Venture capital and encryption, blockchain, DAO and Web 3.0
This year we have seen a lot of adoption of encryption-based systems, including decentralized finance (DeFi) applications, non-fungible tokens (NFT), such as digital art, encryption-centric games, and increasing adoption Cryptocurrency is used as an investment and payment tool. One of the most recent developments is the emergence of Decentralized Autonomous Organizations (DAOs).
DAO has existed since 2016, when the DAO organization was a new form of investment tool that attracted a considerable part of Ethereum (Ethereum) Tokens, which raised more than 150 million U.S. dollars at the time. Many people see DAO as the ultimate form of human coordination. However, due to the reentrancy vulnerability, Hackers stole 50 million U.S. dollars Organization’s funding.
Despite the initial setbacks, DAO has ushered in its second birth in the past few months. This is mainly achieved through more mature frameworks and tools and reducing the friction between establishing and interacting with DAOs. Some early experiments, such as DXdao, DAOStack’s Genesis DAO or MolochDAO, pointed the way for a new wave of decentralized organizations. Today, there are different forms and forms of DAO, from large to small, used to manage the ecosystem, collectively purchase NFTs, or contribute to social causes or sports.
In addition, DAO may be the most transformative change in how venture capital (VC) funds operate. Venture funds will have to change how they invest in projects, how they participate, and how they bring value. However, at the same time, their own business model may be disrupted by the DAO, which has become an investment tool. But Web 3.0 will also fundamentally change the way to obtain investment opportunities and provide a democratic way of investment without the need to become a qualified investor or have no net asset restrictions.
How VCs invest in Web 3.0
Letting venture capital funds invest in Web 3.0 is no longer an exception. These investments range from establishing dedicated crypto funds to more traditional (institutional) funds that see the potential of blockchain-based ecosystems. However, the investment method is different from traditional venture capital.
Most notable is the widespread adoption of public sales (such as initial token issuance, initial decentralized transaction issuance, and initial transaction issuance). These measures democratize the access to investment transactions and allow more investors to participate in investment rounds, thereby reducing entry barriers and coordination costs. Many Web 3.0 projects are also mainly guided by DAOs operated by the community, and investment decisions are reviewed by community votes-perhaps the most representative example is the SushiSwap strategic fundraising.
Therefore, although traditional investment transactions are usually carried out behind closed doors with almost no stakeholder participation, venture capital funds in Web 3.0 must be more open to participate in order to gain a place. However, Web 3.0 projects sometimes still conduct smaller private fundraising activities before the public token sale.This usually involves a juice Agreement (or safe Agreement plus token option) and the party planning to issue new tokens. However, this usually involves committing to a longer vesting or lock-up period.
However, especially in the field of NFTs, it remains to be seen how venture capital funds gain an advantage over retail investors in some way, because NFT collections are usually immediately publicly sold, thereby eliminating the opportunity to participate in private pre-sales.
How VC adds value to Web 3.0 projects
VC provides a full range of services and support for start-up companies-not just capital. Venture capital funds regularly provide support to their portfolio companies through recruitment, marketing, guidance, legal advice or other services. After all, they have a vested interest in the success of these startups and want to do everything they can to support them.
However, Web 3.0 will fundamentally change the meaning of “smart currency” for projects. DAO usually does not have a central entity that can grant these additional services. On the contrary, venture capital funds that support projects are usually realized mainly through community participation. This includes community advocacy or direct participation in the process of community governance. But it also involves lobbying and other forms of interaction with stakeholders outside of the direct ecosystem or even Web 3.0, because these discussions are often a challenge for organizations without legal personality.
A prominent example of a venture capital fund that favors this new form of value contribution is Andreessen Horowitz (a16z).along with $2.2 billion crypto fund III, a16z does not shy away from actively participating in the governance of its portfolio projects, such as Uniswap.
Invest in DAO
Venture capital funds have been in existence since the 1940s and are mainly used by the wealthy. Since DAO represents the next generation of VC funds, VC funds not only invest in and participate in DAO, but are also becoming DAO themselves. Stacker Ventures is an example of a venture capital fund becoming a DAO, which attempts to democratize early investment in emerging assets. BitDAO is a protocol managed by BIT token holders. It is one of the largest DAOs in the world, focusing on providing open finance and a decentralized tokenized economy.
BitDAO cooperates with leading agreements and is building a financial future that hopes to support DeFi, DAO, games and NFT. PleasrDAO is an investment and art acquisition platform that collects digital art representing and funding important ideas and movements that are consolidated as NFTs on the chain. PleasrDAO is experimenting with digital and art ownership and is helping to change the way people invest in art.
VC is mainly a social investment tool used to coordinate resources around the theme of shared investment. Web 3.0 will enable a new way of innovation, through which people can gather funds and other resources, which is far beyond the rigid structure we see in the current VC environment.
Venture capital in an identity crisis
Traditional venture capital funds must observe these developments and have a clearer understanding of their own value propositions related to Web 3.0 projects. Most importantly, venture capital must show how their value-added is different from the community-driven investment DAO. It is likely that, over time, some traditional venture capital funds have decided to adopt the DAO structure to make their investment activities more accessible, transparent and community-driven.
Obviously, if venture capital wants to remain relevant in this new Web 3.0 era, it cannot just stick to its existing structure and processes.
This article does not contain investment advice or recommendations. Every investment and trading action involves risks, and readers should research on their own when making a decision.
The views, thoughts, and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Lucas Shore Is the product manager of Gnosis Safe-a multi-signature wallet and a platform for managing Ethereum digital assets. For the past four years, Lukas has been engaged in product-related work in the blockchain industry. He joined Gnosis in early 2019 and took over as the product manager of the Gnosis security project.