Investment DAO: The Next Generation VC Fund

A few months back, at the annual Berkshire Hathaway shareholders meeting, Warren Buffet and his deputy Charlie Munger addressed the topic of crypto market valuation at USD 2 trillion that time. Warren Buffet’s apathy towards cryptocurrency is well-known and he has blasted Bitcoin many times earlier but Munger had an interesting opinion. “I hate the Bitcoin success … I think I should say modestly that the whole damn development is disgusting and contrary to the interests of civilization”, he said. Cryptocurrency is often hard to grasp as the underlying technology makes it very alien to traditional investors.

But is cryptocurrency incompatible with civilization? The difference in culture and belief is not an uncommon phenomenon. Acceptance of a radical economic idea doesn’t mean a crash of civility at all. Cryptocurrency aims to make a cooperative economy by maximizing economic participation. Civilization does not die when a cooperative economy flourishes as wealth is a community resource that frees up human possibilities. Yes, the possibilities are really endless. DeFi or decentralized finance has eliminated the middlemen and found acceptance today. All DeFi protocols are being managed by DAOs (Decentralized Autonomous Organizations). A DAO is an organization without any central leadership or hierarchy. The anonymous stakeholders take part in decision making and operating as per the code of conduct or internal law. All internal laws or rules can be modified through democratic voting. Transparency and easy participation are key characteristics of a DAO. DAOs have emerged as the preferred tool to democratize investment and remove entry barriers today. Investment DAO is a special category of DAOs that focuses on investment through pooled funds for wealth creation.

BitDAO, a DAO backed by Singapore based Bybit exchange, completed its token auction and raised more than 112,000 ETH some days ago. The total money raised was equivalent to USD 335 million at that time. The token auction took place through Sushiswap’s MISO launchpad. BitDAO can be considered as the largest DAO at present and it is supported by Pantera Capital, Dragonfly, Spartan etc. Before this token auction, BitDAO raised USD 230 million from many VC firms. BitDAO will invest in several DeFi projects and BIT governance token will be used to make key decisions through democratic on-chain voting.

Yield Guild Games (YGG) is a play-to-earn gaming guild. The website describes itself as the ‘settler of new worlds in the metaverse’. Yield Guild Games is funded by VC firms like a16z, Kingsway Capital, Infinity Ventures Crypto, Atelier Ventures and the DAO invests in non-fungible tokens or NFTs and the main focus is in-game assets. After the pandemic, the popularity of play-to-earn games has skyrocketed and the DAO has become a popular choice for a particular investor class. YGG is the governance token of the DAO and it is listed in some popular exchanges. The revenue of the DAO generally comes from rentals of YGG owned NFTs. YGG has dedicated community managers to facilitate easy onboarding of new members.

The LAO is the first limited liability for-profit DAO launched by OpenLaw. It enables its members to invest in Ethereum new ventures and generate a profit. If DAOs aim to make a profit, they can run into securities laws issues although this is a grey legal area. OpenLaw provides the bridge between traditional legal regimes and the Ethereum world. The binding legal agreements are tied to smart contracts. The approach is obviously very different and this DAO restricts who can participate.

NFT collector DAOs are flourishing after the NFT boom. PleasrDAO and FlamingoDAO are such DAOs that raise money to buy NFTs with a profiteering objective. Both are supposedly private DAOs. FlamingoDAO website says, “NFTs evolve and ascribe value in the hands of artists, game makers, metaverse creators or dwellers, and DeFi at large. FLAMINGO aims to support, purchase, archive, collect, and potentially tokenize important pieces of this ecosystem.”

DAOs allow groups of people to operate more efficiently due to smart contracts and a transparent decision-making process. The operational cost is getting reduced drastically and the programmable smart contracts can do many things which are not imaginable in a traditional platform. An investment DAO holds its funds in a multi-sig smart contract and deployment of capital takes place very easily. The VC firms have already understood the significance of the DAO movement and that’s why many of them have started to provide seed funding to several investment DAOs. The next-generation venture capitalism will be more collective, robust, accountable, technologically advanced and the investment DAOs are unfolding the dawn of that era. Cooperative wealth creation is bound to be DAOfied.


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