DAOs + Governance: The New Frontier for Earning

How the emergence of governance and DAOs will enable a new wave of earning opportunities

To anyone who’s been keeping up with Token Tuesdays over the course of the past year, you’ve surely heard us talk ad nauseam about DAOs - or digital communities collectively governing capital to reach a common goal.

Earlier today, MetaCartel, a DAO focused on funding consumer-facing Ethereum experiments, announced that it will be pivoting to a DAO incubator - working closely with early-stage projects to spawn and curate community-driven organizations.

This announcement comes in line with a larger trend of crypto projects introducing community governance to manage important protocol decisions like fees and integrations. In the past month alone, we’ve seen prominent DeFi projects like Compound, Uniswap, Aave, and UMA all announce some form of governance - all of which share an overarching mission to better empower their respective communities. 

In this article, we’ll dive into this notion of governance participation - namely focusing on how you can leverage the top crypto products to earn a voice in how they evolve.

TLDR: Over the next year, early adopters of crypto protocols will be the first to earn native tokens, providing them with future economic and social benefits unlike anything we’ve seen to date.

Also, next week we’ll be running through one of the most diverse yield hacking opportunities in the DeFi space today. Available only for full TT members. Make sure to subscribe so you don’t miss out.


The Evolution of Governance in Crypto

Governance has always played an important role in crypto. Ranging from the DAO hack in 2016 and the creation of Ethereum Classic to Bitcoin’s fork of Bitcoin Cash, many are quick to voice how important governance is for distributed communities.

But, governance doesn’t matter if there is nothing valuable to govern.

This is where things are starting to change. As we’ve discussed in our past articles, many projects are now reaching a tipping point where they’ve amassed a significant amount of users backed by tangible earnings to the point that governing that protocol is not only desirable, but necessary.

As projects start to introduce DAOs as a means to facilitate these discussions, we’re noticing an underlying trend that drastically changes the way governance has played out in the past.

Value Add > Capital

In a world where money buys power, let’s instead focus on new primitives where money is not the only way to earn influence.

What we are talking about are new models in which usage is the new means of investing.

Participatory Governance

Perhaps best highlighted by the recent advent of the SAFG model by IDEO, we expect new projects to distribute native tokens to those who use their product.

https://medium.com/ideo-colab/meet-the-safg-defis-emergent-framework-for-participatory-investing-and-protocol-development-62286a576fb5

“Fundamentally the SAFG shifts us from a world of “buying to own” to one of “participating to govern,” which can ultimately result in more successful protocols and healthier communities.”

Compound

Citing examples like the leading lending protocol Compound and their governance token COMP, native tokens are non-transferable with zero economic value. As a user of Compound, we expect that by supplying and borrowing capital from the protocol, you will be the first to earn COMP as it is distributed to the public.

While you can not trade COMP on a secondary market today, the decision to make those token transferable (thus giving them economic value) lies entirely in the hands of that community.

This means not only do you receive interest-earning assets by using the protocol, but also native tokens which influence how the product evolves in the future. Beyond being able to signal which new assets should be supported lies the promising potential for future economic value as Compound grows. 

Uniswap

Uniswap - a leading Ethereum liquidity protocol - recently announced their V2 update. With this rollout came a suite of protocol changes such as ERC20 <> ERC20 token pairs and Flash Swaps - both of which signal that Uniswap will continue to see strong growth (and thus increased earnings) in 2020.

Discussed within the release was a “path to sustainability” highlighting a protocol fee that can be switched on by governance. As stated in the original post:

“This (protocol fee), including the exact percentage amounts, is hardcoded into the core contracts which remain decentralized and non-upgradable. It can be turned on, and directed by, a decentralized governance process deployed after the Uniswap V2 launch”

The key takeaway here is that while it remains unclear how that governance process will evolve, we largely suspect that those using Uniswap today will be some of the first to earn a voice in those conversations tomorrow.

The beautiful thing about these models is that users with limited technical knowledge can earn tokens, with many frameworks creating delegation frameworks to assign voting potential to strong-standing community members.

Just as with Compound, value is captured by the community, rather than being siloed and owned by a select few.

Raising Capital Through DAOs

Tying this all back to MetaCartel’s DAO incubation, we’re seeing strong signals that governance is becoming increasingly valuable, all of which is sure to catalyze with new projects using DAOs as a means of grassroots fundraising.

What’s drastically different from the ICO models of 2017 is that DAO raises are likely to be far more people-focused - granting access only to those who have either a) used the product extensively or b) share a common goal with the creators and wider community.

What emerges are tight-knit communities highly aligned (both monetarily and socially) in that project’s future success. By introducing mechanisms for users to hold tokens that hold no economic value, we can minimize speculators looking to make a quick return in favor of those who plan to be around for the long-term.

While these experiments are only now starting to pan out, it’s set to be an exciting time to build a crypto-based company in 2020.

Key Takeaways

Now more than ever, there are increasingly more signals to put your capital to work. For any Ethereum user, the opportunities to gain value outside of HODLing has never been clearer.

While the specific use-cases currently take some digging to find, they will slowly become more and more accessible as time goes on.

If one thing's for certain, we’re quite bullish on the rise of community-first DAOs over the course of the next year.

If you or your project are interested in learning more about DAOs or how to start your own, please reach out! We’re always looking to offer guidance on the best next steps.

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Bitcoin Halving: Past & Future Implications

Diving into our past halving article and our future outlook on BTC in the current climate

Yesterday, the community celebrated one of the most valued crypto holidays - the Bitcoin halving. 

Bitcoin’s issuance rate has been cut in half for the third time in history, bringing the block reward from 12.5 BTC down to 6.25 BTC. While the previous halvings have been always a positive event for the crypto ecosystem, this one in specific is a historical moment.

As of yesterday, BTC is now one of the scarcest assets in the world. The Bitcoin network will now only mint 1.8% of the total supply every year - bringing this issuance rate below most fiat currencies. More importantly, the Bitcoin halving brings BTC in line with (or even lower than) gold’s annual issuance rate which is estimated to be around 1.3-2.5%

The cherry on top here is the current macroeconomic climate with central governments across the world injecting trillions of dollars in stimulus packages and bailouts to prevent the global economy from collapsing. There’s a strong narrative forming around the notion of a non-sovereign, scarce asset that fits in our increasingly digital world. 

BTC fits that bill perfectly. 

Recap since our last BTC halving article

If you’re one of our long time recurring readers, you may remember our original BTC Halving article on Medium from roughly a year ago. In the article, we outline in detail how BTC has performed following every halving.

Hint: it does well. 

We also forecasted that the price of BTC would perform positively in 2019 as we head into the halving in May 2020. At the time, the price of BTC was only at $5.5K. Just for the record, we stated" “we’re expecting Bitcoin will likely be trading at around half of the current peak price (approximately $10,000/BTC) heading into the halving”

Low and behold, BTC was trading at $10,000 on Friday, May 8th just a few days before the halving. We’ve taken a slight drawdown since then but what’s a few thousand among friends?

Here are some stats about the BTC halving from that article:

But what’s the core takeaway? Historically speaking, BTC has reached new all-time-highs within 18 months following the halving. While we only have two data points and past performance is not indicative of future success, the BTC halving has acted as a pivotal piece for the broader crypto market cycle.

Importantly, we’re seeing early signs of lengthening cycles. In other words, every time BTC enters a new market cycle, the cycle takes longer and is slightly less volatile than the previous. 

If we assume that’s true, we can say that this upcoming bull cycle will take more than 526 days (>18 months) with the total percentage increase from the price at the halving to its relative peak being less than 2,900% (<$250K). 

We’ll be sure to circle back to this in a few years to see how we’re doing. But we’re on the record.

The Bad News

While the BTC halving provides a foundational bull case for the non-sovereign, fixed supply asset, there’s also some bad news that comes with the halving.

When Bitcoin experiences a halving, it’s important to recognize that the incentive to run a BTC miner and secure the network is reduced by 50%, making it at least twice as expensive for miners to operate in profit.

In response, we should expect to see many miners capitulate in the coming months as the price of BTC remains below the breakeven point. This will result in a drop in hash rate (i.e. network security) over the next few months until BTC reaches a price point where it becomes profitable to mine again.

Operating expenses for miners range significantly but high-level estimates for the breakeven point in the post-halving era are around $12-15k with the low-end being approximately $10,000. 

Interestingly enough, we’ve seen evidence that miners may adapt, such as blocks now being mined twice as fast.

Long term

Looking at Bitcoin in the long-term, it’s certainly holding up its case as a Store of Value. Especially in a climate in which fiat currency is being printed at unprecedented levels, it will be extremely interesting to see if Bitcoin is able to break its correlation with equity markets and evolve into the truly non-correlated asset we’ve long called it.

For those constantly asking - what will the price of Bitcoin be on X date or when will Bitcoin break its all-time high? We have no idea.

What we do know is that previous halvings have boarded extremely well for the industry’s most valuable crypto asset and we’re quite bullish heading into the coming year.

Expect a slightly slower, steadier trend than last time and as always please do your own research!

For more weekly insights, subscribe to Token Tuesdays! 

Set it and Forget it: The Best Token Sets to Buy [Subscribers Only]

Learn how to protect your capital with TokenSets in our first subscriber-only piece!

To our Token Tuesday Readers,

The time has finally come - our first subscribers only piece.

In this week’s article, we’ll be diving into one of the best ways to protect your capital from market downturns and uncertainty.

For anyone who was holding ETH when the price dropped ~50% overnight just a few weeks back, you’ve surely experienced the firsthand need for automated portfolio management.

It’s time to let the robots take control with emotionless, systematic trading strategies. 

Thanks to Set Protocol, users can purchase ERC20 tokens that rebalance in line with changing market conditions, effectively earning you ETH from the seat of your couch.

While we’ll do a brief overview on what TokenSets are, the vast majority of this week's article is focused on which TokenSets we recommend and why.

If you’re receiving this email, it likely means you aren’t a full subscriber (yet). If you’re interested, you can support our newsletter by subscribing.

It’s only $5!

Read: Set it and Forget it: The Best TokenSets to Buy Today

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