Investment DAO

An Investment DAO's capital is held in a multi-signature wallet or a smart contract treasury (like Safe or Gnosis Safe). This ensures transparent, verifiable custody of assets, where no single member has unilateral control. Fund movements require approval based on the DAO's governance rules.

• Transparency: All holdings and transactions are publicly auditable on the blockchain.
• Programmable Rules: Funds can be locked in vesting schedules or released based on specific on-chain conditions.

Participation and voting power are typically gated by ownership of the DAO's governance token. This creates a formalized, on-chain membership structure.

• Access: Tokens may be earned through contribution, purchased, or awarded.
• Voting: Members use tokens to vote on proposals, such as investment decisions, treasury allocations, or parameter changes.
• Examples: Syndicate uses ERC-721 membership NFTs, while The LAO uses a transfer-restricted security token for compliant membership.

All significant actions, especially capital deployment, are initiated and ratified through a formal proposal process executed via smart contracts.

• Proposal Types: Range from simple fund transfers to complex investments in startups, tokens, or NFTs.
• Voting Systems: Common models include token-weighted voting, quadratic voting to reduce whale dominance, and conviction voting where support accumulates over time.
• Execution: Successful proposals are often executed automatically by the treasury smart contract, ensuring code-enforced compliance.

DAOs form around a shared investment thesis, such as early-stage crypto projects, NFT art, or real-world assets. They establish processes for sourcing, evaluating, and executing deals.

• Deal Sourcing: Can be member-sourced, through dedicated committees, or via partnerships.
• Due Diligence: Often involves shared research, member discussions in forums (e.g., Discord, Discourse), and formal investment memos.
• Examples: MetaCartel Ventures focuses on early-stage dApps, while Flamingo DAO specializes in NFT curation and collection.

To interact with traditional legal systems and protect members, many Investment DAOs adopt a legal wrapper, such as a Limited Liability Company (LLC) or Cooperative.

• Liability Shield: The legal entity limits members' personal liability for the DAO's actions.
• Compliance: Enables activities like signing legal agreements, holding non-crypto assets, and managing tax obligations.
• Structure: Often uses a Series LLC model (e.g., in Wyoming or Delaware) where each investment can be a separate, liability-protected series.

Investment DAOs define clear mechanisms for distributing returns (profits) to token-holding members and executing exits from investments.

• Distribution Models: Profits can be distributed directly to token holders, reinvested into the treasury, or used to buy back and burn governance tokens.
• Exit Mechanisms: Defined processes for liquidating positions, which may involve on-chain swaps, OTC sales, or traditional equity exits.
• Token Utility: A token's value may be linked to the performance of the underlying treasury, functioning similarly to a redeemable share.

The most prevalent model, where voting power is directly proportional to the number of governance tokens a member holds. This creates a one-token-one-vote system, aligning influence with financial stake. It's efficient for large-scale decisions but can lead to plutocracy, where large holders dominate.

• Example: A member with 100 tokens has 100x the voting power of a member with 1 token.
• Common in: Many early and large-scale Investment DAOs like The LAO and MetaCartel Ventures.

A mechanism designed to reduce plutocratic control by making the cost of additional votes increase quadratically. A member's voting power is the square root of the amount of tokens they commit to a vote. This better reflects the intensity of preference among a diverse group.

• Mechanism: To cast 4 votes, a member must commit 16 tokens (√16 = 4).
• Goal: Protects against whale dominance and encourages broader participation in proposal signaling and grant funding rounds.

A continuous voting model where members signal support by staking tokens on a proposal over time. Voting power accrues gradually, like a time-weighted average. This allows the DAO to gauge sustained community interest and prevents snap decisions, favoring long-term strategic bets.

• Process: Support builds as tokens remain staked; withdrawing support resets the conviction.
• Use Case: Ideal for ongoing funding decisions and continuous treasury management, as seen in Commons Stack implementations.

Members delegate their voting power to trusted experts or representatives who vote on their behalf. This reduces voter apathy and leverages specialized knowledge for complex investment decisions. Delegation can be revoked at any time.

• Structure: Similar to a board of directors but with permissionless entry and exit.
• Benefit: Increases efficiency and decision quality for technical assessments of early-stage startups or DeFi protocols.

A hybrid model where broad tokenholder voting is used for high-level approvals (e.g., investment thesis, large allocations), but a smaller, elected or appointed multisig council holds the treasury keys and executes transactions. This balances decentralization with operational security and speed.

• Typical Flow: Community votes to approve a deal → a 5-of-9 multisig executes the transfer.
• Security: Mitigates the risk of a single point of failure for the treasury.

An advanced model that uses futarchy and prediction markets to make decisions. Proposals are evaluated based on the predicted market value of the DAO's token if the proposal passes versus if it fails. It aims to aggregate decentralized information for optimal outcomes.

• Mechanism: Creates conditional prediction markets for each major proposal.
• Objective: To "vote on beliefs, bet on outcomes," theoretically aligning decisions with the DAO's financial success. Pioneered by DAOstack.

Token-based governance is susceptible to manipulation and low participation, which undermines its democratic intent. Key risks include:

• Whale dominance: A single entity or cartel can acquire enough tokens to control proposal outcomes.
• Vote buying: Token holders may sell their voting power to the highest bidder.
• Apathy: Low voter turnout can allow a small, motivated minority to pass proposals. Mechanisms like time-locked votes, quadratic voting, and delegation are used to mitigate these issues but are not foolproof.

Investment DAOs often operate in a legal gray area, facing significant regulatory risk. Authorities may classify the DAO's tokens or activities as securities, triggering requirements for:

• Registration with bodies like the SEC (U.S.) or FCA (U.K.).
• KYC/AML procedures for all members, which contradicts pseudonymous participation.
• Tax reporting obligations for members on globally distributed profits. Failure to comply can result in fines, dissolution, or legal action against contributing members.

Managing a decentralized treasury containing volatile crypto assets and illiquid investments is inherently risky. Primary concerns are:

• Asset concentration: Overexposure to the DAO's native token or a single asset class.
• Custody risk: Reliance on a multi-signature wallet where signers may become unresponsive or malicious.
• Counterparty risk: Dependence on centralized exchanges, custodians, or borrowing protocols (e.g., for leveraged positions) that may fail. Professional treasury diversification and robust on-chain execution strategies are critical for long-term solvency.

Most Investment DAOs are unincorporated associations without formal legal personhood. This creates significant liability issues:

• Unlimited liability: Members may be held jointly liable for the DAO's debts or legal judgments.
• No legal shield: Unlike an LLC or corporation, there is no entity to sue or be sued, complicating contracts and investment agreements.
• Enforcement challenges: On-chain governance decisions may not be recognized by traditional courts. Some DAOs mitigate this by forming wrapper entities (like a Cayman Islands foundation) to interact with the traditional legal system.

Day-to-day operations rely on secure access to critical infrastructure, creating central points of failure. Key risks include:

• Private key compromise: Loss or theft of keys for the treasury multi-sig or admin contracts.
• Social engineering: Attacks targeting core contributors with privileged access.
• Infrastructure failure: Reliance on specific front-ends, indexers, or RPC providers that could go offline. Best practices involve using hardware security modules (HSMs), multi-party computation (MPC) wallets, and ensuring operational redundancy.

A syndicate is a traditional finance term for a group of investors who pool capital to fund a large project or investment, such as a venture capital round or a real estate deal. In the context of web3, it describes the core function of an Investment DAO. Key parallels include:

• Pooled Capital: Aggregating funds from multiple backers to access larger deals.
• Shared Due Diligence: Members collectively research and vet opportunities.
• Carried Interest: A share of profits (often called a performance fee) for the deal's organizers or active managers. Investment DAOs automate and democratize this model using blockchain technology.

A Venture DAO is a specific subtype of Investment DAO focused exclusively on early-stage venture capital investments in blockchain and web3 startups. They operate similarly to traditional VC funds but with decentralized governance. Core activities include:

• Deal Sourcing: Members and scouts source investment opportunities from the ecosystem.
• Due Diligence: Collective evaluation of a project's team, technology, and tokenomics.
• Post-Investment Governance: DAO members may take active roles, such as advisory board positions, in portfolio companies. Examples include The LAO and MetaCartel Ventures, which have invested in projects like Axie Infinity and Zapper.

A legal wrapper is a traditional legal entity (like an LLC or Foundation) used to provide a DAO with legal personhood and limited liability for its members. This is a critical consideration for Investment DAOs dealing with real-world assets and regulatory compliance. Common structures include:

• Wyoming DAO LLC: A state-recognized LLC specifically for DAOs, granting legal status.
• Cayman Islands Foundation: A popular offshore structure for token-based funds and DAOs.
• Swiss Association: Used by some DAOs for its flexible, member-based governance recognition. The wrapper holds the DAO's off-chain assets and contracts, while the smart contracts manage on-chain governance.

A Token Curated Registry (TCR) is a decentralized list where inclusion is governed by token holders. This concept is often used by Investment DAOs for deal flow curation and member vetting. The mechanism works as follows:

• Proposal & Challenge: Anyone can propose adding an item (e.g., an investment deal) to the list by staking tokens.
• Community Vote: Token holders vote to accept or challenge the proposal.
• Economic Incentives: Incorrect challenges result in loss of staked tokens, incentivizing honest curation. This creates a high-quality, community-vetted pipeline of potential investments, filtering out low-quality opportunities.