We have seen a steep adoption of crypto-based systems this year, including decentralized finance (DeFi) applications, nonfungible tokens (NFTs) such as digital art, crypto-centric gaming, and increased adoption of cryptocurrencies as investment and payment tools. One of the more recent developments is the emergence of decentralized autonomous organizations (DAOs).
DAOs have existed since 2016, when The DAO organization, a new form of investment vehicle that attracted a sizable portion of Ethereum (ETH) tokens, raised more than $150 million at the time. Many saw The DAO as the ultimate form of human coordination. Yet, due to a reentrancy exploit, hackers stole $50 million of the organization’s funds.
Despite the initial setback, DAOs have seen a second birth in the past months. This was primarily enabled through more mature frameworks and tools, as well as reduced friction in setting up a DAO and engaging with DAOs. Some early experiments such as DXdao, DAOStack’s Genesis DAO, or MolochDAO showed the way for a new wave of decentralized organizations. Today, there are DAOs in different forms and shapes, ranging from big to small, used to steward ecosystems, collectively buying NFTs or contributing to social causes or movements.
Beyond that, DAOs will likely be the most transformational change in how venture capital (VC) funds operate. Venture funds will have to change how they invest in projects, how they engage with them, and how they bring value. At the same time, though, their own business model might get disrupted by DAOs that themselves become investment vehicles. But Web 3.0 will also fundamentally change access to investment opportunities and deliver democratic ways of investing without having to be an accredited investor or without net worth restrictions.
How VCs invest in Web 3.0
It’s not an anomaly anymore to have venture capital funds invest in Web 3.0. These investments range from the establishment of specialized crypto funds to more traditional…
