Compound DAO turns over $25 million after regime attack Experts say digital collectives need to have a professional presence to thrive. Projects are already preparing ways to share revenues.
With more than 50,000 decentralized autonomous organizations regulating the crypto industry $20 billionDAOs are now bigger and richer than ever.
There's just one major problem — the voting members of these formless, always-online digital collectives are contributing less and less.
And it costs DAOs millions.
In July, a group of investors bought enough voting tokens for Compound DAO, the company that runs the $1.8 billion Ethereum-based debt protocol, to vote and give themselves about $25 million.
The conglomerate leadership eventually convinced the group to return the funds, but it was a wake-up call.
Too few DAO members paying close attention made disaster almost possible. In other words, voter apathy.
Fixing that means DAOs need to grow.
“We don't understand how to make the transition to a nine-to-five organization, which is scary, weird and difficult, but very important,” says Dennison Bertram, co-founder of onchain governance platform Tally. News.
Join the community to get our latest articles and updates
As DAOs transition to more traditional business models — in which contributors are paid real salaries instead of riding the highs and lows of a token — the broader crypto industry is experiencing similar growing pains.
The The $2.1 Trillion Crypto Industry Now Wall Street heavyweights including BlackRock and Fidelity have considered the shares. Digital assets have become a key issue in the upcoming US presidential election. Public pension funds are investing millions in cryptocurrencies.
At the same time, hacks, exploits, phony hiring schemes, sanctions violations and crypto-funded misinformation are rampant.
Fixing DAO disorder is easy, Bertram says. Start with a token.
Both sides of the voting token
At the heart of every crypto community is its native token. It's dipping and diving alongside bitcoin and joke tokens — not only as a volatile cryptocurrency but also as a vote.
With this voting token, holders can propose project changes and vote on whether to pursue them.
Start a project on a new Layer 2 network? vote Hire an artist to design and release a collection of non-fungible tokens for your community? Vote on it.
As the project improves, the price of the token increases, which gives enough incentive to stay active in the DAO.
“They give this experimental value back to you in the form of their own tokens, which represents some speculative excitement over the opportunity,” Bertram said. News. “That kind of work.”
However, since these tokens double as votes, contributors sometimes have to sell their shares in the company's future to pay their bills.
“How do you hold onto that value after working so hard and being a part of this? You extract by exiting the organization, by selling,” said Bertram.
By combining active participation in the organization with its financial incentive, DAOs fail. If the token goes to zero, no one will want to contribute to a failed project and everyone will quit. If the token increases in value, rational investors will sell it to realize their gains.
In either case, the DAO will be terminated.
Instead, the tokens should be interpreted as work visas for the crypto collective. Contributors are paid for everything, including contributing to forum posts and measuring risks for specific proposals.
“Income returned to token holders is not a dividend. It's a salary,” said Bertram. “That salary should be unrestricted.”
“If you work so hard to run this protocol for billions of dollars, yes, you should make millions of dollars for it, right?”
The future of work
Some DAOs are already moving in this direction.
After the conglomerate's governance attack, the consortium voted to begin sharing protocol fees with token holders. Arbitrum, one of the largest layer 2 networks on Ethereum, is also voting on a similar variation. That voting ends in October.
Paying salaries means improving the quality of the DAO, especially as they start handling more money.
“Only people who feel qualified to do this work and who are addressing this work will participate. Of course, those are the people you want to be involved with.”
Liam Kelly is DeFi Correspondent for DL News. Got a tip? Email at [email protected].
