Since 2020, DAOs (Decentralized Autonomous Organizations) have grown in popularity within the crypto walls. They are usually associated with projects like DeFi protocols, meme coins, and NFTs.
But what are DAOs? They are organizational structures for communities or businesses where the level of control for each member is determined by the number of tokens they hold instead of hierarchy. In other words, DAOs are online organizations whose members are focused on achieving specific goals.
Initially, many projects formed DAOs to create a decentralized governance system. However, the purposes of these organizations have expanded over the years, with some comprising a group of individuals who pool funds together to invest in various projects.
This article focuses on investment DAOs. Read on to learn more about them and how they work.
Investment DAOs Explained
An investment DAO is an organization where members pool capital and invest in crypto projects together. Such DAOs come in many sizes and shapes. The most common involves members pouring funds into the DAO’s treasury and receiving tokens, which represent their share of the investment funds.
Once the required capital has been raised, DAO members are tasked with looking for investment opportunities. Whoever finds a deal presents it to other DAO members, who vote on it using their shares. Hydra Ventures is one of the Investment DAOs that function like this.
Syndicate is another structure that some investment DAOs adopt. In a syndicate investment DAO, interested parties become members by acquiring a particular NFT or a specified token amount. Vanta DAO, for example, gives individuals who hold its NFTs access. Once you buy an NFT, the DAO transfers the purchase amount to an investment fund or treasury. That means you don’t need to pool funds. However, you can do so if you want to.
Like other investment DAOs, syndicate DAOs require members to find investment opportunities and propose them to other members, who then vote on them.
Several benefits come with investing in crypto projects through such DAOs. For instance, since all DAO members vet the presented investment opportunities, they can exchange ideas to ensure they pick a crypto project with the highest potential to become successful.
How Investment DAOs Work
To help you better understand how investment DAOs work, we will use Vanta as an example. Firstly, Vanta raises investment funds by selling its NFTs on leading marketplaces. As mentioned, proceeds from NFT sales are deposited in the DAO’s treasury. Those who buy the NFTs can decide to become contributing members or just investors.
As a contributing member of the Vanta DAO, you can take on several roles and get paid through the treasury. For example, you may be tasked with putting together comprehensive research reports on the available investment opportunities.
While they are still in their early stages, investment DAOs can be considered an upgrade to the traditional business models, given that their democratized nature makes them more accessible to common people who get a rare chance to become investors in huge crypto projects regardless of their investment amounts.
The Moloch DAO Framework
Most investment DAOs employ a framework called Moloch, which was established in 2019 following a hack on the first ever created DAO. The hack led to drama within the DAO, as some members wanted the organization to be migrated from Ethereum to another blockchain, while others favored the former.
Those who wanted to quit the DAO could do so but without getting back their investment funds. To address these limitations, the Moloch framework was introduced with a “rage-quit function,” which allowed DAO members to quit and recover their funds.
Final Thoughts
As the finance sector continues to evolve, investment DAOs will likely become popular among investors, especially those who cannot access traditional investment companies due to their limited capital. Moreover, since power in these DAOs is decentralized, it makes all members feel like they are part of those organizations. This motivates them to work toward the success of the DAOs.
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