WTF are DAOs anyway [PART 2]

Investment DAO

In [PART 1], we dove deep into the definition of DAO and teased apart the difference between a DAO and a DO.

This [PART 2]article aims to dig even deeper into Investment DAOs and argues why Investments should be DAOed. We believe that Investments benefit the most from a DAO structure, and are poised to disrupt the existing Asset Management landscape.

This new structure is particularly enticing in the Investment space, because it frees talented people from TradOrg’s boundaries and allows them to connect and evolve together.

Crypto Investment isn’t a lonely game

But that’s not why Investment should be DAOed. The biggest reason that DAO benefits Investment, imho, is the sheer difficulty in crypto investment. As many of us know, crypto moves at light speed, and it has become increasingly difficult for any individual person or institution to keep up with the rapid and systematic changes in crypto.

Additionally, crypto investment is fundamentally multidisciplinary. It requires knowledge from economics, finance, engineering, marketing (really key!) and internet meming (of course). It also requires skills such as deal sourcing capabilities on a global scale, which naturally requires a deep understanding of how culture plays a role in shaping global crypto landscape.

Now the question becomes: where do you find individuals with all this knowledge? Traditional asset management firms cannot simply hire an army of world class experts. It’s too expensive and incurs unnecessary management issues.

The answer: don’t find one of them. Find a bunch of them so they can share knowledge, information, and perspectives. The goal is to get as close to the truth as possible.

Investment DAOs by Categories

Our understanding of DAOs is still nascent, , as well as our understanding of Investment DAOs. In our opinion, there are a few different categories of investment DAOs and teasing them apart helps individuals choose the best model for their organization:

1 Investment Club

This is where most of the investment DAOs are today, including Metacartel and the LAOs. It is a group of crypto experts who form a club to source deals, perform diligence and make investment decisions together. Membership is permissioned and a GP’s voting power equals thier LP’s share.

Investment clubs have erupted since DeFi summer. These DAOs not only made capital contributions but also became advocates for their portfolio on social media (CT!). In crypto, such advocacy matters because that’s how projects gather initial traction, which can contribute to the success of these DAOs.

2 The DAO

The DAO was the real pioneer in crypto. Starting as a phenomenal experiment in 2016, it tried to build a truly permissionless and decentralized investment club. In this model, GPs share the same voting power as LPs. It might have ended a little catastrophically but it paved the way for how a DAO should be organized.

3 Marketplace

An interesting development in the space is to use DAO to build a marketplace. This is where AladdinDAO comes to play.

AladdinDAO is a yield farming curation service governed by a DAO. It uses game theory to build a triple-win marketplace for DeFi projects, yield farmers and the DAO .

AladdinDAO follows the nature of the asset management market where managers put in work and intelligence, and users reap the benefits. This is the only way that an investment DAO can scale while staying effective in the market.

AladdinDAO is a structure where the Investment entity can be expanded to thousands and even tens of thousands of managers, and potentially to service billions of users around the world.

The initial Boule Council is composed of members recommended by the first backers of the DAO and the community. All the nominated boule members need to be elected by the community to be appointed. The Boule structure will evolve based on on-chain algorithms thereafter where talented contributors can join without permission and get paid based on their performance. No overhead. No politics. The long term vision is to build using the wisdom of crowds as human society is swarming into the crypto world.

Human decisions or algo?

Why do we make such a big fuss about whether the move of organizational structure should be determined by human decisions or algorithms? The reason is that human-based decisions are often mixed and skewed by human emotions. For example, many of us have experiences where our performance are not based on real results but whether our bosses like us.

For competent players, it’s a drag to build trust and social status by entertaining others and making yourself likable ( yay to crypto autism)

Trust has always been a luxury in human society, requiring repeated games to build trust. Yet trust is also fragile and can be broken at any moment. It is more complicated and requires a set of skills to play this social and perception game.

Crypto economics bring a new possibility to the world; People can play a non cooperative game. Over seven billion people can trade and coordinate across the globe without even knowing each other personally. With on-chain voting histories and proven track records of individuals ranked by reputation score, it is the first time ever we only need to play by logic, not human feelings.

The former provides better certainty.

So what?

In conclusion, as technology continues to lower the information and transaction costs in cyberspace, many of the advantages of firms will diminish and it will inevitably lead to the redesign of the organizational structure inherited from industrialism.

DAOs that assemble talents for all different purposes will emerge and many of them will be more efficient and competitive than companies. It is competition between swarms, not bees in nature. In the era of the rise of DAOs, it is time to find your cyber tribes and build.