Mar 28, 2023 – (SeoXnewsWire) – New york USA — In recent years, the crypto industry has been actively developing, and the interest in it among users is constantly increasing. In particular, now almost everyone can invest and receive potential income by choosing DAO investments. What is it, and is it worth joining such a project?
What is an Investment DAO
In general, a DAO is a decentralized autonomous organization – a company governed by smart contracts. This is one of the main distinguishing features – the ability to offer their solution to all members of the system. Since the system is autonomous, it does not depend on external influences and human factors and is also controlled using program code.
In turn, investment DAOs are characterized by their special mechanics. It consists of the fact that funds are collected from all participants, after which the resulting capital is invested in various projects. We can name DogeDAO platform as an investment DAO example and PleasrDAO as one of the NFT DAOs to check out. The first one provides Dogecoin holders with an opportunity to benefit from coin staking, while the latter is used to buy high-cost NFTs by sharing the cost and ownership between stake holders.
How an Investment DAO works
The basic principle of investment DAOs is to combine a specific set of rules that are attached to the governance structure with the code in which they are embedded. The implementation of this concept is carried out through smart contracts. You can adapt and program the DAO for your goals with the help of the community.
To make any decision within the foundation regarding a specific proposal, a vote is held between its participants, in which special tokens are used. As a rule, the main model of the community’s work is the principle according to which the strength of his vote depends on the number of tokens a participant has.
In general, all the rules for membership in an investment fund are transparent. They are written in a smart contract.
The legality of Investment DAOs
Many future investors are interested in the important question of how safe and legal a DAO investment fund is. Before you start investing, it is necessary to understand in detail the problems and risks that participants in the organization may face. In particular, these include the following points:
- The emergence of regulatory uncertainty. It is worth considering the peculiarities of each jurisdiction, as applicable rules and laws may differ in them. They concern not only the principles of the DAO, but also cryptocurrencies, securities, and so on.
- Issues relating to liability. Here it is necessary to pay attention to who will be responsible for all actions performed by the DAO, as well as for the results of these actions.
- Features of tax consequences. Before you begin to invest in DAO, it is also worth exploring the taxation of both the profits and losses.
Funding Options for DAOs
Replenishment of capital for the implementation of the DAO investment scheme can be performed in several available ways.
Crowdfunding
With this method of capital replenishment, all members of the group contribute certain amounts of money to the common pool. In the future, this amount will be used to invest in those projects that the members of the organization choose.
Tokenization
One of the most popular ways to raise funds is through the sale of governance tokens. This is done in this way: investment DAOs that appear on the market issue their tokens and offer them on the market. The acquisition of a token by an investor may be due to speculative purposes, or the opportunity to further take part in voting between members of the funds.
Syndication
Syndication is another effective way to raise money and distribute it further. This principle is based on the formation of smaller groups among the members of the system who carry out joint investments in certain projects. This can be carried out both together with other groups and with the participation of external partners.
Types of Investment DAOs
Before making DAO investments, it is also worth understanding the varieties of such systems. There are several types of such organizations, which differ from each other depending on their strategy, as well as the main focus.
Venture Capital
A venture capital fund is a second-generation DAO, a feature of which is the creation of a sister venture fund that increases the scope of investments. The essence of such investment is to finance startups at an early stage of their development, due to which there is a high potential for their further growth.
Hedge fund
In this case, investors invest in various markets and assets that have a high risk-to-reward ratio. Having calculated the expected result, investors choose a specific project.
The social impact DAO
Another way to invest is to select those projects that have a positive social or environmental impact.
Traditional Venture Capital vs. Investment DAOs
Comparing venture capital and investment DAOs, some distinct advantages and disadvantages can be identified. We suggest that you familiarize yourself with them in the form of a convenient table, which contains the most important data.
