The Simple View Of DAOs Community: Operation Mechanism, The Importance Of Voting

Key Points:

• How DAO Constitution works: people donate ETH to the DAO Constitution and donate 1 ETH to get 1 million dollars.
• Cult DAO is investment-oriented with at least 15.5 ETH.
• Nouns DAO votes on NFT.

In March 2021, the Ohio State Senate officially passed the DAO bill, allowing users to handle affairs through DAO, and the legal status of DAO has gradually been recognized. Since then, DAO has begun to develop rapidly with a stronger momentum, and various types of DAO are also competing to enter the stage of the crypto field.

This article will take 1 crowdfunding DAO and 2 investment DAOs as examples to briefly analyze the operation mechanism of DAOs.

What are DAOs?

DAO is a new type of human cooperation model.

1. Internal capital:

Use internal capital to issue tokens, thereby incentivizing the behavior of participants and ensuring the good operation of the organization;

2. Autonomy:

That is, automatic decision-making and execution capabilities that do not rely on human will and behavior, usually relying on code to complete;

3. Rule by man:

There is a certain degree of rule of man, and the rule of man model is highly democratic, that is, all members have the means to participate in decision-making.

Of course, there is no clear rule for the proportion of autonomy and rule of man in DAO, but the element of autonomy must be greater than 0. Otherwise, the original meaning of DAO will be lost.

As a blockchain-based organization, DAO has given DAO organizers and participants a lot of room to play, and various DAOs have emerged in an endless stream. Some DAOs have become benchmarks in the circle by virtue of their excellent organizational structures, while others have been left behind.

Constitutional DAO – Fundraising Myth

Constitution DAO was founded as a joke.

In November 2021, Sotheby’s publicly auctioned the first batch of printed copies of the U.S. Constitution. The U.S. Constitution is the first written constitution in modern human society. There were only a dozen copies printed for the first time, and the prints auctioned by Sotheby’s are private Last 1 copy circulated.

Therefore, some people joked on Twitter, saying that they wanted to raise funds to buy the constitution, and then the constitution DAO really landed.

The reason for its establishment is to use the decentralized characteristics of DAO to preserve the historic cultural relic of the copy of the Constitution to the public and avoid falling into private pockets. If the auction is successful, how the copy of the constitution will be housed will be decided by a collective vote of donors.

Since the project was established, Constitutional DAO supporters have been promoting the bid on Twitter and establishing a Discord community. In addition, well-known institutions such as Coinbase and z16z have also promoted it, and former FTX founder and CEO SBF also participated in the donation.

The Constitution DAO finally managed to raise approximately $40 million through the JuiceBox platform within a few days, setting a record for the fastest fundraising case in history.

The operating mechanism of the Constitution DAO is very simple: the project party releases the governance token $people through the smart contract, and people donate ETH to the Constitution DAO and donate 1 ETH to get 1 million PEOPLE, nothing more.

However, the auction of the Constitution DAO was unsuccessful and was finally bought by traditional collectors with a bid of 43.2 million US dollars. The idea of how to vote and operate the DAO after the successful auction was stillborn.

Because of the fairness and transparency of the DAO decentralized organization, the amount of funds raised is also public. The advantages of DAO become disadvantages in the auction. Competitors can easily know the bottom line of bidding and win the auction. After the auction failed, the constitutional DAO directly started the refund mechanism, and the donors could choose whether to return the donation. PEOPLE also became a meme. The current token price is 0.02817 US dollars, and the market value is 153,174,783 US dollars.

Cult DAO – Autonomous Milestone

The road of DAO exploration is full of thorns and difficulties, and failed projects abound. But there are also many excellent projects, and Cult DAO is one of them.

Cult DAO is an investment DAO, its founding team is completely anonymous, and the project exploded in early April 2022. It excels mainly in its economic model:

As shown in the figure, the founding team issues CULT tokens through smart contracts, and users are free to choose whether to staking or not.

Staking will get CULT tokens, and the top 50 holdings will automatically become Guardians dynamically. Guardians have the right to initiate proposals, but cannot participate in governance voting. Other dCULT holders (non-Guardians) have governance voting power for Cult DAO. Voters can also voluntarily entrust their votes to publicly elected proxy voters (because of the high transaction fees on the Ethereum chain, some voters may entrust their voting rights to others, this function may increase voter voting to a certain extent Participation).

Personal assets are the only criterion for measuring guardian eligibility, so proxy voters will not become guardians for this reason.

Users need to pay a 0.4% tax when trading CULTv (for example, if you buy 1,000 CULT, you only get 996, and 4 of them will be deducted as taxes). These taxes automatically go to the treasury. Whenever the treasury accumulates CULT worth 15.5ETH, CULT worth 13E will be used for investment proposals, and the remaining CULT worth 2.5E will be automatically destroyed to achieve deflation.

When DAO invests in other proposals, the invested proposal needs to convert a certain proportion of issued tokens into CULT within a certain period of time. Half of the converted CULT will be rewarded to dCULT holders, and the other half will be destroyed.

The prerequisite for new proposals to be invested in that the treasury has a CULT worth at least 15.5 ETH.

According to the official website, the current price of CULT is 0.00000910 USD, the total market value is 41,178,371 USD, and 1,391 ETH has been sent, indicating that 107 proposals have been invested.

Nouns DAO – Voting

In English, Nouns are the basic structure of the language. As an investment DAO, Nouns also establish an important primitive in the Web3 field, which solves the problems of high concentration of government power and low community activity in many DAO communities.

From August 2021, the Nouns protocol will generate and auction a Noun (NFT whose code is randomly generated) every 24 hours, and all proceeds will enter the central treasury controlled by Nouns holders. Funds from the treasury will be used to establish and fund new Nouns DAO project proposals. Nouns holders can initiate proposals, and other holders vote on this proposal.

Each NFT represents equal, proportional governance rights to the treasury. 1 NFT = 1 vote. At the same time, because the product of PFP can be used as a unique avatar, this form can give users a better sense of participation, belonging, and investment.

So far, Nouns voting rights are well distributed, with nearly half of the voting rights belonging to holders of only one Nouns. Meanwhile, less than 25% of voting power is concentrated in whales.

This virtuous situation cannot be achieved without the contribution of daily auctions – a system of daily auctions that gradually dilute ownership. So it is foreseeable that the number of single owners will increase over time, thus solving the problem of centralization of governance.

All Nouns holders can submit on-chain proposals detailing the content of the proposal and the funding required. The proposal will be voted on. The criterion for adoption is a quorum of at least 10% of the total votes. If approved, the funds will be released directly.

There are now more than 239 on-chain proposals, of which more than 164 have been successfully passed (the pass rate is about 68%). The voting participation rate of Nouns DAO is relatively high, about 12%.

Other DAOs typically have less than a 10% turnout. This metric can be a good indicator of the basic health of a DAO. Low participation rates have long been a significant problem with DAOs, meaning that a small percentage of votes (10 – 20%) can make major decisions.

Today, Nouns DAO is still a star in the encryption field, and the price of an NFT is still as high as 30ETH.

Conclusion

Through the analysis of the above three typical DAO models, three points can be roughly summarized.

First, the openness and transparency of DAO is a double-edged sword, and strategies need to be added in the auction of open cards. Although the constitutional DAO auction failed, its idea of giving the ownership of collections to the community had a profound impact on the subsequent development of DAO.

Second, the current DAO community governance is more or less mixed with centralization factors, and the resulting communication disputes will inevitably lead to resource dissipation. Trying to solidify the core backbone and underlying basic rules will not only win the hearts of the people, but also improve resource utilization efficiency. CultDAO can be described as a milestone attempt in this regard.

Finally, in the exploration of DAO’s governance model, other elements such as NFT, SFT, and SBT can be appropriately added to enrich the community content while improving users’ sense of belonging and investment.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Harold

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