It’s undeniable that the current NFT market is exceeding the expectations of skeptics and believers alike. Within the first week of 2022, OpenSea has seen daily volume exceed $200 million four out of seven days. The entirety of 2021 didn’t contain one day at that volume. If that isn’t an exciting metric for the potential of NFTs, I don’t know what is.

However, with great success comes great responsibility. And while seeing those numbers indicate tremendous short-term growth, my mid-term outlook is a little less optimistic. Many may suggest that the rapid growth of NFTs, especially within such a concentrated time frame, is a build-up of, or rather an indication of an existing bubble. And while trying to label this market ends in a never-ending debate, I think there are a few indications that the current willingness of market participants may be a little too hopeful and confident, one of which is the expectation of success for LinksDAO.

DAOs are perhaps the piece of NFT and blockchain technology that I see the most potential and for which I hold the most excitement. For those who don’t know, DAO stands for Decentralized Autonomous Organization, a group of members who come together and allocate funds for a shared goal. They are fully democratized and transparent and require majority approval before carrying out any action, opening up the possibility for cooperation between otherwise trust-less parties.

The possibilities for the application of DAOs are essentially endless: venture funds, charities, or any collection of like-minded individuals. Successful DAOs already exist, such as FLAMINGO DAO, an exclusive invite-only network of individuals that “aims to support, purchase, archive, collect, and potentially tokenize important pieces of [the NFT ecosystem.].” Individuals inside of that collective include top executives of OpenSea (NFT marketplace), The Sandbox (metaverse), and Dapper Labs (NFT company behind NBA Top Shot).

Flamingo follows one of the most fundamental properties of DAOs, as laid out by the Ethereum Network’s website “votes tallied, and outcome(s) implemented automatically without trusted intermediary.” Instead of the outcome of the voting being handled manually, smart contracts can automatically execute the voted upon task. This means that errors, mistakes, and faults can only be blamed on the collective as a whole as the decision for a task was mutually agreed upon; the responsibility and future of the collective don’t lay on one person’s shoulders.

“LinksDAO is creating the modern golf & leisure club. A global community of thousands of enthusiasts has come together to create one of the world’s greatest golf clubs — and reimagine the country club.”

LinksDAO will either be the most valuable or most damaging real-world application of DAOs and blockchain technology which is extremely scary to imagine. This project has massive potential as it demonstrates utility and potential for adoption by creating a real-world community resource funded by an online, trust-less community (in this case, golfers). Media outlets and celebrities such as Steph Curry have invested in and brought attention to this project, the latter of parties causing the lowest asking price of the NFT to increase from $800 to $2,800. While it’s exciting for holders of LinksDAO and the NFT community to be getting so much attention, it’s making us too optimistic about recognizing the value-prop of this project and its chances of success.

I believe the value of DAOs and DAO memberships lies in the execution of the project. That means if the project is executed well, the value of the membership will increase; if the project is poorly executed, the value of the membership will decrease. In most DAOs, such as FLAMINGO DAO, capital allocation decisions and the execution of these investments lie in smart contracts: no one party is responsible for failure as all decisions are made by the group.

However, in the case of LinksDAO, there exists a Chief DAO Officer, meaning that there is an intermediary in charge of carrying out the group decisions and who has but shouldn’t have, in theory, the final say in everything. This creates our first fault point as there is centralization in a decentralized organization. If that centralized point, a human, makes a mistake, which they are bound to do, the whole organization suffers, and the value of their membership will depreciate.

To address the primary goal of the collective, building a golf course seems easier said than done. Buying, building, and maintaining a golf course certainly seems more expensive than $10 million-plus (reported size of the LinksDAO treasury) whatever revenue they collect from secondary sales. The logistics involved organizing a clubhouse and restaurant, which are the primary profit-generating sources in these establishments, a greens team, and all other parties tasked with running an actual establishment seem more than challenging. That isn’t to say that they can’t do it, I hope they will, but it certainly isn’t as easy as they make it seem to investors.

We then come to the fact that the LinksDAO treasury is reportedly worth $10.4 million. I’m in no position to assess whether the founder, Mike Dudas, is capable of doing what he has laid out to do. And while he is doxxed by choice on Twitter, there exists no information about his prior experiences on the LinksDAO website and if he has similar experiences. If there is one thing that angel investors in venture capital will tell you, it’s that you invest in the founder, not the product. So, there is a certain leap of faith when people choose to purchase their LinksDAO NFT, that leap of faith surfacing the presence of trust in Mike, but the potential for trustlessness in the future as something that is created can always be destroyed.

In the US, there are also protocols in place to qualify accredited investors and protect against speculation and manipulation, particularly in the world of startups and VC. This ensures that investors know what they are getting into and that they believe in the team they’re investing in. However, there doesn’t seem to be such a measure in place here. Why should you be able to bet on what is essentially a private company (under the umbrella of a DAO) in the crypto space but can’t take a bet on private companies in venture capital? Perhaps that’s a sign of how new the technology is and how legislation has not caught up.

But I see this point as particularly important because people are not buying a product when buying a LinksDAO NFT. Unlike crowdfunding for a new invention online, where the only thing you expect to get is a new toy, LinksDAO investors expect a share in the company. That includes “approval of LinksDAO functional operating committees,” distribution of “marketing, partnerships and sales,” and “club membership.” This makes the Chief DAO Officer and the execution team more liable for the fund’s activity and responsible to shareholders as on top of a product, investors also expect dividends. Yet, the LinksDAO execution team is allowed to manage at least $10 million (and possibly more due to loans they may incur while buying and building a golf course), with no badge of authority. This puts investors, who are not protected or vetted, at high risk, especially when transparency between parties is not a requirement. Some protection needs to be offered to NFT holders as they are not customers of a club membership but shareholders in a company that’s expected to generate returns.

The message I wanted to make with the example of LinksDAO should be applied to assessing all DAOs and contracts within the blockchain. The blockchain can protect otherwise trust-less parties and investors, like LinksDAO holders, in voting and funding because the structure is flat and execution is autonomous. But what the blockchain fails to do (because it has no intention of doing so) is protect investors when there exists some form of a hierarchy and non-autonomous execution, like an intermediary. After all, you can’t bring 10,000 shareholders to every meeting. Without the fundamentals of a DAO, including autonomous execution and a flat structure, there can’t be that same trust and guarantee that would ensure one truth. This puts the project at risk for letdown and failure as retail investors aren’t looking into what needs to happen for success. Their expectations of what the collective can do are overly optimistic. In the case of LinksDAO, the intermediary can and will be the single point of failure.

My intention with this article is not to wish poorly upon the LinksDAO project. Nor does it want to bash on DAOs which are my favorite application of blockchain technology. I want to be wrong.

Like I said initially, the success of this project would be a monumental moment for the NFT community and a significant stepping point towards more widespread adoption and utility. However, the public’s current perception and hopes for the project are overly optimistic, and they hold unrealistic expectations for the future.

We’ve failed to only account for the surface-level narrative and not analyze the more profound aspects that would lead to success or failure, whether that’s an intermediary that serves as a single point of failure or the challenges that come with starting a new business.

When this outlook is corrected, those affected will be the holders of the project who weren’t protected when they invested and won’t be helped when the value of the NFT decreases. And while the media has undoubtedly helped bring attention to LinksDAO, they’ll also be the first to point out its failures, which ultimately will hurt the NFT community.

Setbacks are inevitable, but the number of them is avoidable. See you on the course.

-DS 2022