AOTB Mini Series
The crypto world goes through phases of reorganization that advantage specific kinds of investments or trades for a period.
For example, the DeFi summer of 2020 saw all things DeFi on ETH make money because those products were the first of their kind. Then SOL and LUNA–about a year later–took that position because they could deliver on the same product but in a cheaper and faster way. The shift–a meta view–was predictable if you understood the basic pain point of the ETH DeFi ecosystem. That’s why I made my calls back in July on SOL and LUNA. That investment still makes sense too, because ETH is still slow and expensive.
The meta-view explains why that trade is advantaged and for how long.
DAO Craze Trade Predictions
Let’s look at another such trade. The land craze in MANA and SAND was driven by the pre-existing idea of taking the Earth2 idea into the blockchain world (itself a replay of an older idea where a guy raised $1,000,000 by selling each pixel of an image for $1 in the early web).
The way these investments work is that the earliest people to buy in tend to make a lot of money. The later people will only make money if the virtual worlds are eventually useful. Regardless of the virtual world’s utility, then, the early adopters are rewarded. The only thing early investors need to make money is a good promotional team. That’s why pumpers are paid so much.
The meta-view in this case turns on an insight into an asymmetry in the security of profit. Early investors, who are often invited in a non-public sale, are likely to make money. Later investors need the product to work out to make money. The incentives among investor generations, then, are not definitively aligned.
That asymmetric meta-view is also operative in many avatar NFT projects. In these projects, the whitelisted early minters can make a quick flip, but later buyers need the NFTs to have long term value if they ever hope to resell them.
Notice, then, how the DeFi play is a sustainable meta, while he avatar NFT craze often isn’t. I focus AOTB trades on sustainable metas–though I’m mindful when the conditions for those trades are undermined too.
Now you know what a “meta” is for trading and investing (origin of term use here).
The purpose of this piece is to explain 3 metas in the current DAO craze. I’m actually involved in building a few of these. Paid subscribers got my analysis this week of the CrossChainCapital DAO in video format. This is a more general discussion of the point.
3 DAO Metas
Now the problem I face in approaching the topic this way is that DAO is the name for “company” or “business firm.” It’s just a new form of that idea. To simplify our discussion, I’ll look at three strategies in this space.
The meta for one makes sense. For another, it might make sense. And for a third, there is nothing that necessarily makes it work. Let me explain by looking at the last case first.
The Simp DAO
These are fan based DAOs where subscribers buy coins to follow some woman they follow–I think that gender dynamic is uniquely male to female. Typically, these DAOs will just use the funds to buy the NFTs of said celebrity, making the celeb richer.
In one way, this is merely a fan club and I’ve no problem with that. They’re clearly not investments. The difficulty is that some of these DAOs are popping up without the celebrity’s permission.
If the DAO simply buys NFTs from that celeb, I suppose that’s fine. But there is no reason why they must. Also, the DAO may charge a management fee without compensating the celeb. So, while this is a new way to monetize fandom, it’s not an unproblematic way to do it.
The Asset Backed DAO
I own one of these–a 1943 Hudson Pickup. It was among my starter cars that my father made me drive as a teen.
You have to pull the coke to start it and it maxes out at 55 mph–which my father thought would keep me safe from speeding (he was not wrong).
The thing is, if you have collections of valuable objects like these–and I am building my own collection–then you can start an asset backed DAO because these can be objectively valued.
That value can serve as the “book value” of your DAO. It might then make sense to raise funds using this objective basis as a “floor price.” Publicly traded firms often trade for better than 10x their book value and that’s the opportunity.
If you are a collector who forms a DAO this way, you can extend your capital basis by maybe 10x. Even if the DAO uses that additional funding only to yield farm on Anchor for 20% annually, it’s not a terrible use of funds.
Asset Backed DAO Craze Cautions
Notably, the investors in that DAO need to be sure that the investment returns make sense, as this an investment for them. The initial collectible supplier is simply finding a way to “rent” their assets by charging a management fee.
Those incentives are not necessarily aligned, though it’s not hard to close the gap. If you’re looking at one of these, then, you need to make sure that they are.
The Investment DAO
I’m obviously interested in these. To my mind, they have the most closely aligned interests: the managers of the DAO only make money if the investments make money.
So if the investors win, the managers win.
This is basically the incentive structure for all fund management and there’s a reason why that’s become a massive industry. The alignment isn’t total, but it’s close enough to function successfully for decades.
What matters with this kind of DAO, then, is how successful the investment strategy is (obviously). Just make sure you understand that first (we’re having an AMA for our plans this Thursday at 4pm EST on the AOTB Discord server).
Alright, this is a quick review of 3 DAO Metas. You now know what an investment meta is, and you’ve seen that some DAOs have a durable basis (the investment DAO) and others may operate parasitically (the Simp DAO).
DAO Craze Preferences
Likely the most novel idea here is the Asset Backed DAO. Of course, I’m involved with one of these too (I think sleep is overrated), but in an advisory role.
I expect this area to explode in the coming decade–it’s the first new idea for a business firm since the 1500s. They’ll be promising, but not uniformly good investments. As things progress, I suspect that Investment DAOs may well compete with mutual funds. So, I’ll keep you all apprised of these as they come along–as I did for CCC this last week for subscribers.
This week I wrote a number of pieces that are related to this post, so you might want to have a look if you’ve missed them.
That’s it for this week. Remember to join us on Discord if you haven’t already.
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