DAOs came a long way: Historical highlight reel
DAOs may sound like a brand new phenomenon to those new to crypto, yet the idea has been around for a decade.
DAOs: The Origin Story
The concept of DAOs (decentralized autonomous organizations) first emerged in 2013, only a year after the free Bitcoin faucet was closed and two years before the first Ethereum transaction. The idea was spearheaded by Daniel Larimer (EOS, BitShares, Steem, etc.), Charles Hoskinson (of Cardano fame), and others OG crypto founders. The ‘O’ was originally a ‘C’ for either “company” or “corporation.” The idea was for a new type of organization operating without central authority, governed by automatic smart contracts, with decisions made through a decentralized network of contributors — as opposed to the traditional centralized structures with a top down vertical management style.
Source: Fractally.com
While some early attempts to create a DAO emerged almost immediately, it was not until 2016 that the first significant DAO was launched, with a quite immodest name of The DAO.
The DAO
The DAO was created by a group of Ethereum developers to act as a venture capital fund for investing in decentralized applications (dApps) and other blockchain startups. The idea was promising, creating a mega-VC that was founded on and acted via the principles of the blockchain community, a sort of For Us By Us of the crypto movement. As such, The DAO raised a staggering $150 million in just over a month, making it one of the largest crowdfunding campaigns in history.
However, The DAO fell victim to one of the first of the many exploits that keep plaguing blockchain startups. In June 2016, a hacker exploited a flaw in the DAO’s smart contract, stealing more than $50 million worth of ETH. The DAO members, developers, and the wider crypto community faced an existential choice: let it go or violate a core principle of blockchains — irreversibility of transactions. If they chose the former option, people’s trust in putting money into crypto could crumble forever. The latter option could do the same with the trust of blockchain transactions being final and not manipulatable. Since The DAO was essentially the only significant project on the Ethereum blockchain, the founder of Ethereum, Vitalik Buterin, and a number of other core developers decided to pursue the latter option, forking the Ethereum network to make the stolen ETH worthless and give the new ETH to all other members. The fork led some Ethereum purists to stick with the old chain, renamed Ethereum Classic (ETC).
The DAO itself folded soon thereafter, serving as a wake-up call for the blockchain community to create better security and governance mechanisms in decentralized organizations (something DAOs are struggling with to this day).
Early DAO successes
Despite the failure of The DAO, thousands of DAOs were formed since with many successful DAOs showing how DAOs can indeed succeed:
MakerDAO launched in 2017 as a decentralized lending platform and the backer of the popular DAI stablecoin. According to DeFi Llama, MakerDAO has $7.85B TVL (and almost reached $20B at the height of the most recent crypto bull run.
Source: DeFi Llama
Uniswap is a decentralized exchange (DEX) type known as an AMM (automatic market maker) that has long become one of the most popular decentralized exchanges on multiple networks (Ethereum, Polygon, Arbitrum, Optimism, BNB Chain, Celo) with a daily trading volume of just under $1 billion according to CoinGecko.
Optimism Collective is a Layer 2 network on top of the Ethereum blockchain that is governed as a DAO and has a built-in public good purpose. Despite being less than a year old, it already has a robust ecosystem of dApps and a TVL of nearly $1B.
These are just a few examples of successful DAOs. Keep in mind that measuring a DAO’s success is not easy. It’s not just a matter of TVL since not all DAOs are purely financial. Member activity, degree of decentralization and autonomy, and fulfillment of stated purpose all play a role in determining whether a DAO is successful.
Failed DAOs
Just like in any organization type, for one huge success, there are 10 spectacular failures.
ConstitutionDAO: Formed to purchase a rare original copy of the U.S. Constitution, Constitution DAO came very close but, overconfident in victory, openly shared its bid, allowing a billionaire to sweep in with a higher one. Because of the high Ethereum network gas fees at the time, it then couldn’t fully refund its members. Rebranding as People DAO, it continued its streak of bad governance, getting hacked for 76.5ETH via Google Sheets of all places.
Source: ConstitutionDAO.com
PolkaDAO: PolkaDAO was launched in 2021 on the Polkadot blockchain. It aimed to be a decentralized funding platform for projects in the Polkadot ecosystem. However, it was hacked just hours after launch, losing over $3 million worth of cryptocurrency. “First to fail” consolation prize?
DAOstack: DAOstack was launched in 2018 and aimed to be a platform for creating and managing decentralized organizations. However, it failed to gain traction and eventually shut down in 2021.
New DAO-building platforms have emerged, as have new single-purpose DAOs, and DAOs focused on a specific blockchain (Optimism DAO being a recent success).
The current state of DAOs
Despite some high-profile failures, DAOs continue to grow in popularity. According to DeepDAO, there are currently over 11,600 DAOs with a total treasury of nearly $14B.
Source: DeepDAO.io
Some of the most common use cases include core DeFi functions like lending and liquidity provision/farming, governance, community building (often NFT-based), public goods projects, and gaming.
At this point, DAOs are here to stay. The problem is that few of them actually act as DAOs. As can be seen from the above graphic: only 22 DAOs have AUM over $100M, only 27% of governance token voters actively vote, and only 91 DAOs have over 10,000 members.
The bigger picture
DAOs, and even blockchain do not exist in a vacuum. Even outside of tech, people are trying to organize in more autonomous and democratic ways. People are losing trust in old top-down institutions in banking, government, and the general corporate world.
Already, the world is moving into Web3 even when it’s called by other names. Creators, businesses, non-profit organizations, and individuals in general do not want to be simple consumers of the status quo. They want more accountability and transparency, more decisionmaking power, more peer-to-peer collaboration and co-creation. The world where music fans are participating in the evolution of songs from their favorite rock star’s new album while also part-owning the master tracks and profiting from record sales is already here. The world where a single person can be an employee, a business owner, and an investor of the same company is here. It is the world of DAOs, the world of Web3. This is inevitable and already evident.
Where are DAOs going?
As Arbitrum is about to run its governance token drop and launch the most highly-anticipated DAO of 2023 so far, it’s clear that there is much excitement for DAOs on the user side and strong ambitions on the founder side. DAOs can create more effective, faster growing, and certainly more inclusive organizations in any sphere of life, from finance, to public goods, to entertainment, sports, government, and even hyper-local uses (family, your kids’ class, hobby club).
But to do that, the same questions need to be addressed that plagued the first DAO, The DAO: security and governance.
When building DeXe’s DAO constructor, we took all those lessons about DAO successes and failures as the basis for our product. Most people don’t code, so we made DAO creation code-less, simply click through the UX menu and choose the settings that fit. We made everything customizable for easy governance (including governing via both tokens and NFTs), but also made sure to add a Validator option for better security against malicious proposals. Most importantly, a DAO needs to be governable (on- and off-chain voting options) and the incentives have to line up if a DAO is to have any hope for active member participation. That’s why our DAO constructor will make it easy to reward members for making proposals, voting, and even the technical execution of a transaction making the vote official. When DAO members have real power over the treasury, the settings of the DAO, and the rewards they receive for their work, a real, functional organization can emerge. And that is what DAOs were always meant to be.
With the web3 revolution, there is a lot of pressure on DAOs to work better and succeed sooner. What exactly is Web3 and what it means for DAOs exactly is a whole other topic, maybe for the next article.
Stay tuned!
Website | Telegram channel | Telegram chat | Facebook | Medium| LinkedIn | Twitter | Reddit| Discord
