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DAOs Poised to Scale if They Can Clear Major Hurdles

DAOs are poised to become a dominant new structure in DeFi in 2022.

DAOs Poised to Scale if They Can Clear Major Hurdles
This article is part of our On the Radar 2022 series.

You’ve probably seen the buzz-phrase over the past few weeks. It’s usually a variation on “DAOs will be the NFTs of 2022”. The line has a ring to it, but is it realistic? 

Well, the emergence of decentralized autonomous organizations, enabled by the Ethereum blockchain, is one of the most intriguing developments in DeFi. DAOs, a cooperative model of governance built on a DeFi substrate, have the potential to disrupt corporate structure in a seriously big way. There’s an element of countercultural creativity to the DAO, and its egalitarian ethos will probably become increasingly attractive to talented engineers, entrepreneurs, and all manner of brainiacs. 

Key Platforms

In 2021, DAOs surged and now collectively have about a million members and the top 20 groups have $14B in digital assets, according to ConsenSys. Big DeFi players such as Uniswap and Compound and MakerDAO are key platforms in the movement. But there’s some novel expressions, as well. 

In November, for instance, ConstitutionDAO demonstrated that an ad hoc group could quickly raise $47M for an endeavor dreamed up on social media, in this case acquiring a rare contemporaneous copy of the United States’ founding document. That the group’s bid fell short doesn’t erase the big splash it made in the mainstream media, and with Defiers. More projects like this one will happen.

DAOs are also moving into investing. MetaCartel’s Venture DAO enlists “mages” to unearth and support promising projects. It’s a twist on the more hierarchical partnership model long used by traditional venture capital firms.The freewheeling cooperative has cultivated investments in a number of DeFi players, including Gelato Network and The Defiant.  

And of course, DAOs are active in the metaverse. The Decentraland DAO governs tens of thousands of acres of virtual land and has a homeowners committee and city planning function and members can vote on land auctions, whitelisting of NFTs, and other features. It uses Decentraland’s MANA for tokenomics. 

As fascinating as all this is, it doesn’t necessarily mean DAOs will scale. One major issue they will have to solve is legal. While these groups are by their very nature decentralized, they must also domicile in a jurisdiction to protect members from liability. At least, that’s the analysis by a growing body of legal minds. 

Crypto Features

Addressing this paradox may be key in the growth of DAOs. As they attract more members and capital and make a greater impact in the economy, these groups may very well experience the same supercycle of growth that has propelled other crypto features, including NFTs. But if they don’t mind the more prosaic tasks of ensuring members are protected from lawsuits or tax liability, DAOs may not achieve the scale so many are predicting they’re capable of.

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