Decentralized autonomous organizations (DAO) had a bumpy start but participation by Snoop Dogg in a funding round led by Silicon Valley venture capitalist Andreessen Horowitz may be proof that mainstream investors are climbing on board.
Using cryptocurrencies, DAOs allow people around the world to pool funds. They’re a way to lock up funds on a public blockchain with participants transparently sharing governance decisions, often done by voting, on how funds should be used or invested, Coindesk reported.
DAOs incentivize contributors by giving them a say in the future of the organization and they’re being credited with the potential to turn traditional forms of organizing upside down.
Syndicate, a community-based investment system that simplifies the creation of DAOs, has raised a $20 million Series A funding round led by Horowitz, whose a16z Silicon Valley venture capital firm backs entrepreneurs building technology. With the Series A round, total participation includes 150 VC firms, founders and angel investors including Snoop, Reddit co-founder Alexis Ohanian and actor Ashton Kutcher.
DAOs organize people and their money governed by rules that are encoded as a transparent computer program, controlled by the organization members in a smart contract and not influenced by a central government. The smart contract holds the organization’s storage. No one can edit the rules without someone noticing because DAOs are public. Since rules are embedded in the code, managers are not needed so there is no need for bureaucracy or hierarchy hurdles, according to Forbes.
Until now, DAOs have been used for investment, charity, fundraising, borrowing, or buying NFTs. A DAO can accept donations from anyone in the world and members can decide how to spend the money without intermediaries.
DAOs were conceived in 2016 by a group of developers inspired by the decentralization of cryptocurrencies. They established a company in Switzerland built on the Ethereum blockchain and the DAO token launched in April 2016 with the help of a month-long crowd sale of tokens. They raised more than $150 million in funds — the largest crowd fundraising campaign ever at that point, Investopedia reported.
It didn’t take long for hackers to crack the code.
In June 2016, hackers stole $50 million worth of Ethereum from the DAO. Even though the fault was in the code and not in the underlying technology, the hack undermined trust in DAOs and Ethereum, according to Forbes.
With the explosion of decentralized finance (DeFi) in 2020, DAOs are enjoying renewed interest.
Unlike traditional companies, DAO funding is mainly through crowdfunding and the issuance of tokens. While traditional companies are governed by executives, boards of directors and investors, DAO governance is based on community. While traditional companies often operate in private locally or regionally, DAOs are transparent and global.
In theory. Sometimes.
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In January, 12 staffers involved in the DAO Aragon Network resigned because of its apparent lack of financial transparency, Coindesk reported. Aragon seeks to build digital classrooms that “make it possible for organizations, entrepreneurs and investors to do business without a legal nexus,” according to Messari.
Aragon Association Executive Director Joe Charlesworth said, “some divergence in the approach to building Aragon, or any project for that matter, is inevitable.”
Snoop’s participation in Syndicate means he’s helping communities use decentralized investment vehicles. Some examples are Audacity, a DAO that invests in Black and African founders and emerging or overlooked markets, and Komorebi, a collective that invests only in exceptional female and non-binary crypto founders, Coindesk reported.
Syndicate co-founder Ian Lee told Coindesk that deploying capital to underrepresented communities is where he sees DAOs going next.
“We hope that in the future, Syndicate is going to redefine what investing is and what it means,” Lee said.