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Will onchain organisation be the 8th wonder of the world? Hint: follow the money.

Updated: Apr 22

The most critical catalyst behind our global civilization’s current per capita wealth (particularly compared to our predecessors even just a few centuries back) has been our self-organisation into small units designed to achieve specific goals: the limited liability company.” - Arthur Hayes, Founder of BitMEX


If the limited company structure drove the upward surge of human progress since the 17th century, from the Dutch East India Company to Amazon today, what will be the next evolution of organisational structure that will drive value creation and distribution of the web3 age?


There is an emergent organisation structure called the Decentralized Autonomous Organization (DAO) that many crypto projects have adopted to govern its day to day operations as well as strategic decision making process.


Rather than being governed by a limited group such as executive boards, DAOs use a set of rules that is written in code to govern and enforce the relationship between its various endeavours (e.g. growing a project’s revenue and awarding a security audit contract to a security firm) and its stakeholders (e.g. people holding its tokens).


DAOs Currently these DAOs’ control a total of $22.7bil assets, a number that is set to grow as crypto reaches more adoption.


One of the biggest DAOs in the space, MakerDAO, has single handedly created the tokenized US Treasury business for service providers and asset managers by deploying $2.5bil of its assets.


How does these DAOs work? What are its functional components? Are we at a tipping point? Let’s dig in.


Demystifying DAOs

According to Ivan, who leads Ecosystem growth at Aragon, the oldest DAO voting enabling project, DAOs are formed to do one or a combination of the following:

  1. Equitably and immutably distribute ownership or voting rights

  2. Crowd fund

  3. Bootstrap and scale its growth

  4. Build resilience against centralized single point of organisational failure

The more mature a project, the more likely it is to focus on the latter part of the above list. For example, Lido, the market leader in liquid Ether staking space, controls $12bil of ETH and already has PMF. It is now more focused on how to leverage on the DAO structure to ensure a system of checks and balances than to use the governance structure to crowd fund and bootstrap.


How do these DAOs function? See the graph below.


Don’t these functions look very familiar? These are essentially the operational functions we find at every company:

  • Sales & Marketing

  • Communications

  • Legal

  • Finance

So what’s the difference? There are several:

  1. Most of these functions are outsourced to service providers in the case of a DAO. The service provider is voted in/out by the token holders of a project. See this example.

  2. The rationale and lobbying of decision making process is much more public than the internal workings at a company. See this list of all the initiatives at Aave.

  3. While the top executives tend to set agenda at companies, the biggest decisions in a DAO system often require token holders’ explicit votes of approval to be carried out.

  4. On average token holders tend to be much more active in their participation of a project’s decision making process than shareholders in a company.

  5. DAO votes are irrevocably recorded on the blockchain and executed sometimes through immutable code on blockchains.


So what?

The fact there are so many functional roles that an increasing number of DAOs will need means there are a multitude of opportunities to meet these needs.


For example, for payments towards service providers or contributors, DAOs need accounting and record keeping solutions. Here are some opportunities in the growing DAOs space:

  1. On/off ramping of crypto to fiat conversion

  2. Service provider KPI monitoring and automation

  3. Enterprise accounting and bookkeeping solutions

  4. Permission based information access

  5. Treasury management (cash management, asset allocation)

  6. Risk management (operational, financial, legal etc)

These opportunities probably tell you that DAOs are still at a nascent stage in a fragmented market.


While there are many DAOs, the ones that have significant resources to tackle these problems are still limited. According to Deepdao, out of the 2401 DAOs, there are only 177 with AUM over $1mil, 84 with AUM over $10mil and 19 with AUM over $100mil.




The Future

Although we are not at a tipping point yet, the growth of DAOs has been undeniable since 2021. With catalysts such as tokenization of traditional assets bringing sustainable yields onchain and more projects reaching revenue and earnings positive territory, DAOs will most likely grow with the overall crypto market.


And as the asset value DAOs control grow, they will become increasingly important capital allocators and players in the broader digital asset ecosystem. We may soon have D2D businesses.


I will leave you with this quote from our esteemed fellow crypto entrepreneur, Arthur Hayes’s recent essay.


“My opinion is that AIs will organise themselves using a Decentralised Autonomous Organisation (DAO) structure. DAOs are reliant on public blockchains – not the state – to operate. The DAO structure will allow AIs and humans to collaborate and serve as the organisational structure that allows the AI + human economy to grow and flourish”


Disclaimer: This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.


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