Investing, DAO, and Community | OpenPad Web3 Investment
Investment DAO, Decentralized VCs, Profit Accounting and more
TL;DR:
Community-run VCs are decentralized venture capitalist systems investing in Web3-native assets - startups, projects and ideas.
InvestmentDAO is an organizational model that combines the purchasing power of investors with a DAO mechanism, enabling them to own assets collectively with a shared account that would normally not be available individually.
Investment with DAOs, Communities
Probably, most of you guys already invested in crypto and are holding a fair bit of Bitcoin, Ethereum and so on... And the primary objective is purchasing that asset at the cost of X (say $30,000), then selling at a price of Y (say $40,000), so the return on investment should be positive, i.e., Y > X, right? You guys probably want Y to be vastly greater than X, so the ROI is maximized. Bitcoin, Ethereum and all the staff are publicly traded; anyone with cash can buy at a price they’re ok with. But, what about the assets which are not publicly traded, mostly excludable and rivalrous, like private goods? The assets of the future of gaming, payment, economics and even culture. These are primarily private goods, traded exclusively and rivalrously in Web3 launchpads. Before anyone else, even in the listing of decentralized exchanges, hence there is still way more time needed to be listed in centralized exchanges; there is a chance of collecting the assets at the best-discounted price ever. Simply put, this is what decentralized investment banking, loosely crypto launchpads, means. Deal. For sure, high risk translates to high rewards and vice versa.
Where this DAO stuff comes into play is mainly about the democratization of capital investment, decision-making and collective acting. There are multiple ways DAOs can be incorporated into Web3 capital investment; let’s look at the examples.
A launchpad-like platform that manages the initial token offering, so investors can purchase tokens of the projects they like and launchpad onboard at the best price ever, assumably.
An investment DAO-like platform that combines the purchasing power of individuals or investors to buy things which are not previously accessible, like venture capital investments. For example, multiple like-minded motherfuckers can combine their purchasing power through a DAO-like system to buy cryptopunks or BAYC NFTs. Maybe we categorize the fractionalized NFT marketplaces as a unique form of investment DAO.
For sure, there exist other means of capital investment, for example, OlympusDAO, which builds a collateral treasury that establishes a free-floating reserve currency based around a basket of tokens, much the way the consumer price index measures buying power in the U.S. economy.
Actually, for us, it is super cool to invest in projects with the community or empower means of capital investment through the initial token offering or private deals. And also, we predict that the models we’re talking about are also economic and financial paradigms hence worth mentioning, and exactly the reason why we started the “Web3 Investment Series”.
But, there is a tremendous number of questions to be answered. How to join that kind of clubs — investment DAOs, how much influence or purchasing power you’ll have, how do these models work anyway? Since they are relatively new models, like us, some of the thoughts we’ll bring to the table will be risky.
Let’s move to the next section where we simulated and articulated possible processes required to join and invest with InvestmentDAOs and decentralized VCs.
Playing Venture Capital Games in Web3
The next iteration of financial investment will be centred around InvestmentDAO and the decentralized VC model, which is our prediction for future-proof economics, so let’s be an early bird and look at it.
TL;DR: “ Collective minds with a shared bank account.”
InvestmentDAO is an organizational model that combines the purchasing power of investors with a DAO (Decentralized Autonomous Organization) mechanism, enabling them to buy and sell assets collectively with a shared account that would normally not be available individually.
Hence, it’s like a “collective bank account”.
For example, through the OpenPad DAO platform, ten small investors can combine their purchasing power to create an account of crypto assets, like a government reserve or treasury, to buy things jointly with the intention to realize their profit collectively and proportionally.
The owner of the created joint asset account is the people who lock their assets there.
Hence, it’s like a “collective ownership”.
With this treasury, they decide what to invest capital in, and if the decision passes a compromise, the investment is made.
So how do compromises happen?
Usually with an off- or on-chain voting mechanism. The founders or users of the platform decide how the voting mechanism will be. For example, “majority voting” and “80% YES” models are the most common voting patterns in the current DAO culture.
However, the voting theory is a much more advanced discipline than the models mentioned, and we will see that there are more fair and efficient voting models in the future.
For example, mechanisms such as “Quadratic Voting”, which Vitalik Buterin once worked on, will become even more popular. See Gitcoin.
So, who can participate in this vote?
Usually, platforms issue a management token or an NFT collection; once you own one of these tokens, you can participate in the voting.
Let’s go over an example!
For example, you want to buy a Bored Ape Yacht Club NFT, and your personal capital is not enough.
You join an InvestmentDAO and fill out a proposal form that you want to acquire BAYC NFT; then, if your proposal is deemed worthy of the public vote (it can also be voted on separately), voting begins.
If a “yes” decision is made with the voting, and the capital created is sufficient, the purchase is made; otherwise, the fund collection process is started.
You now collectively own a BAYC NFT!
Well, let’s come to the selling process.
Now, let’s say you have reached a certain profit margin, and you want to realize the profit. Even if the sales models vary from platform to platform, the generally used model is as follows.
A voting process starts again for the sale of the asset, and if the collective sale decision comes, the profit is realized.
So how do stakeholders divide? This is also an open-ended question, but generally, DAOs go like this.
Whoever contributes the initial stake realizes the profit proportionally.
For example, 5 people ($150, $200, $100, $300, $500 in thousands) had capital. If you are, for example, the investors with $300,000 capital, your profit rate would be 300/(150 + 200 + 100 + 300 + 500) = 0.24.
So if the total profit is 1,000,000 (say $1.25M to buy, $2.25M to sell, for example), you have 0.24 * $1,000.00 = $240,000 in profit.
Hence, even though you did not have enough capital to buy a $1.25M asset individually, you leverage the power of trustless financial collectivity through the DAO mechanism to own the asset jointly and share the profit generated.
That’s the leverage of decentralized venture capital power.
Let’s not forget that there are gas fees in between; of course, we did not add the fees to make the numbers sound easier. Thank you for reading OpenPad. This post is a public good, so feel free to share it.
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