governance mechanism of other protocols, the DAO project will be more decentralized in terms of operation mode. morphed genes. According to the operation mode of the application, it can be divided into: investment DAO, donation DAO, service DAO, media DAO, social DAO, collection DAO, etc.
We selected the top 50 application DAO protocols on Deep DAO, combined with the number of users, number of votes, capital scale and other indicators, to sort out the development of DAO applications in different tracks:
It goes without saying that protocol DAO is the development trend of decentralized applications. We want to see the development of DAO applications, so DAOs derived from other protocols (public chains, DeFi) are not included in the comparison.
(1) Investment-type DAO attracts the most precipitation funds: investment-type DAO is in the top position in terms of fund management indicators, and is also in the forefront in terms of participating users and voting proposals. The investment agreement can ensure the fairness and transparency of the investment process through the form of DAO, and can realize the reasonable distribution of income and save audit costs. At the same time, it meets the capital needs of industry development in the current blockchain world. A high-quality investment DAO will have a large user base and high-quality projects at the same time. Sound development will make the moat of the platform wider and wider, and the growth of scale will make it more and more competitive. The development prospects of investment DAOs are imaginable space.
(2) More and more users are participating in service-oriented and donation-based DAOs: From the perspective of operation mode, users can support potential projects through donations, publicity, labor, etc., and obtain tokens, whitelists or other rewards . Different from investment DAOs, donation and service DAOs require platforms to gather more diverse resources, which are often based on user groups. Taking Gitcoin as an example, platform users can participate in project construction activities through work, study, donation, etc. Individuals can help the project in various ways, including: code development, audit verification, marketing promotion, etc. Communities such as Gitcoin and MetaCartel have attracted more and more users to contribute to entrepreneurial projects, which fully demonstrates the necessity of DAO in the decentralized world.
(3) Social and media DAOs need to wait for ecological maturity to explode: Compared with investment and donation DAOs, the number of media and social DAOs on the market is still relatively small, and the number of participants is not high. The reason may be that users are more accustomed to obtaining information through off-chain media. The currently performing media Bankless DAO migrated its products to the chain after building user stickiness in the centralized world. The current market has not yet formed a social and media-type native protocol, probably because the establishment of the user's identity on the chain is still in the exploratory stage. Application innovation requires an appropriate ecological environment. Media DAOs and social DAOs may have to wait for the basic ecology of Web 3.0 to mature before ushering in the best window for development.
3. Problems in the development of DAO
Behind the rapid development of DAO ecology, some problems also follow. Decentralized governance cannot solve all the problems faced by community development. Decision-making failures and ineffective communication still exist, and even some agreements have management chaos after DAO. Combined with the DAO ecological evolution process in 2021, we believe that there may be problems that need to be solved in the current market:
(1) The concept of DAO has been abused by some people: Constitution DAO raised more than 4,500 US dollars through the financing tool JuiceBox. Although the auction was not successful in the end, the novel "go to market" method allowed the collection DAO to find a new direction. From the present point of view, Constitution DAO does not have the substantive meaning of existence, and it is difficult to form user retention. It is more like an excuse to generate group consensus, and its purpose is to find a reasonable explanation for the irrational behavior of the group. In fact, such completely disordered behavior cannot bring value to the group. What DAO decentralizes the world is a mechanism for governance, decision-making, and distribution, rather than a carnival without goals.
(2) The "DAOization" of the protocol is not ideal: the complete decentralized governance of applications and public chains is not necessarily the optimal solution, and at some point in time this will do more harm than good to the community. EOS has established a corresponding node system in the early stage of development, and set up a "constitution" for dispute arbitration and decision-making. However, the community was slow to respond to the poor operation of B1 and was unable to respond effectively, so that EOS missed the golden period of ecological construction. Until 2021, participants will vote to eliminate B1. What we want to say is that decentralized governance and centralization are not either-or. If community building can be encouraged, individual contributions and income distribution are fair, and decisions are effectively implemented. It is not uncommon for the community to make adjustments to the governance mechanism. If relying entirely on DAO governance can really be so appropriate, there will be no risk events such as forks in early public chains such as Bitcoin and Ethereum.
(3) DAO did not find the appropriate token mechanism empowerment: whether it is social DAO (FWB), news DAO (Bankless), investment (BitDAO). The current token mechanism lacks new ideas. For example: FWB token is used as a threshold to enter the social field, which seems to be no different from traditional social payment. Community users cannot appreciate the benefits brought by community growth, and individuals and users cannot form a joint force . An appropriate token mechanism will play a key catalytic role in ecological construction, and it is obvious that the market has not yet explored the answer.
Summary: As the core concept of Web 3.0, DAO is an indispensable organizational form in the decentralized world. However, DAO is not a universal seed that can solve any problem and take root anywhere. Whether it is infrastructure or applications, DAO needs to be on a suitable track to have the potential for continuous growth.
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3. DAO's 2022
Messari wrote in their annual report: "2020 is the year of DeFi, 2021 is the year of NFTs, and 2022 will be the year of the DAO". Whether it is DAO infrastructure or decentralized applications based on DAO organizations, we believe that DAO will have a lot of room for improvement. Standing at the current time node, we believe that successful DAOs in the future will have these characteristics:
Track selection: DAO needs the right soil to find the corresponding model: DAO’s advantage is that it can unite users to form a huge influence, and the fair and transparent governance mechanism allows participants to fully trust. From this point of view, investment DAO has High ceilings, MetaCartel, BitDAO, etc. can all be regarded as good examples. Although there are differences in operating models, a fair and transparent mechanism can make the interests of participants and guilds highly consistent. But not all agreements should be "DAO". When the operation model of the project is far from the concept of DAO, it is difficult to achieve the desired effect with the DAO model. Just as accounting firms seldom adopt limited liability, DAO also cannot be used to solve the problems used. It is necessary to find the correct model in the appropriate track to get good results.
Economic incentives: DAO needs to effectively stimulate the relationship between personal output and income: Web 3.0 proponents have always emphasized: "communities are created by users and owned by users", and DAO should provide users with continuous economic incentives. Referring to the innovation of DeFi 2.0 in 2021, the success of Olypmus DAO lies in the fact that the agreement can provide users who embrace the community with a pledge activity with super high returns (compared to the DeFi 1.0 agreement, the influx of users will increase the return of pledge rather than reduce it) , such a model allows OHM to have a strong earning power. How can DAO form a group consensus, use the token economy to quickly gather users and liquidity, and find a feasible operating model to enable the agreement to achieve long-term incentives. We are very much looking forward to DAO's innovation in the token economy, and future community innovators will provide it to the market idea.
Business model: The fundamental purpose of DAO is to find the optimal solution for community operations: DAO organizations cannot be completely disordered, and DAOs with completely decentralized operations are not necessarily the best. The market realizes that there will also be problems such as development team conflicts, development strategy deviations, and inefficient decision-making execution in a decentralized architecture. In fact, there is indeed a contradiction between decentralization and efficiency, and there are many problems that cannot be resolved by community voting.
Judging from the data, the top five DAOs in terms of assets under management have no more than 200 Voters involved in decision-making. MetaCartel, The Lao, and Flamingo set thresholds for users who have the right to propose proposals. The Lao even only accepts compliant investors identified by the regulator.
Four. Summary
Four. Summary
In the new year, all kinds of innovations emerge in an endless stream. However, in practical applications, DAO governance still exists: problems such as lack of efficiency in decision-making, vague goals, and developer conflicts. Obviously, what the community needs is DAO's promotion of the protocol, not a gimmick.
For a long period of time in the future, developers and users may have to face problems brought about by DAO governance. We will see problems appear, correct, and reappear. It took more than 100 years for the company system to be gradually completed, and the exploration of the governance system needs a long time to evolve.
From DeFi, NFT to GameFi, the decentralized world is increasingly looking forward to Web 3.0. With the continuous innovation of DAO "Lego building blocks", the foundation of decentralized governance is gradually solidified. We can see that application protocols have begun to cooperate in the form of DAO: in the DeFI ecosystem that emphasizes combination, agreements such as lending, trading, and asset management cooperate with DAO, through token protection rings, governance voting, and liquidity Build an ecology on the chain by means of sexual guidance and other methods to capture revenue. In an open environment, the DeFi ecology has changed from point to point, and DAO has contributed a lot to this. In the past few years, the popularization of blockchain technology has slowly changed the world order. I believe that with the joint efforts of all, the development of DAO will be more diverse.
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