How DAO Brokered $145 Million Token Transactions

Posted on July 30, 2022 in Cryptocurrency

DAOs, or decentralized autonomous organizations, are very similar to startups. They fund teams that create products that people use. Generally, these products generate revenue because they charge a fee to the people who use them. 

As with any startup, if your product is good and attracts attention, but isn’t powerful enough to stand on its own, you may also seek outside funding. If sustainability is not your goal, continuous growth is another good reason to ask people for money.

However, in this second point, the DAO is slightly different from the beginning.

Instead of two or three people chasing money and an angel investor explaining a product use case, the transaction is made transparent to the rest of the community. In this case, community means anyone who holds a DAO governance token (but that’s a very generous definition of a DAO community). 

This week we enjoyed a good example of what this might look like.

Popular staking service Lido Finance is currently looking for a longer runway by exchanging 2% of the project’s original token, LDO’s total supply, for stablecoins. According to data obtained from CoinGecko, between 2% and 20 million coins are being ejected.

It will run the project for about two years, following an initial proposal on July 18th. Basically, they try to fill their vaults with non-volatile assets in an ongoing bear market. 

This proposal evolved from a much broader proposal on June 3, when developer Lido proposed “sell 10,000 ETH in DAI from the treasury”. This should include the cost of operating a team of approximately 2 years and 50 people in the protocol maintenance budget.

As you may have noticed, the assets sold are different between the two offerings. Thanks to the governance discussion! 

Initially, it was proposed to sell Ethereum as a stablecoin. The Treasury will now sell the LDO tokens. 

And that’s not all. On July 27, the proposal was revised again after significant backtracking from the initial proposal. Earlier, the Lido team revealed that Dragonfly, an investment firm focused on cryptocurrencies, is a potential buyer of the mentioned LDO token. 

The proposal also stated that “acquired tokens will be unlocked”. This means that once Dragonfly buys a collectible, it can sell it at will.

Scan the comments on this early idea to get a good idea of ​​how the Lido community feels about that little note. 

One member wrote, “Therefore, there is no closure and attrition period.” “The default should be no unless there is a strong reason. Another wrote that the priority set at a previous event was 1 year cliff + 1 year public. What’s the rationale for the zero-close period?” another commentator asked.

After widespread concerns about this lack of a lockout period and a swift failure to vote, another more refined proposal was made to include this very language on July 27th.

So the final trade is only 1% of the total supply (instead of the 2% shown previously) and the tokens will be sold for around $1.45 each. The new term is still being voted on for Snapshot, but the community is currently voting a lot for Snapshot. If passed, the DAO would have brokered approximately $14.5 million worth of transactions.

If you’re interested in all the nitty-gritty of how token trading happens, read each phase from June 3rd to July 27th, which provides a really interesting case study of crypto governance.

For a full overview, check out these posts here, here and here. 

And this is how the traditional beginning and the end of the DAO compare. 

In a startup company, the only people who really know the terms and conditions of stock trading are two or three co-founders and the funds that provide the capital. Certain terms can be buried forever in nondisclosure agreements. 

Of course, the important trade-off here is time. Plans can go fast because few bosses make decisions. 

However, given the sheer size of this community, the process was still very fast. Perhaps most importantly, everyone has the opportunity to participate transparently. 

This looks like a win for Lido and everyone else in the industry.

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