Investment DAO

In many ways, an investment DAO is similar to a a mutual fund in the TradFi (traditional finance) world. An Investment DAO is a collective vehicle that brings people (and their money) together for the purpose for investing to earn a return, support a venture or follow a common investment philosophy.

Let’s compare the two with a bit more scrutiny.

Investment DAO vs TradFi

In a TradFi mutual fund, the fund may be constituted as a legal entity such as a company or a trust. An investor buys units or shares in the ‘fund’ and investment decisions are made on their behalf by a governing board or investment committee.

While an Investment DAO has the same or similar purpose to a mutual fund – people pooling their capital to make investments in various things – an Investment DAO differs from a TradFi fund in several key ways:

• An Investment DAO (like all DAOs) is constituted and operated on a blockchain
• No one person, board or committee governs it
• The DAO operates under a set of ‘rules’ of governance and operations that are encoded in smart contracts called ‘governance tokens’
• The ‘rules’ under which the DAO operates are agreed upon by the members of the DAO and changes are made by a collective vote of members. The rules cannot be changed unless by vote of all the DAO’s members.
• Members buy tokens in the DAO. Each token holder, or member, has a say in the affairs of the DAO and (typically) the more tokens you have, the more rights you have to vote in the rules and decisions of the DAO.

An investment DAO could also be thought of as ‘an internet community with a shared bank account’. In investment DAOs, participants use the DAO’s governance tokens to vote on which projects to invest in. An investment DAO will typically have an address that holds all of its assets in a multi-sig wallet, which requires multiple signatures to authorize transactions used to allocate capital in a very fluid way.

Most investment DAOs differ from TradFi funds in another key way – the main aim of the majority of investment DAOs (so far) is to make investments that support web3 projects by providing easy access to funding and building a thriving venture capital sector for them.

According to Cooper Turley, a crypto analyst at The Defiant:

We’re seeing a lot of DAOs raise capital to a community-owned bank account and use that capital to pay people in the same way you would a company, except it’s all being done on-chain by crypto tooling.

Examples of investment DAOs

Let’s take a closer look at a couple of investment DAO examples: BitDAO and Metacartel Ventures.

BitDAO

BitDAO is a DAO that is reported to have raised US$230 million from 2,497 investors in 20 min on August 16, 2021. This happened on MISO, a token launchpad by decentralised exchange Sushiswap. By Mid-March 2022, BitDAO’s treasury had exceeded US$1.8 billion. BitDAO’s mission is “to support (the) builders of the decentralised economy” by funding a diverse range of projects across ecosystem funds, artist guilds, farming cooperatives, R&D Labs (to name a few) and to “showcase the potential of DAOs” by investing in DAO projects. See https://docs.bitdao.io/ for a full description of BitDAO and its mission.

Metacartel Ventures

Metacartel Ventures describes itself as a “for-profit DAO” for the purposes of making early-stage investments in Decentralised Applications (DApps), with initial seed investments in the range US$20k-100k. Investments are directed by a community of ‘Mages’ (DAO members) who source, analyse, do due diligence on, propose and vote on investment opportunities. See https://metacartel.xyz/about for more of the Metacartel story.

Now it’s your turn

In addition to BitDAO and Metacartel Ventures, there are many new and more creative investment DAOs emerging all the time. Some examples include DuckDAO, Udacity fund, Komorebi, and theLAO. They all have different ways of constituting themselves, different operating rules and investment philosophies. Select one of these DAOs or another investment DAO that interests you and research how the DAO operates. Report your findings in the comments.