In crypto land, 2020 was all about DeFi. So far, 2021 has been about NFTs (hot jpeg summer anyone?)
2022 will be all about Community DAOs.
Community DAOs = DeFi infrastructure + NFT business models + Creative Humans
Crypto isn’t just a technology, it’s an internet-native economy. Revenue is tracked in ETH. Key decisions are made with community governance. Transactions are enforced on-chain through smart contracts. Treasuries are controlled via multi-sigs. And value is captured with tokens.
DAOs are the native corporate structure of these crypto economies.
Instead of being incorporated in Delaware or the Cayman Islands, DAOs are incorporated in Discord servers and blockchains. DAOs provide an internet-native way of pooling capital, making collective decisions, and capturing value.
The org structure of DAOs looks like modern day cooperatives, but over the next decade I believe their scale and impact will rival some of the world’s largest public companies.
These days, it seems like there’s a DAO for pretty much everything; Collecting NFTs. Socializing. Building software. E sports. Musicians. Media. Education. Funding public goods.
But what makes a “DAO” a DAO?
Although the purpose, scale, and sophistication of DAOs can vary, most include the same core components:
So, are these Community DAOs actually working?
Over the past few months, DAOs like Fingerprints and Flamingo have amassed five and six figure NFT collections.
DAOs like Bright Moments have sold millions worth of NFTs in minutes.
Rabbithole, Seed Club, Forefront, and FWB are becoming the premier on-ramps for the next wave of active contributors in crypto.
Some DAOs like NounsDAO just leave you thinking WTF.
And don’t even get me started on Loot…
Multiple top tier VC funds have invested in these DAOs and I think they’ll end up becoming some of the best performers in their portfolios over the next decade.
In the rest of this post, we’ll take a closer look at Community DAOs - how DAOs can become sustainable businesses, what the risks are, and what they may look like in the future.
Unlike traditional startups, the initial purpose of most Community DAOs isn’t to maximize shareholder value. It’s about the vibes. People want to be surrounded by like minded individuals, make collective decisions, and move the community’s purpose forward.
But given the growth of the broader crypto market, many of these Community DAOs are finding themselves sitting on treasuries worth millions and ERC-20 tokens with $100M+ market caps. In just the past few months, they’ve gone from group chats to real businesses.
One of the keys to growing these Community DAOs will be recurring on-chain cash flow. There’s other important factors like community engagement, governance, tokenomics, etc. but generating on-chain cash flow gives Community DAOs capital to reward contributors, hire full time staff, and grow their treasury.
Back in college, I studied Finance and one of the most boring things we learned was how to analyze a balance sheet. Turns out, it’s actually kinda useful.
There’s two types of assets on a Community DAO’s balance sheet:
*Technically ETH could be considered equity in the Ethereum network but for simplicity, let’s classify ETH as cash on the balance sheet since it’s the primary medium of exchange for DAOs
So what can Community DAOs do with the cash and equity on their balance sheets? For many, crypto feels like a massively multiplayer online game.
For Community DAOs, the game is to increase the value of the treasury while maintaining the strong vibes that got the community going in the first place.
There’s a few ways Community DAOs can put themselves in a position to win this game:
Let’s take a closer look at each.
Collecting Blue-Chip NFTs
This is the most common way Community DAOs get started.
A group of frens want to collect blue-chips like Punks, Autoglyphs, DEAFBEEF, Fidenzas, Ringers, etc. but don’t want to put all the capital up themselves. Instead, they pool their funds to purchase a portfolio of blue-chips.
However, in practice, storing these NFTs in a vault is illiquid. It doesn’t directly generate revenue. As a result, some of these DAOs issue ERC-20 tokens as a way to let people speculate on the value of the underlying NFTs, earn trading fees, and decide when to sell. PleasrDAO, one of the largest NFT Collector DAOs, recently announced a similar liquidity strategy for their 1 of 1 Doge NFT.
This kinda ends up being like storing gold in a vault and issuing paper certificates against it (sound familiar?). You can redeem your paper certificate for the underlying asset but you need to trust that the asset will be available and worth something when you want to redeem. But instead of gold and paper certificates we have blue-chip NFTs and ERC-20 tokens.
To be fair, some of these vaults are extremely valuable and have a damn good chance of being worth billions some day. So maybe instead of being like storing gold in a vault, maybe it’s more like owning equity in iconic internet culture and some of the most valuable IP in the world. But the reality is that in the near term, these vaults alone don’t generate recurring on-chain cash flow.
Instead of near-term cash flow, these blue-chip NFTs serve as a focal point (or as crypto people would say: “schelling point”) for top collectors, artists, founders, investors, and operators to get involved in the community.
As we’ll see in the next few sections, the most valuable aspect of these vaults stuffed with blue-chip NFTs is that they attract human capital that converts illiquid jpegs into cash on the balance sheet.
Idk about you, but the terms “follower” and “subscriber” feel weird to me. They imply a unilateral relationship. I follow you. You subscribe to me.
But the terms “member” and “owner” hit different.
We are members.
We are owners.
In web3, membership and ownership are encapsulated in tokens. Balances are stored on the blockchain. And your assets are controlled by your private key.
If the vibes are off in the community or you need liquidity after getting rekt by yet another degenerate yield farm, you can sell your tokens on an AMM or head over to the #otc channel in Discord to negotiate a fair rate. No questions asked.
But as the Community DAO increases the value of the treasury and demand for membership increases, the value of the underlying membership token increases.
If you were an early member of the community or earned a large allocation through your contributions, this can turn into meaningful wealth.
However, membership tokens aren’t just about “nUmBeR gO uP”. At a deeper level, the token is a coordination mechanism to help online communities create, capture, and redistribute value.
And because token holders are also community members, they don’t need to fire up an Excel spreadsheet and make resource allocation decisions based on a DCF analysis. Unless they want to.
Instead, Community DAOs invest in whatever they want. Sometimes that’s donating to charities. Other times that’s popping bottles in Paris.
This is the most common way Community DAOs generate on-chain cash flow. Some of these drops post serious numbers. This past weekend, Bored Ape Yacht Club sold $92M worth of Mutant Ape NFTs in one hour.
Another one of my favorite drops recently was a collab between Arihz (an anonymous Brazilian computer scientist / NFT artist) and FingerprintsDAO (one of the leading collector DAOs for smart contracts as art). The drop was called Avid Lines and in the first 30 days, it’s done almost $10M in trading volume.
More importantly, the drop was a great example of how to remix NFT IP in a fun and interesting way. It was a derivative of Autoglyphs, which is the most valuable collection in the FingerprintsDAO treasury.
Here’s how it worked:
Some of the most popular NFT drops are derivative projects that take blue-chip NFT IP and remix them in a way that’s fun, game-like, and visually appealing. These derivative projects are interesting because they take illiquid jpegs stored in a vault and turn them into productive assets. Some Autoglyph holders earned $40k worth of ETH by simply calling a whitelist function on a smart contract.
As DAOs look for new ways to increase the value of the NFTs in their treasury, we’ll continue seeing more derivative drops like these that enhance the value of the core IP while also turning NFTs into productive assets.
Tokenized NFT Gallery
Most Community DAOs don’t have their own tokenized NFT gallery yet. But in the near future I think it’ll become one of the most popular ways for Community DAOs to generate on-chain cash flow.
The basic idea is:
This allows Community DAOs to build their own NFT marketplaces while rewarding token holders, artists, collectors, and devs with a mix of cash and equity. The curation abilities of top Community DAOs will eventually turn these NFT galleries into incubators for emerging artists.
For example, if you’re a generative artist and FingerprintsDAO votes you into the their gallery, it’s basically like being a fashion designer and getting your latest clothing line in Vogue. This creates a reflexive feedback loop where the top Community DAOs build status by curating high-quality NFT collections and then help the next generation of artists get distribution while earning fees.
It’s kinda like CAA or a record label for internet culture. But now the agents are fans, builders, and creatives.
Building media properties isn’t as sexy as a tokenized NFT gallery, but they work. Start a podcast and / or newsletter, find some sponsors, and boom. There ya go.
The top Community DAOs should have a pretty easy time finding sponsors given their community is filled with progressive individuals with cash to spend on random stuff like digital pet rocks.
Club Top Shot is one of my favorite examples of a media company being built around an NFT collection.
UTA, one of the premier Hollywood talent agencies, recently signed Larva Labs (creator of CryptoPunks, Autoglyphs, and Meebits) and will represent them across film, TV, video games, publishing, and licensing. Imagine Kevin Hart being the voiceover for a CryptoPunk or Meebit in a Netflix show lmfao. I’d watch that in a heartbeat.
Most Community DAOs go through the following cycle pretty much every week:
FWB is one of the most active DAOs in building custom tooling for their community. When they needed a way to token-gate IRL events, they built it. When they needed a dashboard to highlight key information about the community, they built it (and it’s vibey af).
A key thing FWB got right early on was seeding the community with high-quality members. Then, token-gating membership was a kind of “proof-of-work” to ensure that only the most committed people would join the community and renew each season. This created a positive feedback loop where talented people get in, those people started building and shipping products, more talented people got interested and joined, more problems surfaced, and more problems got solved.
As Community DAOs become aggregators for top talent in crypto, we’ll see more custom tooling built to serve the broader community. And similar to how YC startups usually get initial distribution from other startups in their batch, Community DAOs will get their initial distribution from the other DAOs and projects their community is involved with.
Tokens (DeFi protocols, NFT protocols, and other DAOs)
It’s been interesting to see DAOs align incentives by investing in each other. A few months ago FWB and WHALE did a token swap where the stake in $FWB was valued at $100k. Today, that stake is worth $1.5M.
Given the amount of human capital inside these DAOs, most crypto protocols will probably have a few DAOs on their cap table as strategic investors helping with distribution, connections, and domain expertise. As the crypto market grows, these DAO-to-DAO stakes could end up being very, very large. These stakes will also create a new type of mutual alignment at a level we haven’t seen before in the competitive world of business.
Like any investable asset, Community DAOs live along a risk-reward spectrum.
Some of the main risks of Community DAOs include:
Here’s a few predictions on the future of Community DAOs:
Community DAOs are the next evolution in online communities. It’s like if subreddits had a shared bank account, a token, and governance mechanisms. They’ll become the new social networks. And the best way to learn is by actively contributing.
Here’s what I usually share with friends interested in contributing to Community DAOs:
The DAO maestro himself Coopahtroopa recently published an article with a bunch of DAOs you can contribute to as well as a list of people to follow.
The demand for talent in the space far exceeds supply so if you’re at all interested, don’t hesitate to jump in and start contributing.
Until next time ✌️
Shoutout to Coopahtroopa, Elena, Chase, Dame, Nir, Li, Jarrod, and Louis for their feedback on this post. And to the Mirror team for many conversations on Community DAOs.
Feel free to DM me on Twitter with any questions, comments, or memes @patrickxrivera.