Everything You Need to Know Before Investing in DAOs

2022/01/29 03:24:16

The world of cryptocurrencies is evolving fast - from catching the attention of mainstream businesses and institutional investors in 2021 to innovating ways to put crypto holdings to work, there is a lot of churn in the industry and several exciting developments already underway. The DAO (Distributed Autonomous Organization) is one such term that is already trending and likely to go big among the mainstream audience as we head into 2022.

What exactly is a DAO?

DAOs are one of the most leading applications of decentralized finance (DeFi), supporting DeFi apps' management. Likening them to real-world examples, you can think of DAOs on the lines of venture capital funds, although in a more decentralized manner of operation, without a conventional management structure or board of directors. Behind the idea of the DAO was developers' vision for eliminating human error or manipulation of investors' funds by leveraging an automated system for decision making and a decentralized, crowdfunded model. DAOs not only let investors conduct transactions globally in an anonymous manner but also offer holders tokens to empower them with voting rights on potential projects supported within their platforms.

Billionaire Mark Cuban has praised the concept of DAOs, predicting that they could take on legacy businesses. Earlier this year, he talked about how they represent the "ultimate combination of capitalism and progressivism" and leverage a decentralized and trustless approach for effective governance and maximum ROI.

How do DAOs function?

DAOs are the ultimate form of decentralized investments, pooling in capital from interested users keen on backing blockchain projects, funding them and sometimes, even going an extra mile by managing promising startups. DAOs can have varied structures, rules and governance, all based on their respective communities and goals. They leverage the power of smart contracts to enforce rules and assign voting power to participating members for governance purposes.

DAOs are usually established by developers or central authorities in a bid to hand over control and implement true decentralization into their dApps, including DEXs, marketplaces, lending/borrowing platforms, games, and more. Several DeFi projects leverage the model of the DAO to hand over control once the project is up and running successfully, ensuring complete decentralization of control over the application's functioning and management.

DAOs have their own treasuries and using the funds in such treasuries is voted upon by community members. Community members can introduce proposals which are then put to vote over a specified period of time and then acted upon. This ensures complete autonomy and transparency within the system. However, some DAOs have struggled with this concept when too many of their governance tokens are held by a small concentration of members, giving them more power in dictating the outcome of the voting process.

Notwithstanding this challenge, DAOs are not only here to stay but also to grow, making their mark in the crypto industry and offering higher levels of trustless operations and decentralization that blockchain technology offers.

How can I invest in DAOs?

We at KuCoin are already excited about all the promises the DAO offer in making cryptocurrencies work for investors, generating higher value and versatility from digital assets. DAOs offer community members a chance at investing in promising projects and ideas, even as they help developers raise funds and gain access to potential customers well before launching.

DAOs are one of the largest sources of funding for dApps running on Ethereum and several other blockchain networks where the concept is fast gaining traction. Here are some of the top trending DAO coins on the KuCoin platform you can add to your portfolio if you haven't jumped on the DAO train yet!

New Addition: ConstitutionDAO (PEOPLE)

ConstitutionDAO shot into popularity almost immediately after it was formed in November 2021 as it envisioned a decentralized way to raise funds to purchase an original copy of the US Constitution at a Sotheby's auction and place it in the hands of the general public - its intended audience. On the lines of crowdfunding, ConstitutionDAO came about thanks to the efforts of Jonah Erlich and 30 other people who formed the DAO and raised around $47 million on the Ethereum blockchain to participate in the auction.

Although the DAO was unable to realize its original vision of purchasing the US Constitution's original copy at the auction, the high level of interest it generated among the crypto community helped its developers decide to keep the token minted by the DAO, PEOPLE, around after it rallied for several weeks. While the origins of PEOPLE are based on a meme, there's no denying that it has captured the attention of several crypto enthusiasts who continue to buy the token and keep its price high.

Since then, PEOPLE has gone on to become a community-owned token, and while the founders behind ConstitutionDAO have offered full refunds to users from the smart contract held at Juicebox at a rate of 1,000,000 PEOPLE:1 ETH, there are still over 17,000 active holders of the token in the market as of late December 2021.

People Price Chart on the Weekly Timeframe | Source: PEOPLE/USDT

The PEOPLE token has seen stellar growth in value, from an all-time low of $0.0007099 until it hit a record high of $0.1852 in a little over a month. Although at the time of writing, the price has slid slightly lower, it remains well bid as it enjoys strong trading volume in the market.

KuCoin offers ConstitutionDAO for trading against the USDT, so if you wish to buy the coin, look up PEOPLE/USDT on our platform and place your trades now.

New Addition: OpenDAO (SOS)

OpenDAO is one of the newest additions to the world of DAOs, launching last week and distributing free tokens (SOS) to users of OpenSea - the largest NFT marketplace. OpenDAO and its native token, SOS, have been designed to support the NFT community. Any user who has conducted transactions on the OpenSea marketplace before December 23 is eligible to receive free SOS tokens, with token distribution based on the number and value of transactions conducted on the NFT platform.

Of the total supply of 100 trillion SOS tokens, 50% has been kept aside for airdrops to OpenSea users, 20% will be maintained within the DAO, 20% will be set aside to offer staking incentives and the remaining 10% has been allocated for liquidity provider incentives.

OpenSea users can claim their free SOS tokens until June 30, 2022. After this deadline, the tokens remaining from the 50% allocated for the airdrops will be absorbed by OpenDAO's treasury. The DAO aims to use 20% of its share to compensate victims of scams on the OpenSea marketplace, promote artists and NFT communities and even offer grants to developers.

As per Coinmarketcap, OpenDAO's SOS token ranks 284 in terms of market capitalization, with a fully diluted market cap upwards of $611 million. It has already risen in value from a low of $0.0000004894 on December 24 to a high of $0.00001154 a day after its launch, although its price has eased lower since then. In less than four days since its launch, the SOS token has already given back over 1,100% gains to its holders.

KuCoin supports the latest DAO coin by offering users the option to trade SOS against the USDT on its platform.

People Price Chart on the Weekly Timeframe | Source: SOS/USDT

Decentraland (MANA)

Decentraland, one of the biggest players in the metaverse, has its very own DAO - the Decentraland DAO, which has ownership of all of its ecosystem's smart contracts and assets. The DAO oversees the LAND Contract, Estates Contract, Wearables, Content Servers as well as Decentraland's Marketplace. In addition, a significant portion of the ecosystem's native token MANA is held in the DAO's reserves, helping it maintain its autonomy in operating the metaverse in addition to managing operations and initiatives underway and coming up within Decentraland.

Set up with an aim to make Decentraland the first completely decentralized virtual world, the DAO empowers the community with the responsibility to control the policies, what kind of NFTs and digital collectibles can be featured within the marketplace as well as managing policies and auctions related to LAND as well as content moderation.

The DAO community proposes and votes on updates to Decentraland policies, has a say in LAND auctions taking place within its ecosystem, and even whitelists contracts in the World, Builder and Marketplace. The Decentraland DAO is supported by the Security Advisory Board (SAB) which guarantees the security of smart contracts and responds to any bugs reported within the system. The Aragon DAO controls who makes up the SAB and uses wMANA as its governance token for presenting proposals and making voting decisions on this.

MANA, which is the native token in use within Decentraland, not only powers the DAO from a governance perspective but is also used as currency to make purchases of LAND and other digital collectibles within the marketplace and ecosystem.

Source: Messari.com

Decentraland (MANA) has seen its value gain by more than 4,300% over the past one year. MANA has had a busy quarter, gaining over 450% during the past three months alone ever since Facebook announced its decision to rebrand to Meta and catapulted metaverse and related cryptocurrencies into the spotlight.

We offer our users the option to trade Decentraland&amp;amp;amp;amp;#x27;s MANA token against the USDT on KuCoin Plus.

Uniswap (UNI)

Uniswap, the largest and most established decentralized exchange on Ethereum, has its own DAO which supports the governance of its operations using the native token UNI. The governance token was launched in September 2020 giving the Uniswap community total decentralized control over the operations and development of the DEX.

Holders of UNI tokens can participate in voting or delegate their tokens to other participants on proposals concerning the development of Uniswap's infrastructure, services and more. The team of developers behind Uniswap issued 1 billion UNI tokens which were then distributed among its core contributors, community members, investors and advisors, with 60% assigned to community members, 21.266% to team members and future Uniswap employees, 18.044% to investors and 0.69% to advisors.

Uniswap’s DAO lets its members control the governance of the platform, manage the community treasury, protocol fee switch and more within the ecosystem. Most recently, Uniswap's governance was in the news after its community voted to integrate the DEX into Polygon's ecosystem, helping Uniswap realize higher levels of efficiency and combat the high gas fees and network congestion challenges plaguing the Layer 1 Ethereum blockchain on which it operates.

Source: Messari.com

The rising popularity of DeFi has helped raise the value of the UNI token by nearly 400% this year. Over the past one week, following news of the Polygon integration, Uniswap's governance token has strengthened by over 22% and looks set to close the week and the year in the green.

Our users can trade UNI against the USDT on the KuCoin Plus interface with up to 10 times leverage.

Aave (AAVE)

Aave (AAVE) is another established DeFi protocol that leverages a DAO for governance, letting users participate in its management and development. The Aave governance protocol, Aave Governance DAO, was released in December 2020 with the launch of its governance token AAVE to bring true decentralization to its operations. Before this, only Aave's developers could introduce new proposals recommending changes to the leading DeFi project.

Aave is an open-source and non-custodial DeFi protocol that lets users earn interest on their crypto deposits with the platform and borrow assets from its ecosystem. Aave was one of the first among the biggest names in DeFi to introduce the concept of flash loans, uncollateralized loans in the world of decentralized finance. Flash loans by Aave offer developers an opportunity to borrow capital instantly and conveniently without presenting any collateral as long as they return the liquidity within the pool within one transaction block. Aave's flash loans have several important use cases, including arbitrage, collateral swapping and self-liquidation.

All AAVE token holders can propose changes to Aave's platform. The DAO also allocates a unique dual voting right to every single token holder, letting them delegate their voting and proposing rights separately. To safeguard the tenets of the DAO, Aave's developers also introduced the concept of The Guardians - a group of elected users who have the right to halt the implementation of any malicious proposals which could lead to catastrophic losses for the project and its community.

As part of creating the DAO, developers issued a total of 16,000,000 AAVE tokens, of which 13,000,000 AAVE were distributed within its community of users, while the remaining 3,000,000 AAVE were set aside for its reserve.

People Price Chart on the Weekly Timeframe | Source: AAVE/USDT

Currently, AAVE ranks 45 in terms of market capitalization as per data on Coinmarketcap, enjoying a TVL of over $15 billion and a market cap of over $3.6 billion. In terms of performance, AAVE has given back gains of over 230% over the past year, powered by the growth of interest and adoption of DeFi among crypto investors.

We at KuCoin offer AAVE for trading against two stablecoins, the USDT and UST. Take a look here to start trading AAVE/USDT and AAVE/UST now.

Stay tuned and watch the KuCoin Blog for more interesting and valuable educational content. All the best!

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Disclaimer: KuCoin does not provide financial advice. Please do your own risk assessment when deciding how to invest in cryptocurrency and blockchain technology.