The invention of crypto and what has matured into “web3” allows us to completely reimagine the way things are currently done. What if our payments, policies, institutions, and societies didn’t have to be organized as they are now?
I saw the significance of DeFi, the value in NFTs (at least from an IP perspective), and have had every version of the Oculus Quest. But none made such immediate sense to me the way DAOs did when first introduced to them 2 months ago.
As human beings, I’d argue that we all want a few of the same things:
to work on things that matter to us
to contribute, and to be recognized for those contributions
to feel a shared sense of belonging
and I don’t know how many people could say they have even 1 out of those 3 things.
Insert DAOs: a new way to collectively organize, create value, and capture value
DAO stands for “Decentralized Autonomous Organization.” DAOs are groups organized around a mission that coordinate through a shared set of rules enforced on blockchain. It’s important to not get too caught up in the name, for in practice, a DAO can be decentralized, centralized, or choose to become “progressively decentralized.” Forming a DAO is an exceptional exercise in organizational design and economics. There’s a lot to be thankful for, as capitalism, corporations, and our democratic process have laid a huge foundation that DAOs can certainly borrow from in building their operating systems while leaving behind the inefficiencies that no longer suit us. DAOs represent a transformational shift in how we work, organize, invest, create, and consume.
Web2 vs Web3
I spent the last 3 years working as Chief of Staff to the CEO of Getty Images, learning how to run a global company, sitting in every board meeting, and seeing what is necessary to take a private company public. There are a lot of great things companies do well, but admittedly, there are a lot of things that could be made better. I think of DAOs as the next evolution of how we currently operate web2 companies today. You can basically think of a DAO as an organization—just evolved—as it allows for a few key things to happen:
- DAOs operate seamlessly with “smart contracts,” the rules the original DAO members put into place. These smart contracts allow anyone associated with the DAO to have transparency into exactly how the organization operates (like how decisions are made, who gets paid how much, what projects are being worked on, etc).
- DAOs offer a more flexible way to work, as they don’t represent a physical structure and are often fully distributed.
- People involved with a DAO are there because they want to be. You can put 100% of your time into 1 DAO, or spend your time and/or money however you want across multiple DAOs.
- You don’t have to be an employee or investor to invest in a DAO or extract some sort of value out of it—in web3 you can buy or earn a “token,” a smart contract between the holder and issuer, entitling the holder to certain privileges or access. Tokens can be classified into three types: utility tokens, security tokens, or equity tokens.
Utility tokens can be used for governance over a DAO, such as having a voice in the direction, strategy, operations, or fate of a company. They can also be for non-governance purposes like rewarding supporters with early access to merchandise or exclusive opportunities. Utility tokens are “fungible” meaning that each individual token can be exchanged for another of the same token.
Security tokens allow companies to sell stock in a digital form and provide ownership opportunities for anyone who wants to invest at a low entry point. Using security tokens is a unique method for companies to raise capital in the cryptocurrency market.
Equity tokens are a subset of security tokens and represent equity in an underlying asset, which is usually the stock of a company. Token holders maintain the right to capture profits and the value of their equity and assets. The value of the token responds to the performance of the issuing company, not its demand on the crypto market.
The space is green and evolving. Everyone experimenting with DAOs currently is helping pave the way for the future.
Interested in learning more?
Here’s a really good guide to web3 to get you started.