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The role of DAOs in Venture Capital and funding

Karolina

19 May 2023
The role of DAOs in Venture Capital and funding

The ever-evolving finance and investment landscapes have been significantly impacted by decentralized autonomous organizations (DAOs). DAOs are causing a paradigm shift in the traditional venture capital sector. Blockchain technology enables the growth of these disruptive organizations, which are redefining venture funding and management. DAOs showcase decentralized governance, transparent decision-making, and unique funding approaches. These aspects revolutionize access to capital for entrepreneurs and early-stage investor participation. In this article, we delve into DAOs in venture capital, focusing on their potential to transform the industry, their benefits, challenges, and real-world use cases in shaping funding innovation and entrepreneurship.

Table of Contents

Evolution of Venture Capital

Understanding DAOs in venture capital impact requires grasping traditional investment models' evolution. Traditional venture capital features centralization, with few investors controlling funding decisions. This creates entry barriers for entrepreneurs and limits opportunities for a few favored people. Decentralized finance (DeFi) and blockchain technology birthed a more inclusive, accessible option. DAOs use smart contracts and consensus-driven governance, disrupting the venture capital scene. Decentralization principles position DAOs as a new venture capital frontier, enabling a democratic, transparent funding process for innovative projects.

DAOs in Venture Capital and Funding

DAOs represent a paradigm shift in how companies raise capital and manage their operations. They open up new possibilities for venture capital and funding by bringing the following features to the table:

  • Decentralization: DAOs distribute the decision-making authority among its members, eliminating the need for intermediaries or centralized authorities. This makes the funding process more efficient and transparent.
  • Tokenization: DAOs use cryptographic tokens to represent ownership or voting rights. This enables investors to have a direct say in the operation and governance of their investments. (Interested in DAO tokenomics? Check out our article!
  • Smart Contracts: DAOs utilize smart contracts, self-executing contracts with the terms of the agreement directly written into code. These contracts automate many processes, reducing the need for manual intervention and potential for human error.
  • Global Access: Given their decentralized nature, DAOs enable anyone, anywhere, to participate in venture capital funding. This widens the pool of potential investors and fosters global collaboration.

Investment DAO

DAO is transforming the VC industry. Investment DAOs are crucial for sourcing, evaluating, and managing investments. They use blockchain and smart contracts for a democratic, transparent process. DAOs in venture capital pool funds from contributors. This allows for collective decision-making and capital allocation to projects.

A wider range of investors can join early-stage investments. Investment DAOs offer platforms for knowledge sharing and due diligence. This leads to more informed decision-making. Decentralized governance replaces traditional middlemen in these organizations. Investment DAOs have the potential to change the VC industry significantly, promoting innovation and growth for startups inclusively and cooperatively.

More about this topic

Traditional Venture Capital vs Investment DAO

Traditional vs VC Investment DAO (DAOs in Venture Capital)

Success Stories

DAOs in venture capital have made a mark through various success stories, showcasing DAOs' transformative potential in venture capital for innovative projects funding.

MetaCartel Ventures, a pioneering investment DAO, invested in multiple blockchain startups. Their group approach evaluates opportunities, offers guidance, and utilizes networks to fast-track portfolio companies' growth.

Syndicate DAO is known for decentralized finance investments. With group decision-making and thorough research, they've backed Aave, Uniswap, and Compound projects, advancing the DeFi ecosystem.

OrangeDAO is a venture fund of past, present, and future Y Combinator founders who specialize in crypto. Orange DAO also helps startups apply to, and be accepted into Y Combinator, while helping mentor their leadership and recruit talent, and acquire customers.

The LAO, one of the first legal decentralized venture funds, has invested in numerous projects like NFT platforms, decentralized social networks, and blockchain infrastructure projects.

DAO.vc is a decentralized autonomous entity that acts as a service for a pool governed by shared voting on investment projects chosen using a predefined algorithm. 

SeedClub is a DAO that builds and invests in communities. The mission of Seed Club is to assist web3 community builders. They are creating a future in which the value created by online communities is captured by people rather than platforms. 

These achievements underline how investment DAOs disrupted traditional models by offering a more inclusive and decentralized platform. Investment DAOs have proven their capability to detect and support groundbreaking startups, redefining the future of venture capital.

Potential for Future Growth and Expansion of DAO-driven Venture Capital

The future of DAOs in venture capital and funding looks promising. As blockchain technology continues to mature, DAOs are likely to become more robust, secure, and user-friendly, attracting more participation from both investors and entrepreneurs. Furthermore, regulatory clarity around DAOs could also propel their growth in venture capital.

In the future, we may see more venture capital firms incorporating DAO structures to give their investors more direct control over their investments. We may also see more startups choosing to raise funds through DAOs instead of traditional venture capital, due to the transparency, global access, and democratized decision-making that DAOs offer.

Another potential area of growth is the integration of DAOs with DeFi (Decentralized Finance) platforms. This could open up even more avenues for decentralized funding and provide investors with new ways to earn returns on their investments.

Conclusion

In summary, DAOs are transforming the venture capital sector. They employ blockchain technology and decentralized governance for a new approach. This shift from traditional centralized models results in transparent decisions, inclusive capital access, and creative funding strategies.

Significantly, investment DAOs like MetaCartel Ventures, Syndicate DAO, and The LAO demonstrate the potential of DAOs in venture capital. They have successfully backed various projects, spotlighting their skill in discovering and fostering groundbreaking startups. Their accomplishments highlight the inclusive, transparent, and democratized decision-making offered by DAO-driven venture capital.

As we look forward, the prospects of DAOs in venture capital are bright. With blockchain advancements and changing regulations, DAOs will become more secure and accessible to a broader audience. Increased adoption of DAO structures by venture capital firms and startups is expected, as well as integration with decentralized finance (DeFi) platforms. The transformative power of DAOs is creating a decentralized, inclusive, and transparent system that benefits both entrepreneurs and investors.

Tagi

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Aethir Tokenomics – Case Study

Kajetan Olas

22 Nov 2024
Aethir Tokenomics – Case Study

Authors of the contents are not affiliated to the reviewed project in any way and none of the information presented should be taken as financial advice.

In this article we analyze tokenomics of Aethir - a project providing on-demand cloud compute resources for the AI, Gaming, and virtualized compute sectors.
Aethir aims to aggregate enterprise-grade GPUs from multiple providers into a DePIN (Decentralized Physical Infrastructure Network). Its competitive edge comes from utlizing the GPUs for very specific use-cases, such as low-latency rendering for online games.
Due to decentralized nature of its infrastructure Aethir can meet the demands of online-gaming in any region. This is especially important for some gamer-abundant regions in Asia with underdeveloped cloud infrastructure that causes high latency ("lags").
We will analyze Aethir's tokenomics, give our opinion on what was done well, and provide specific recommendations on how to improve it.

Evaluation Summary

Aethir Tokenomics Structure

The total supply of ATH tokens is capped at 42 billion ATH. This fixed cap provides a predictable supply environment, and the complete emissions schedule is listed here. As of November 2024 there are approximately 5.2 Billion ATH in circulation. In a year from now (November 2025), the circulating supply will almost triple, and will amount to approximately 15 Billion ATH. By November 2028, today's circulating supply will be diluted by around 86%.

From an investor standpoint the rational decision would be to stake their tokens and hope for rewards that will balance the inflation. Currently the estimated APR for 3-year staking is 195% and for 4-year staking APR is 261%. The rewards are paid out weekly. Furthermore, stakers can expect to get additional rewards from partnered AI projects.

Staking Incentives

Rewards are calculated based on the staking duration and staked amount. These factors are equally important and they linearly influence weekly rewards. This means that someone who stakes 100 ATH for 2 weeks will have the same weekly rewards as someone who stakes 200 ATH for 1 week. This mechanism greatly emphasizes long-term holding. That's because holding a token makes sense only if you go for long-term staking. E.g. a whale staking $200k with 1 week lockup. will have the same weekly rewards as person staking $1k with 4 year lockup. Furthermore the ATH staking rewards are fixed and divided among stakers. Therefore Increase of user base is likely to come with decrease in rewards.
We believe the main weak-point of Aethirs staking is the lack of equivalency between rewards paid out to the users and value generated for the protocol as a result of staking.

Token Distribution

The token distribution of $ATH is well designed and comes with long vesting time-frames. 18-month cliff and 36-moths subsequent linear vesting is applied to team's allocation. This is higher than industry standard and is a sign of long-term commitment.

  • Checkers and Compute Providers: 50%
  • Ecosystem: 15%
  • Team: 12.5%
  • Investors: 11.5%
  • Airdrop: 6%
  • Advisors: 5%

Aethir's airdrop is divided into 3 phases to ensure that only loyal users get rewarded. This mechanism is very-well thought and we rate it highly. It fosters high community engagement within the first months of the project and sets the ground for potentially giving more-control to the DAO.

Governance and Community-Led Development

Aethir’s governance model promotes community-led decision-making in a very practical way. Instead of rushing with creation of a DAO for PR and marketing purposes Aethir is trying to make it the right way. They support projects building on their infrastructure and regularly share updates with their community in the most professional manner.

We believe Aethir would benefit from implementing reputation boosted voting. An example of such system is described here. The core assumption is to abandon the simplistic: 1 token = 1 vote and go towards: Votes = tokens * reputation_based_multiplication_factor.

In the attached example, reputation_based_multiplication_factor rises exponentially with the number of standard deviations above norm, with regard to user's rating. For compute compute providers at Aethir, user's rating could be replaced by provider's uptime.

Perspectives for the future

While it's important to analyze aspects such as supply-side tokenomics, or governance, we must keep in mind that 95% of project's success depends on demand-side. In this regard the outlook for Aethir may be very bright. The project declares $36M annual reccuring revenue. Revenue like this is very rare in the web3 space. Many projects are not able to generate any revenue after succesfull ICO event, due to lack fo product-market-fit.

If you're looking to create a robust tokenomics model and go through institutional-grade testing please reach out to contact@nextrope.com. Our team is ready to help you with the token engineering process and ensure your project’s resilience in the long term.

Tagi

Nextrope Partners with Hacken to Enhance Blockchain Security

Miłosz

21 Nov 2024
Nextrope Partners with Hacken to Enhance Blockchain Security
Location: Gdynia, Poland
Date: November 12, 2024

Nextrope announces a strategic partnership with Hacken, a renowned blockchain security auditor. It marks a significant step in delivering reliable decentralized solutions. After several successful collaborations resulting in flawless smart contract audits, the alliance solidifies the synergy between Nextrope's innovative blockchain development and Hacken's top-tier security auditing services. Together, we aim to set new benchmarks, ensuring that security is an integral part of blockchain technology.

Strengthening Blockchain Security

The partnership aims to fortify the security protocols within blockchain ecosystems. By integrating Hacken's comprehensive security audits with Nextrope's cutting-edge blockchain solutions, we are poised to offer unparalleled security features in our projects.

"Blockchain security should never be an afterthought"

"Our partnership with Hacken underscores our dedication to embedding security at the core of our blockchain solutions. Together, we're building a safer future for the industry."

said Mateusz Mach, CEO of Nextrope

About Nextrope

Nextrope is a forward-thinking blockchain development house specializing in creating innovative solutions for businesses worldwide. With a team of experienced developers and blockchain experts, Nextrope delivers high-quality, scalable, and secure blockchain applications tailored to meet the unique needs of each client.

About Hacken

Hacken is a leading blockchain security auditor known for its rigorous smart contract audits and security assessments. With a mission to make the industry safer, Hacken provides complex security services that help companies identify and mitigate vulnerabilities in their applications.

Looking Ahead

As a joint mission, both Nextrope and Hacken are committed to continuous innovation. We look forward to the exciting opportunities this partnership will bring and are eager to implement a more secure blockchain environment for all.

For more information, please contact:

Nextrope

Hacken

Join us on our journey to deliver top-notch blockchain tech and a safer future for the industry!

Tagi