DAO deep dive: Main types and new trends
Recent research published by Cointelegraph defines DAO 3.0 as the stage where DAOs flourish in a variety of forms. The idea of decentralization has started to influence more communities that were arguably not crypto-native but decided to adopt DAOs to increase democratic participation and bottom-up governance.
In our previous article on The very basics of DAOs, we explored the fundamental concept and the defining characteristic of DAOs. In this article we’re going to look at the main types of DAOs, namely:
- DeFi protocol DAOs
- Investment DAOs
- Grants DAOs
- Media DAOs
- Social DAOs
- Collector DAOs
- “DAO tooling” DAOs
- Service DAOs
1. What are DeFi Protocol DAOs?
The most common protocol based DAOs are DeFi services offering lending, borrowing, and liquidity provision solutions. Prominent examples include MakerDAO, Uniswap, AAVE, and others.
Just like other types of DAOs, DeFi protocols use governance tokens to transfer power from the core team to the broader community. Token holders can then create and vote on proposals on-chain or off-chain. In DeFi protocols specifically, governance tokens can also be staked, taken out for loans, and used for yield farming. That said, the primary usage of governance tokens remains voting power distribution.
The most prominent example is Uniswap, which currently manages liquidity pools of ERC-20 tokens and sits at a $4.6B market capitalization with $2.5B in treasury.
2. What are Investment DAOs?
Investment DAOs are designed to bring a return-on-investment income to the community. An investment DAO raises the capital of the participants, brings together the deals, and jointly selects investment decisions. While investment DAOs face additional legal restrictions both domestically and internationally, their development demonstrates that groups of people can come together to invest significant amounts of capital at a lower threshold.
Investment-based DAOs execute investments on-chain with the aim of protecting the safety of participants’ funds. BitDAO, as a typical investment-based DAO, is focused on promoting the development of open finance through collective investment. It currently sits at a market capitalization of $1.0B and $1.2B in treasury.
Many investment DAOs have realized that it would not be effective for all members to participate in every investment decision. Therefore, many investment DAOs have begun to implement mechanisms to improve investment quality while promoting an equitable voting power distribution.
For example, some DAOs have started to use traditional finance concepts like the relationship between General Partner and Limited Partner. This way, elected members with subject area expertise and community votes could exercise the right to vote on behalf of the community. Other DAOs give the core team veto power, or distinguish the responsibilities amongst members, and so on.
More importantly, in addition to offering enhanced security (through multisignature) and transparency (through on-chain settlement), investment DAOs can sometimes perform as well as some traditional investment organizations. Since DAO communities usually involve many people from diverse backgrounds, project founders often found them appealing. Crypto projects often prefer interacting with like-minded investment DAOs.
3. What are Grants DAOs?
Grant DAOs are designed to facilitate grants to support new protocols, mostly focusing on open-source projects such as infrastructure, media, as well as social and environmental issues. Grants DAOs act more as allocators of funds rather than as investors, which differentiates them from investment DAOs. Due to their proximity to great projects and investors, some Grants DAOs are also often service-based DAOs, connecting talents with projects.
Take Gitcoin DAO, for example, which offers bounties and hackathons to connect open-source engineers with blockchain projects. These engineers are often rewarded with ERC20 tokens or native tokens from specific projects. Service-oriented DAOs reflect the “gig economy” in the Web3.0 world and are exploring the future of work and employment patterns native to the crypto world.
Gitcoin’s grants program is the epitome of Grants DAO. It has already funded protocols like Uniswap, Dune Analytics, and more. Other donation-based DAOs include MolochDAO, MetaCartel Ventures, UniswapGrants, CompoundGrants, and others.
4. What are Media DAOs?
Media DAOs are designed to produce public media content and allow anyone to participate in the creation of media. Media DAOs tend to set up incentive programs for content production and determine the direction of the community through decentralized governance. Current media DAOs include BanklessDAO, Forefront, and more.
Bankless DAO, for example, is an open media creation community. Anyone can join Bankless DAO’s servers through Discord and access most of their working documents. Membership is required to participate in collaborations and meetings and is contingent on holding a certain number of BANK passes.
Bankless currently has 13 guilds spanning from writing to data analysis. Any member can participate in any guild discussion and contribute to Bankless content. It is now active on Spotify and Apple Podcasts.
5. What are Social DAOs?
Social DAOs are focused on building diverse online communities. The main difference between a social DAO and a chat community is that the community members are bound in terms of interests and can participate in making rules. The goal of social DAOs is to gather people with the same interests and leverage the token economy to strengthen their network relationships.
For example, FWB (FriendWithBenefit) is a private club with over 2,000 members. FWB is socially oriented and socially driven, but they have spawned a lot of interesting projects because of the large number of like-minded friends who have gathered around their thinking. For example, they have made token-gated tools for IRL gatherings. Taika, a beverage brand that recently attracted attention, was also incubated in the FWB community.
The definition of “social DAOs” can be fluid. SeedClub, a DAO famous for being an outstanding accelerator and network services, is also considered by some as a Social DAO, mainly because they have formed a solid alumni network through an accelerator program. Projects that have graduated from the SeedClub accelerator program have formed a solid and supportive community online and IRL, supporting one another and providing guidance to new projects.
Social DAOs are more than mere social clubs. They’re about bringing people together, encouraging them to get things done, creating and feeding the value back to DAOs, and achieving a flywheel effect.
6. What are Collector DAOs?
Collector DAOs usually consist of a group of people who try to raise money quickly for a common goal, which can include social and investment aspects. Many Collector DAOs aim to collect NFTs and bring artists, enthusiasts, and platforms together to preserve the long-term value of their artworks.
Famous Collector DAOs include FlamingoDAO, MeetbitsDAO, PleasrDAO, and so on. Another recent example of a Social and Collector DAO would be JennyDAO, a famous Metaverse DAO and social token on Unicly. It enables any DAO member to be a visitor, user, and art director at the same time.
7. “DAO tooling” DAOs
As the DAO ecosystem matures, an increasing number of DAOs need on-chain third-party tools to facilitate the DAO governance process, treasury diversification, and more.
Aragon is a good example of a service aiming to lower the cost of launching and running a DAO. Aragon provides a one-stop shop to create a DAO from scratch thanks to its governance plugins. Its success has made its native token ANT one of the highest-ranked tokens on Coingecko. It now sits at $67M in market capitalization and has $123M in treasury.
Other examples of tools include Hedgey (a deal-offering protocol for DAO treasuries and buyers), Tally (an on-chain voting platform), Llama (treasury management-as-a-service for DAOs), Syndicate.io (decentralized investing protocol). These tools enable the proliferation of DAOs and provide the fundamental basis for DAO operations.
8. What are Service DAOs?
Service DAOs are decentralized working groups created to provide legal services, design, programming or software development, marketing, and even launchpad services to both Web2 and Web3 individuals and companies. DAO members are rewarded with ERC20 tokens and oftentimes the share of the value they create for their clients.
An example of Service DAO is Third Academy, a Web3 educational collective and career launchpad.
9. DAOs and decentralized identity
DAOs already intersect with some of the new trends in the industry, specifically that of decentralized identity (DID). A lot of DID solutions are centered on interpersonal data such as social graphs, rather than personal data alone.
An example of the use of DID in DAOs is Karma. In short, Karma assigns a “Karma Score” to DAO members based on the frequency, quality, and consistency of their engagement in the DAO. Those with higher scores are considered active contributors and will be rewarded and discovered by other DAOs more easily. Leading DAOs such as Gitcoin, ENS, Aave, Compound, Lido, Uniswap, and others have already partnered with Karma to better coordinate and manage DAO members.
Conclusion
With the proliferation of DAOs, we start to see the emergence of different governance models, such as liquid democracy, holographic consensus, and reputation-based voting. These different voices of DAO governance try to solve a classic political science problem: How to ensure an effective and efficient decision-making process with quality and fair participation from members?
We also start to see how the “code is law” principle is supplemented by real-life marketing, financial operations, and community engagement efforts to drive impact. Smart contracts themselves do not guarantee the success of a DAO. DAOs require, also, great leadership and project management skills to fully realize their decentralized potential.
The line between DAOs and traditional corporations has become more fluid but at the same time much clearer, as both sides learn from each other’s success while defining their own identity.
This article is written by Qi Zhan (OKX Blockdream Ventures Investment Manager), Paige Xu (OKX Blockdream Ventures Investment Manager), and Samuel Gu (Core Contributor at 8DAO).
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