Over the past few years, Decentralized Autonomous Organizations (DAOs) have become commonplace in cryptocurrency. Whether you discovered crypto through meme coins, NFTs, or DeFi, chances are you’ve interacted with a DAO somehow. DAOs are organizational structures for businesses or communities where control is spread via the distribution of tokens rather than hierarchy. They’re typically online communities focused on a specific goal. DAOs take many forms; some are light-hearted, like a group of strangers on the internet putting funds together in a bid to buy the U.S. Constitution, and some mimic traditional businesses, creating decentralized investment funds, lobbying groups, and even service entities. Investment DAOs such as Vanta Investment DAO, as the name suggests, are DAOs where users pool their funds in order to make investments.
What is an investment DAO?
Investment DAOs are DAOs where users pool funds to invest in projects together or source deal flow and share it with a community of investors. They come in many shapes and sizes. In a traditional investment DAO, DAO members buy into the DAO with their capital and receive tokens representing their share of the total investment. Then, DAO members go out and source investment deal flow or opportunities for the DAO to invest in. A deal is presented to the DAO, and members vote with their shares on whether or not the investment should be made. It’s important to note that all DAOs are different and may handle their operations differently based on how the DAO is set up or the specific purpose it’s trying to achieve. An example of an investment DAO with a similar structure to this is Hydra Ventures. Another form of investment DAOs is a syndicate. In a syndicate, users gain access to the DAO by purchasing an NFT or a certain amount of a token. For example, Vanta DAO gates access to its investing DAO with a membership NFT. Once someone buys the NFT, they aren’t required to pool funds to invest with. Instead, members of the DAO find investment opportunities, and members of the DAO can choose whether or not to make individual contributions. The benefit of an investing syndicate over investing as an individual is the quality of deal flow, and the wisdom of the crowd. With multiple people sourcing deals, and the entire DAO vetting the investments, opportunities get much more scrutiny than they would if an individual were researching a personal investment.
How do investment DAOs work?
One advantage of investment DAOs is that they’re self-sufficient. They come in many shapes and sizes, so for the purposes of this guide, we’ll focus on explaining how investment syndicate DAOs work, using Vanta as an example. Vanta members join by acquiring a membership NFT on any NFT marketplace, all proceeds from the sales of these NFTs are given to the DAO treasury, which DAO members govern. Once acquired, they can choose to either participate as contributing members of the DAO or just sit back and gain access to the deal flow. If someone wants to be a contributing member of the DAO, they can take on a number of roles related to DAO operations. Researchers, for example, are in charge of putting together in-depth research reports on deals other DAO members bring in and are paid via the treasury. Members can also contribute by seeking out investment opportunities. They are paid a percentage of the total investment made in the deal they sourced. DAOs are still early enough in their lifecycle that it’s difficult to say whether or not they’re an improvement or just a different approach with the same effects. That being said, their democratized nature puts a twist on traditional business models that are typically inaccessible to most normal people.
The Moloch DAO framework
Investment DAOs frequently use the Moloch DAO framework. This was created in 2019, after the first DAO ever created fell victim to a hack. The first DAO, often called “The DAO,” was born on Ethereum in May 2015 after Vitalik introduced the concept in a blog post. The DAO was intended to help support Ethereum but suffered a hack that split the community in two: half of the DAO wanted to revert to the Ethereum blockchain before the hack happened, and the other half wanted to continue on. This hack and the disagreements that followed it prompted the creation of Ethereum Classic in a hard fork from the original Ethereum blockchain. The DAO hack and the following chaos made DAO enthusiasts realize that the model had a long way to go, leading to the creation of the Moloch DAO framework. Released in 2019, Moloch DAO was both a DAO and a reusable framework intended to be used by future DAOs. Its key innovation was the rage-quit function, a direct response to drama surrounding “The DAO.” Rage-quit lets DAO members quit the DAO and escape with their funds in the case of a disagreement over a proposal. Giving DAO members a way to escape a situation where they felt a proposal would lead to a negative outcome but couldn’t outvote it. Today, hundreds of DAOs, including investment DAOs, have been launched using the MolochDAO framework, and thousands of DAOs have been generally started.
The future of investment DAOs
As investment DAOs have evolved, the syndicate model employed by Vanta DAO has emerged as one of the leading formats, offering users “more autonomy over their investments.” Vanta DAO is taking things a step further by fully decentralizing its operations, handing ownership of the syndicate over to its community of NFT holders and making them “owner-operators.” This decentralization will, its founders believe, enable the DAO to scale at a faster rate than if they’d retained ownership themselves, and will avoid them becoming a “bottleneck” for the organization, Vanta DAO member Jax Dwyer told Rug Radio’s FOMO Hour. As investment DAOs become more prevalent, it’s likely that the decentralization model pioneered by Vanta DAO will become the norm, with communities taking charge of multi-million dollar funds and self-administering their affairs.
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In conclusion, investment DAOs have revolutionized the way individuals can participate in investment opportunities and have brought a more democratic approach to decision-making in financial ventures. The evolution of DAO frameworks such as Moloch DAO and the syndicate model employed by Vanta DAO show the innovative potential of decentralized organizations. As we look to the future, the decentralization of investment DAO operations and ownership by community members will likely become the norm, paving the way for a more inclusive and collaborative investment landscape.
