Last time, we broke down what exactly Decentralized Autonomous Organizations are, AKA DAOs. In this piece, we’re going to take you further on the journey of understanding the concept of DAOs and all the different varieties there are.
These days, it feels like you can’t turn around without running into one. According to Headline Asia research, there are about 240 active DAOs all around the world, a 100% increase from 2020. In this article, we are going to be focusing on the DAOs that are run as investment vehicles.
Advantages of a DAO
DAOs are more efficient when it comes to pooling assets, and they offer a number of advantages when making investments as a group.
One of the most important benefits that a DAO offers is that the amount, return, and status of each investment is more transparent since investors no longer have to rely on fund managers to report the information. Rather, they can vote for each one and take a look at the blockchain later.
Another pro is that most partnerships and funds cannot be listed on public markets, so shares of a fund aren’t easily transferred. In contrast, DAO tokens can be listed on exchanges and transferred easily.
Investment Target and Process
Investment targets could really be anything, from tokens of crypto projects, equity of companies to NFTs to the market-making type of investments. In November 2021, one crypto group dubbed ConstitutionDAO even made a bid for the original copy of the United States Constitution.
Ideally, anyone who holds a governance token of the DAO can propose and vote on an investment idea. In practice, these kinds of DAOs usually start with a group of people who hold the majority of the governance tokens, so they can execute and make decisions swiftly. After the DAO has built some investment track records, it releases more of its token to the public.
To increase the voting rate, some DAOs offer token rewards for voting. Some take a step further, rewarding a “Yes” vote on an outperforming investment and a “No” vote on an underperforming investment.