Covalent: Infrastructure needed to make DAOs mainstream
Author

Niall Yorke

Product, Covalent

Infrastructure needed to make DAOs mainstream

Jul 20, 2021

TL;DR: Our most recent Twitter Spaces featured 4 exemplary DAO founders who were gratuitous to share their thinking behind DAO infrastructure. We had Dennison Bertram from Tally, Cooper Turley from Audius, Eyal Eithcowich from DeepDAO, Shreyas Hariharan from Llama with Pratik Gandhi from Covalent moderating. We discussed a wide range of topics from the core ideas that make DAOs tick, to the current state of infrastructure, gaps/opportunities to builders, treasury management best practices to governance/legal frameworks.

This session was by far our most attended Twitter Spaces session we’ve had with over 200 members listening in at its peak.

‘DAO’ stands for Decentralized Autonomous Organizations: think of internet-native communities with a built-in governance framework tied in an executable code. The members of a DAO go after a shared set of goals to use web 3 native tools to make decisions open, transparent, and efficient.

Why DAOs

The need for people to get organized and manage assets together would not be possible without DAOs. DAOs are necessary to mature as an industry in that they have a purposeful call-to-action to get involved at a deeper level with the community. DAOs in their purest form are transparent by default. Every decision, every vote and every investment is recorded on the blockchain and made publicly available. You can see every proposal put forward and what is being voted on in the community that you are part of.

Quote from Dennison

DAOs can act a bridge between unequal distributions of talent and opportunity.

Dennison shared an example about a woman who was in a Clubhouse session where someone was talking about PizzaDAO. She created NFTs out of her favorite toppings and PizzaDAO sold all these NFTs and raised hundreds of thousands of dollars which led her to use Metamask and she started yield farming and got fully immersed in crypto.

Current State of the DAO Infrastructure

While everyone agrees the tooling available at the moment around DAOs is enough to take the adoption to the next level, there are areas where the tooling can be improved in order to have a frictionless experience.

Some of the tools mentioned during the talk:

  • FWB: A social-DAO focused on culture and community around web 3 creators.
  • SeedClub: DAO that builds and invests in social tokens and web 3 communities.
  • WithTally: Tool for on-chain governance voting.
  • Forefront: A media-focused DAO around social tokens and NFTs.
  • Snapshot: DAO tool for off-chain governance voting.
  • BanklessDAO: Media-DAO focused on spreading awareness about DeFi/going bankless.
  • DeepDAO: DAO tooling service that lists and analyzes DAOs across ecosystems.
  • MetaCartel: Venture-DAO that funds grants and hackathons.
  • MolochDAO: Awards grants to advance the Ethereum ecosystem.
  • CollabLand: Service that provides token-gated access to community chat and content.
  • MintGate: Platform that allows you to create NFTs and use it to token gate content.
  • SourceCred: Tool to measure and reward value creation in a community.
  • Boardroom: Tool for governance.
  • Llama: Tool for DAO treasuries.
  • POAP: Tool that allows you to mint NFTs for community event attendees, governance participants, memberships, etc
  • Gnosis Safe: Tool to create multisig wallets for DAOs.
  • SputnikDAO: Tooling for creating a DAO in the Near ecosystem.

Over and above these tools, Cooper shared his thoughts on the importance of welcoming people with non-technical skills. So when people hear the word DAO, it is very crypto native in nature, but that means coordination, community, and governance. And educating people on what that means and providing them with opportunities to get involved with these tools, regardless of their skill set, is pivotal.

Treasury Management and Openness

DAOs exist to coordinate resources such as ETH or other digital assets; these digital assets constitute the “treasury” of the DAO. ​​Whether or not governance tokens are a security is heavily debated while how to prioritize objectives within a DAO can be difficult. DAOs are also sitting on a trove of capital within their respective treasury, and the challenge with most of them is to allocate capital efficiently.

Quote from Shreyas

Internet-native value is reflected in protocol tokens, internet-native organization is reflected in DAOs.

Treasury management for DAOs is typically handled by a Gnosis Multisig Safe with N of M signatories required to confirm and execute transactions; since the process is on-chain, it is fully transparent. Signatories may be anonymous, in part, to manage personal liability (if signatories are considered General Partners)

DAO treasuries and management in practice involves compensating contributions towards the common goal; it may also include more traditional treasury management functions such as generating yield.

The Web 3 space is probably the only industry where 20 and 30-year-olds are enthusiastic about governance frameworks. The governance in DAOs is effectively two layers: a social layer, e.g., the discussions in Discord to support a grant proposal, and voting based on token holding using Snapshot or WithTally. DAO governance frameworks allow you to suggest, debate, and implement changes on various aspects of the project without relying on or requiring a core team or a central entity.

Quote from Eyal

Being involved in governance and complex protocol decisions, or even just being active in the community is requires a lot of attention.

There is no best practice legal framework for DAOs to follow. There is a risk that signatories of multisig wallets are construed as General Partners in a General Partnership and have unlimited personal liability. Wyoming has the “DAO LLC’’ corporate structure that may be a good fit for DAOs. However, the majority of the DAOs do not have or follow any legal framework. There is a thin line between inventing your own rules and adhering to a legal framework. As such, DAOs should still be considered experiments at least within a legal/regulatory context for them to materialize.

DAOs still remain hugely unexplored. It is always good to read about what others have done and learn along the way. Here’s sharing some of the further reading on DAOs:

Disclaimer: not legal advice.

About Covalent

Covalent provides the industry-leading Unified API bringing visibility to billions of Web3 data points. Developers use Covalent to build exciting multi-chain applications like crypto wallets, NFT galleries, and investor dashboard tools utilizing data from 50+ blockchains. Covalent is trusted by a community of 40,000+ developers and powers data for 3000+ applications including 0x, Zerion, Rainbow Wallet, Rotki, Bitski and many others.

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