What are DAOs?
DAO stands for Decentralized Autonomous Organization. DAO is a type of organization that was designed to be automated and decentralized through the use of blockchain technology.
For more details, check out this article.
What are Investment DAOs?
Investment DAOs are just what the name implies – a DAO focus on investing. Members of investment DAOs invest as a group, they will set up investment proposals and vote to use their DAO treasury to invest in the asset that the majority think is promising. You can think of venture funds as the traditional equivalent of investment DAOs.
How do Investment DAOs work?
Each investment DAO will have its own exclusive governance token. Just like any other DAO, holders of these tokens will have the right to participate in voting and deciding the direction of their DAO. The more token one hold, the more voting power one has.
Each investment DAO will have a treasury, this is where all the collective funds of the DAO are kept. Treasuries are usually funded through token sales, issuing NFTs, and rendering revenue-generating services.
Members can suggest or make investment proposals. To avoid spam and low-quality proposals, there are usually rules to only allow members that hold a certain number of tokens or people that have been assigned beforehand to do this specific job.
Once an investment proposal is made, all members can vote on how to proceed. To exercise their voting right, members are usually asked to stake their tokens or use a snapshot mechanism. Snapshot looks at the number of governance tokens in each wallet and distributes voting rights based on that without locking the tokens. This helps avoid users swaying the vote by buying more tokens once they’ve seen a proposal. Once voting is over, the decision is implemented according to the results.
If the investment yields a positive result, the profits will be distributed to participants either via airdrops to governance token holders or through a staking mechanism. By staking your governance token, you’ll then receive a share of rewards that you can withdraw from the smart contract.
Investment DAOs often run their community on their own built platform or through social channels such as Telegram or Discord so they can organize, inform, and facilitate proposals more effectively. A DAO is only as successful as its community, so it needs to maintain a healthy and active membership.
Pros and Cons of Investment DAOs
Like everything, there are trade-offs you need to consider before joining an investment DAO. Below are the pros and cons.
- Automation: DAO rules are embedded codes in the blockchain. This means rules can be enforced fairly and automatically without human error.
- Democratization: All proposals must be approved by the majority. There is no party that can impose and force their investment opinion on the rest of the group.
- No 3rd party institutions: Investments can be carried out without the help and cost of outside institutions such as regulatory bodies, law practitioners, and other middlemen.
- Meritocracy: You only need to be a token holder to participate and vote. Members are valued by their work output, not by how they look or how their credentials stand out.
- The majority decides: Every decision in a DAO is voted by members and passed if the majority approves. And a decision made by the majority doesn’t necessarily mean it’s the best decision.
- Smart contracts failure & Security: Smart contracts are not currently not immune to hacks and exploits. If the code has flaws, your DAO might become a target.
Introduce KALA Community DAO
KALA Community DAO (KDAO) is an infrastructure to create and manage DAOs on the KALA Network. With KALA GDAO, creators, influencers, and leaders can create DAOs for their community. Members can then vote to decide the direction of their DAO.
DAOs on KALA can mint and distribute NFTs to their members. These NFTs can be used as Proof of Membership or as Proof of Investment for their respective DAO and investment. You can read more about KALA Community DAOs in this article.