Decentralized Autonomous Organizations (DAOs) are essentially a group or entity that is represented by rules that are controlled by its members and not influenced or controlled by a central government or power — all governance is done as part of a group or collective.
DAOs are increasingly thought of as the business model for Web3. This article looks at DAOs and the ways that forward-thinking brands are considering DAOs as part of their business strategies for Web3 and the metaverse.
History of DAOs
The first official DAO was created by Christoph Jentzsch, his brother Simon Jentzsch and other GitHub contributors, and was launched on April 30th, 2016 as part of the Ethereum network with a 28-day crowd sale to fund the organization.
It was known as The DAO, and by May 21, 2016, it held more than $150 million in value. Owners of The DAO tokens were entitled to voting rights, and would vote on different projects to fund, enabling them to profit from their investments by reaping in dividends — still one of the chief benefits of DAOs today.
The DAO was rather short-lived, however, as a security vulnerability known as "recursive calls" was published on GitHub, resulting in a hack attack on June 17, 2016, that resulted in the loss of a third of all that had been invested into The DAO at the time. By September, the first official DAO was no more.
Since then, the number of active DAOs has increased exponentially. As of January 2022, the total market capitalization of all DAO tokens was around $21 billion, while the total number of DAOs was 4,227.
Related Article: How Is Web3 Decentralized?
Types of DAOs
One could think of DAOs as groups of like-minded people getting together regularly to talk about their favorite cause, be it financial investments, collectibles, music, art, writing, social justice or even friendships. Eventually, networking occurs, and one finds the best ways to contribute to those causes personally, and by doing so, reaps the benefits of those contributions, along with everyone else that is contributing.
There are quite a few types of DAOs already out there, which extend into many different domains and purposes, so finding one to join isn’t as challenging as finding an established one that doesn’t already have barriers to entry.
Here are some types of DAOs that are out there:
- DAO Operating Systems: As one would imagine, to create a DAO, an operating system is a necessity. These DAO OSes typically include templates, frameworks and tools, as well as smart contracts and interfaces.
- Investment DAOs: Investment DAOs enable members to bring together capital and invest in projects while still in the entry stages.
- Collector DAOs: As expected, Collector DAOs are used to curate NFTs, which hold long-term value.
- Grant DAOs: Grant DAOs enable members to donate funds and to vote on how those funds are distributed to various contributors through the use of governance proposals.
- Protocol DAOs: Protocol DAOs provide networks with a framework that can issue a token that members can own and operate.
- Service DAOs: Service DAOs use on-chain credentials to funnel and allocate resources from one DAO to another through the creation of decentralized working groups and enable individuals to work (and get paid) in the Web3 world.
- Social DAOs: Social DAOs focus on the digital community over financial benefits, and turn group chats into digitally-native tribes.
- Media DAOs: Media DAOs determine how content creators and consumers engage with the content and are said to turn consumption into a two-way street, giving the power back to consumers.
DAOs for Media and Social
Currently, media and social DAOs are likely to be of the most interest to brands because they tie directly into marketing efforts. When the customer is a contributing member of the cast, so to speak, the Voice of Customer doesn’t get any louder or more genuine. More importantly, however, is that every member of a DAO has voting rights, and everyone gets a slice of the proverbial pie.
Media DAOs put the control of content back into the hands of the producer, and out of the hands of brands that own the hosting media (i.e. YouTube, TikTok, etc.), and consumers of media also get control over their data and how it's used. Currently, those who consume media allow hosting companies to harvest data produced during consumption. DAOs allow them to have more control over that data, including what is done with it, and how they get paid for producing said data.
Sandra Colton-Medici, founder and CEO at College of Style, spoke with CMSWire about two ways DAOs can be approached: the Performer Content Model or Platform Content Model. “Brands that employ either a Performer Content Model or Platform Content Model will be mobilizing their audiences toward community building around newly created DAOs."
"While the Platform Content Model might be easier for businesses to identify with, based on developing a business strategy, the ability for businesses to pivot toward a Performer Content Model will benefit audiences more," explained Colton-Medici. "This content model will help brands connect audiences with content that is focused on immersive experiences, one of the key ingredients that will be heavily marketed by brands looking to innovate in the metaverse."
When it comes to DAOs, the key to understanding them is to think in terms of democracy, diversity, equity, inclusion and belonging. Colton-Medici offered up three DAOs that are great examples of this. “The Red DAO is focused on ‘growing a digital fashion ecosystem,’ World of Women's DaWoW is focused on increasing diversity and giving token holders voting eligibility on decisions that impact their community, while WOW Pixies' DAO wants to ‘build a more inclusive and diverse Web3.’”
Related Article: A Look at the Way Organizations Are Using Voice of the Customer
DAOs for Building Community
For brands with close ties to their community of customers, which should be pretty much every brand, DAOs allow customers to become DAO members, which enables them to be a part of a community that participates in the active development of the brand. This direct involvement turns a loyal customer into a part of the brand itself, part of the brand’s tribe, a true brand advocate.
“The real synergy for brands creating DAOs is to lead their messaging with how their customers can drive the actions taken by the DAO, how members' votes steer the DAO's mission and what kind of impact they can collectively have on the world,” said Colton-Medici.
Jon Reynolds, marketing director for TreatDAO, and also an investor in the space, spoke with CMSWire about the ways DAOs are extremely useful for building community and forging closer relationships with customers and members. “The org structure of mature DAOs is varied and complex, but in early stages, they are typically quite flat — similar to how we at TreatDAO operate currently. This structure leads to a communal effort and thus forges relationships within the community as members work hand-in-hand to devise solutions to opportunities or problems that arise."
Brands that utilize DAOs to their full potential will be ahead of the game when it comes to customer-created content and engagement. “One area where this can be really leveraged is in marketing/community engagement," said Reynolds. "Users are constantly engaging with one another in the community, organically generating content such as memes, jokes or another signifier that you're ‘in the know’.
"Getting this organic content in a form that can be easily sent across various channels isn't too difficult, meaning that if your community is active and engaged, you have a fairly consistent source of organic content material for your social channels. This makes it easier to identify and align with the brand, both reinforcing current members' affinity and also drawing in new potential members!”
Social DAOs offer brands an opportunity to turn groups of loyal customers into contributing brand advocates. “In general, DAOs have been proven to be effective coordinators, given there are volunteers ready and able to spend their time contributing to a cause,” added Reynolds.
Brands & DAOs Will Form Strategic Relationships
Service and media DAOs also offer an opportunity across many domains for brands to create third-party relationships with groups of users that would have compelling reasons to want brands to succeed — because they have a financial stake in the longevity and success.
“I believe that brands will soon realize the wealth of value that engaging with DAOs across multiple elements of their business: marketing, branding, product development, product testing, fundraising, community engagement & management, customer support, etc!" said Reynolds. "Similar to how brands have been purchasing NFTs to acquire citizenship in digital communities, such as Bored Apes, brands will reach out to form partnerships with specific DAOs."
Similar to what Reynolds referred to, many brands may consider a hybrid DAO model in which the brand retains control of time-sensitive business decisions, but DAOs make decisions (through voting) regarding other aspects of the business. In this way, brands would not lose control, but they would gain the best of both worlds, contribute to DAO members and continue to build community, brand loyalty and ROI.
One person, Yusuf Darrat, product development entrepreneur at Spark Inventing, told CMSWire he's doing just that. His brand plans to create a modified DAO where much of the decision-making is decentralized using smart contracts, leaving major decisions that involve a high level of complexity with many time-changing variables to be made without smart contracts, in the traditional way.
Whether Spark Inventing forms its own DAO, or simply forms relationships with other Service and Media DAOs, the unification of DAOs and Darrat’s brand will ultimately create a synergistic relationship that benefits the brand, its customers and the members of the DAOs.
DAOs will undoubtedly impact the creator economy, but they will also change the way brands do business as Web3 continues to evolve.
Media, Social and Service DAOs will play a larger role in brand strategy, decentralizing and democratizing many of a brand’s decision-making processes, putting control back in the hands of both content consumers and producers. DAOs will inevitably help brands build loyal and committed customer advocate communities.