DAOs + Governance: The New Frontier for Earning
How the emergence of governance and DAOs will enable a new wave of earning opportunities
|May 20, 2020||1|
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.
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.
“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.”
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 - 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.
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.