How DAO funds solve DAO problems

If a trader/manager can bring together investors to create a crypto investment fund in just a few clicks on DeXe Investment, why not do the same with DAOs?

That’s exactly what DAO funds do within DeXe Investment: let anyone create a DAO in a few clicks and govern it via proposals (with on-chain voting and an effective incentive system for active participation too!).

Creating a DAO fund

Normally, creating a DAO requires forking an existing DAO (which has a layer of complexity and which requires the forker to take on all the potential vulnerabilities of the original DAO). In contrast, anybody can create a DAO fund in a few clicks right from their DeXe Investment dashboard. A DAO fund can be governed via tokens, NFTs, or both. The governance token may be created along with the fund or one can use any existing crypto token. Since an NFT is generally a more valuable asset than a token, the fund creator can set each NFTs voting power to have different weight, for example 1 NFT = the voting power of 1000 governing tokens. All this is adjustable to find the right balance for your DAO.

Proposals

Sadly, most DAOs today either lack proposals or are flooded with frivolous or malicious ones. Yet proposals are at the core of the DAO fund since every change to the DAO — including to its settings — is accomplished via proposals. Thus, there are built-in security measures to help bring serious proposals to light without stifling the decentralized democracy of the DAO. The main one is the setting of how many votes are needed to make a proposal. DAO fund creator can, for example, make just 1 vote enough to submit a general proposal but require DAO setting change proposals to require 1 NFT equivalent of voting power. As with all other settings, these can later be adjusted via proposals.

DAO fund Validators

Adding trusted validators is another way to prevent malicious proposal activity. In addition to the regular voting by governance token and NFT holders, the DAO fund creator can add wallet addresses of validators who will need to do a second-round, validator-only vote to make sure malicious proposals will not pass and destroy the DAO (such as a proposal to drain the treasury, etc.). Any address can be appointed as a validator. In the DAO’s settings, validators can be added/removed and their voting power may be adjusted. It’s possible to issue special validator governance tokens to represent their voting power.

The DAO can also have validator-only voting. So, for example, major changes to the DAO structure or to add/remove validators may be left to validators alone.

Quorum

Another way to prevent malicious or frivolous proposals from damaging the DAO while letting minor change proposals go through quickly is by setting different quorums for different proposal types. Thus, a routine proposal may only require a simple 51% majority quorum for the voting to count, while a proposal to change the DAO settings themselves may require 75% quorum (and validator voting on top of that, if the DAO wants to be extra careful).

Length of vote

Another important setting for voting is the length of the voting period, after which the votes are tallied. For most voting, there is an option to end the voting early if the prescribed quorum is already reached. This allows for quicker proposal implementation. However, several proposal types affect everyone who voted, such as the proposal to distribute rewards or dividends. In such a proposal type, early end to voting is automatically disabled to allow every DAO member enough time to vote and thus stake their claim to the reward.

Delegation

DAO members are encouraged to be active in the DAO, but it’s understandable that not everyone has the time to vote on every proposal. Thus votes can be delegated to other wallets. To encourage active DAO participation, delegated votes do not receive rewards/dividends.

Rewards

Sadly, most current DAOs are not active DAOs, often having only a handful of proposals and very low voting activity. What’s the point of decentralizing the governance structure if only a handful of people use the power? DAO funds solve this problem by incentivizing active DAO participation. Everything gets rewarded: submitting a proposal, voting, and even executing the transaction that enacts the passed proposal. Dividend distribution from the treasury can be based on voting participation, as can other rewards. DeXe’s approach is always one of flexibility and customization.

DeFi interoperability

It’s also possible to create custom proposals in DAO funds to interact with any other DeFi protocol. For example, there may be a proposal to lend a portion of the treasury into AAVE or COMP to earn interest on it and then distribute it to the voting DAO members. Once such a proposal is passed, the execution would be automatic via a smart contract. This way, a DAO is more than a membership club; it is now a powerful entity that can participate easily in the entire DeFi universe, contributing to and benefiting from the other projects in it.

Dashboards

Clarity and ease of use determine whether people will use a product. All the funds, including risk proposals and DAO funds will have detailed, real-time stats represented by visual dashboards. For the funds, key stats include the fund description, TVL, number of investors and max investors, base asset, profit in ETH/base asset, historical performance, trader’s fee, etc.

For the DAO fund, the stats will also start with the DAO fund’s description and then include governance token(s), proposal/validator parameters, active/passed/expired proposals, fund’s current and historical treasury amount, etc.

These are just some ways in which DAO funds solve the most prevalent DAO problems. Once people are used to creating and governing DAOs with ease and a sense of responsibility, this can bring the state of DAOs from infancy into maturity.

Stay tuned!

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