Why is Everyone Working on DAO Tooling?
In the wake of ETH Denver, one thing is clear. Teams are betting big on DAOs. Almost everyone that I interviewed from the conference had the same take. “Everyone is building DAO tools.”
It seems that web3 companies and developers are rushing to upgrade the infrastructure for creating, managing, and governing DAOs. So what is a DAO and why is the web3 community so bullish on this technology?
Web3’s Structure of Choice (DAOs)
Decentralization and community have arguably become the core tenants of web3. So it makes sense that web3 projects would organize with these concepts in mind. Enter the DAO (decentralized autonomous organization).
DAOs are an alternative to organizational structures like partnerships or corporations and they are transforming the way that groups of people collaborate towards a shared goal. DAOs run using blockchain technology called smart contracts. They are essentially software with predetermined rules for how the community will vote to allocate shared capital and move the project forward.
You can think about a DAO as a community with a shared bank account. What’s important is that DAOs are becoming the most common structure for projects in web3 with a wide variety of use cases including:
- DeFi protocols
- NFT communities
- Investment funds
- Climate and social impact projects
- Research organizations
Most web3 companies can be organized as DAOs. As of today, DeepDAO was tracking more than 4,800 DAOs with more than $9.2 billion USD in their treasuries. For comparison, there were approximately 200 DAOs being tracked by DeepDAO in 2020.
DAOs allow communities to quickly form a flexible, decentralized, framework to manage collaboration on almost any project. It’s clear why they are a great tool for web3.
DAO Tooling Categories
DAOs have varying levels of complexity which will affect the experience of managing and governing them. Generally, teams will leverage or build tools from the categories below and integrate them into their DAO’s infrastructure.
- DAO setup tools allow you to create the core infrastructure for your DAO, including smart contracts. Current tools include: Aragon, Syndicate, and Colony
- Treasury management tools allow you to securely manage community funds based on the rules of the DAO. The industry standard is the Gnosis Safe multi-sig wallet.
- Governance tools enable you to manage community voting, the core of the DAO concept. They will gauge a user’s voting power based on the governance tokens in their wallet. The most popular tool today is Snapshot.
- Communication tools are core to any online community. In web3 and with DAOs the biggest players are Twitter, Telegram, and Discord.
- Compensation tools allow you to reward members of the DAO for their contributions to the project. Current tools include: Coordinape and Utopia Labs.
- Access tools let you easily manage who can access gated, confidential areas of your DAO — including communication channels. Current tools include: Collab.Land for ethereum and Grape for Solana.
These are just the core elements that can be integrated into DAO management. This is an organizational structure in its infancy, adjusting to meet the requirements of a quickly evolving market and regulatory environment. This is a recipe for opportunity.
Venture Capital is Taking Notice
As with any early-stage and fast growing market, VC firms are rushing to position themselves. They are investing in startups that are building the tools for a DAO enabled future.
One area in which startups and VCs are investing is in helping DAOs stay compliant with U.S. regulations. The U.S. has a more robust regulatory environment governing what non-accredited investors can and can’t do. Startups are also working to help DAOs incorporate as LLCs, or other structures based on what the DAO is aiming to do.
However, it seems that most of the VC investment is going to teams seeking to build the easiest way to create a DAO. Last week Upstream announced a $12.5M Series A to develop their no-code DAO launch platform. In January Superdao announced a $10.5M seed round for their all-in-one DAO platform. Syndicate, one of the early movers in the DAO setup category, also raised a $20M Series A late last year.
As the number of DAOs continues to grow, managing these organizations efficiently and compliantly will be key. No wonder so many teams are working to develop the next generation DAO tools to build out the web3 world!
Are you interested in contributing to the development of the web3 community? Apply to TOA’s Crypto Co-Founder Klub:
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- Join an existing project and become part of a founding team