The typical talking points on the “metaverse” may be misguided: crypto culture will permeate IRL similar to social media’s impact on consumer/retail in the 2010’s. History, however, does not repeat itself, but it rhymes.

NFT PFPs are an enthusiast consumer use case that are bootstrapping a decentralized crypto ecosystem. 

Faith in networks, trustless architecture, and mechanism design > faith in centralized intermediaries. This year’s set of spectacular crypto failures may have been avoided through diligencing network fundamentals versus compounding the egos of a select group of insiders. 

Background: An Epiphany at a Crypto Conference

After attending NFT NYC and Consensus conferences, I had a realization that we might be getting it all wrong.

In the midst of a bear market where token prices are down 75%+ (and 90% of alt-coins have declined by 90%+), there were 15K+ attendees at both conferences.

It reminded me of the power of social media, when Justin Bieber was the first artist to tweet an upcoming concert performance and his fans would overload a suburban mall, or of the BTS army storming a public appearance.

Or the business fandom version, like Warren Buffett and Charlie Munger’s disciples (Berkshire Hathaway shareholders) congregating in Omaha annually for the past 50 years. 

And then it hit me: digital behaviors like holding an NFT, owning (and potentially staking) tokens, or contributing to a DAO, drives IRL behavior. 

True web3 metaverse (i.e., ownership) experiences contrast with big-tech versions like Niantic’s upcoming All-World game. Currently, athletes and celebrities monetize their talent and likeness in time-boxed increments: content for which they receive royalties, licensing fees, performances, and branding deals. 

What happens in a digital world where inventory is unlimited, yet monetization may be capped and closed? And users are locked into buying/selling digital goods in a single application?

Or the opposite, with hollow web3 use cases?

Enter the next evolution of NFT networks: commerce + ownership + experience.

But how will these scale?

Crypto 2010’s Network Thesis

Crypto represented a natural evolution of USV’s interest in networked businesses. The firm approached the revolution as another phase of technological adoption. “They always saw crypto as a next generation internet operating system play,” Dave Morgan said, “Not an asset appreciation play.”

Mario Gabriele, Union Square Ventures: The Thinkers

Web 2.0 platforms enabled internet-based networks to scale beyond the constraints of dial-up internet capacity and license/maintenance enterprise software. Internet network growth was based on user engagement and an associated ad sales engine. 

When the network persists, businesses succeed despite rent-seeking (denying user ownership) behavior, anemic revenue growth on the path to realize TAM (Twitter’s total revenue is <5% of Meta’s), or even management operating dynamics. 

Excluding the current drama with Elon Musk, Twitter has had half a dozen CEOs in its 15 year tenure, as chronicled in Nick Bilton’s book Hatching Twitter. But the network persisted.

Investors like Placeholder figured out how technology networks drive returns five years ago per their investment thesis:

In today’s bear market, let’s go back to basics. The last paragraph In the original Ethereum whitepaper sums it up:

“The concept of an arbitrary state transition function as implemented by the Ethereum protocol provides for a platform with unique potential; rather than being a closed-ended, single-purpose protocol intended for a specific array of applications in data storage, gambling or finance, Ethereum is open-ended by design, and we believe that it is extremely well-suited to serving as a foundational layer for a very large number of both financial and non-financial protocols in the years to come.”

Evolving beyond PFP collections, NFTs will aggregate and expand trillions of dollars of existing market capitalization in internet advertising, commerce, social media, loyalty/rewards, marketing automation and associated workflow software (i.e., intermediary tooling) by connecting crypto networks and participants (owners and contributors) through next-gen commerce experiences.

Lessons from Scaling Web3 Ecosystems

Attract software developers: Per Electric Capital, there are only 26M developers globally (2.6% of all knowledge workers). The largest employers of software developers are big tech or financial services. For the <1% of all developers who have regularly committed code to web3 chains, Ethereum represents 21% of all devs:

Building DevRel (Developer Relations) creates a team of advocates, marketers, and community builders to attract devs to chains or dApps. 

https://twitter.com/Web3Auth/status/1504801494750490625?s=20&t=L1BNN0-N1k7JKTHz8_KBHg

NFTs as a gateway drug to increase network capacity. Solana’s recent SMS phone stack announcement may have stolen the headlines, but more importantly there was a 45x increase in validators to facilitate progressive decentralization and scalability of the network.   

The growth of NFT projects like STEPN, Primates and Okay Bears on Magic Eden, for instance, attract more users to create products, setup wallets, purchase tokens, stake, validate, transact, and ultimately grow (and in Solana’s case, decentralize) the network: 

Building a KYC’ed community to increase customer lifetime value beyond a single NFT transaction. Moonpay counts 10 million KYC’ed users who sought to purchase crypto or buy an NFT. 

As a web3 infrastructure company, Moonpay seeks to reduce friction and enable creators like Universal, Fox and Selfridges to create next-gen commerce experiences through their new Hypermint workflow SaaS + API and SDK. 

Large brands and personalities can now tap into a crypto-converted, verified customer pool for digital + physical commerce and avoid the bot-heavy (ask Elon) engagement of Web 2.0. 

Grant IP rights to NFT holders to license in third-party content on existing networks. In Hollywood, movie producers, agents, managers, and entertainment attorneys originate, negotiate and close deals for talent to perform and earn fees. 

Today’s modern version would be owning a Bored Ape and licensing to a hamburger restaurant, hoodie merchandiser, or centralized exchange/filmmaker. 

NFT IP leverages existing distribution, capital, buildout, and consumer trust to scale crypto-native IP faster than building crypto-native infrastructure.

Cautionary Tales: the Alternative to *Network Above All Else*

Web 2.0 propagated a “rockstar founder” culture, where “iconic founders built iconic companies” as seen in the storylines of WeCrashed, Super Pumped and The Dropout. Crypto is the opposite, where the industry’s most successful founders chose pseudonymity to deliberately build a resilient network over 100+ years. 

This year saw a series of cascading dominoes, disrupting product delivery cycles and adoption curves, and destroying two trillion dollars of market capitalization.

I noticed fallen projects had a common theme: where the profile of the individual eclipsed that of its network.

Notice how number of stories for “Do Kwon” exceeds that of “Terra”:

Or in Celsius’ case, trusting in one individual’s interpretation of how their network captures and accrues value versus its actual architecture:

https://twitter.com/QTRResearch/status/1542112766722539520?s=20&t=zg0pVWIK_EtksdXZanDWgg

Or when a firm like 3AC structures bespoke derivatives with leverage, creating systemic risk:

https://twitter.com/CoinDesk/status/1541797370362478592?s=20&t=KW5j7_2wGedFUs1Ek24doA

The benefit of on-chain data is trustless verification, allowing anyone, including firms like Moonshot Research to review token supply unlocks, protocol fees, TVL, ecosystem activity and volume relative to market cap to validate claims or uncover bad actors.

To quote Michael Maubossin, “prices are gifts of information - expectations - waiting for you to unwrap and use. If you’ve got a fix on current expectations, then you can figure out where they are likely to go.”

Reading through Chainalysis’ recent web3 report, today’s depressed token prices may represent depressed expectations, but hundreds of billions of dollars of value across hundreds of millions transactions across NFTs, Token, Smart Contracts, and Infrastructure show the industry is just beginning:

Ping me at @kishandao in case I can help. 

About Author:

@kishandao has 15 years of experience building billion dollar technology companies as a COO/CFO and was previously a growth equity investor at Goldman Sachs.

Thank you to Irina, Kevin, and Muk for reviewing drafts of this post.

Crypto is subject to high volatility and even large market cap protocols are not immune to over 75% pricing drops.

The majority of a web3 project or DAO’s treasury is typically held in their native governance token and turbulent market conditions amplifies the need for good treasury management.

One that does not jeopardize the viability of the project and reassures the community on its financial health.

To discuss operating in a bear market including survival, growing, hiring, and treasury management, I spoke to Kishan Shah, a former growth equity investor at Goldman Sachs & CFO at venture capital backed and publicly traded tech companies, now helping web3 companies grow faster and manage their treasury.

In this episode, you will learn; 

1. How should web3 projects view the bear market?

2. Considerations for hiring a web3 cfo?

3. What is capital allocation and why is it important?

4. What are best practices on financial reporting?

5. What is Treasury management and why does it matter?

6. How is web3 tooling different from web2?

Connect with Kishan Shah:

Twitter | Mirror 

SHOWNOTES

• Kishan’s story of how he got into web3 & the emerging primitives of DeFi & NFT (2:07)

• Web3 projects in a bear market (3:23)

• DAO treasury volume & DAO contributors analytics (6:49)

• Considerations for hiring a crypto CFO with minimal web3 experience (8:23)

• 3 key functions are business health, growth & treasury management (10:09)

• Capital allocation and what Kishan’s prescribes to web3 contributors (13:33)

• Financial reporting for DAOs (17:36)

• Treasury management and why it’s important for DAOs (20:06)

• How is web3 tooling different than web2 tooling (23:12)

• Back to basics for accounting (26:20)

Listen to full episode on The Accountant Quits

➡️Spotify: link

➡️Apple Podcasts: link

➡️Shownotes, transcripts and Links: link

Two years since Jesse Walden from a16z published Progressive Decentralization: A Playbook for Building Crypto Applications, decentralized communities not only built Web3 software applications, but are now investing capital and contributing labor in exchange for ownership.

Decentralized capital allocation and perfecting associated governance practices scale investment DAOs and improve decision making, leading to higher returns.

As ideas become proposals, which successfully become investments, more specialization is required for functional experts to stress-test the DAO hivemind to source, pick, win and support the portfolio.

Note: compensation was received for this post from BitDAO - AEmbassy.

Investment DAOs: Cascading Decisions

An almost impossible to reverse decision is called a one-way door. Once you walk through the door, you cannot exit. 

For example, if a seed phrase is not written down during wallet creation, it cannot be recovered.

Said differently, economic value is created at a specific point in time. When a deal is closed, or an investment is made, or a customer signs an agreement for future services, there is a snapshot of an exchange of funds for value. 

Olaf Carlson-Wee mentioned to Jason Yanowitz on Blockworks’ Empire podcast: 

“Conceptually, DAOs need to only get one thing right, which is capital allocation and the governance around that capital allocation.

DAOs should serve as limited partners in funds or investors in startups. They should do nothing other than allocate capital, and perfect the governance process of investing capital.”

Capital allocation is the process of maximizing shareholder returns through deciding which operating initiatives to fund. In Web3 this includes projects, products, features, and public goods.

Capital allocation is inherently risky, ambiguous and requires high judgment. 

For an investment DAO, capital allocation is an improvement on the classic 2-and-20 to maximize incentives for ongoing operations and potential profits. 

In Practice

Investment DAOs seek to generate returns for tokenholders through backing companies / projects, versus Service DAOs which incentivize labor participation, or grants which are asymmetric bets on individuals / teams building in an ecosystem (Polygon, Binance, Uniswap). 

Investment DAOs like BitDAO leverage the wisdom (and relationships) of crowds through a governance proposal process to finance and fund thematic subDAOs (known as Autonomous Entities or AEs) across security, infrastructure, media, arts, and culture to achieve a return for tokenholders.  

Proposal authors may be doxxed or pseudonymous, where publicly verifiable data sources like past projects, github participation, on-chain history are paramount. 

While early BitDAO proposals included a $500M commitment into a Web3 gaming AE (proposal and vote), new proposals are venturing outside of crypto-native use cases like climate and farming or funding telecommunications infrastructure in developing economies. 

Capital can be sourced through community members, partners (VCs), or in the case of BitDAO, a recurring capital commitment from crypto exchange Bybit (2.5 bps of daily trading volume, or $2M+ per day split through 50% in ETH and the remainder in USDC and USDT).

Proposal teams are composed of subject matter experts on each asset class, and tokenholders jointly participate in upside/downside. Proposal authoring continues to evolve (see What Can’t DAOs Do? and my prior post on treasury diversification governance initiatives).

Investment DAOs like Chainforest are built on top of Syndicate where top-tier venture capital general partners are tokenizing carry to support a Web3 community. Syndicate counts more than 1.1K investment clubs using its product.    

New projects like Hydra are elevating the fund-of-funds model to back the best investment DAOs with trusted capital sources:

While not an Investment DAO, Global Coin Research is a token gated and incentivized community investing multi-stage, multi-sector in Web3. DAO onboarding tactics (leveling up) can be applied to the traditional end-to-end experience of running an investment firm:

In 2021, GCR completed 30 deals and invested $25M, with a valued return of 40x according to Coindesk.

Generalists vs. Specialists (or how to ship at a DAO)

If capital allocation is the art of selecting which markets to fund, capital deployment is the required grind (via labor) to generate output to maximize value.

This includes the operations and practices that are generally best bottom-up. Collaboration is separate from hierarchy. 

Functional leads (Marketing, Community) and subject matter experts simplify finance concepts and jargon to communicate investment merits. 

Forced documentation via roadmaps, Notion page tracking, and community call recaps facilitate alignment of Engineers, Community Builders, and thematic AE audiences. 

Inclusive tactics (i.e., removing silos via private channels) to publicly respond to questions may attract the “loudest” voices in the room, but can also increase voter participation and turnout. 

And all contributors benefit from potential token upside. 

Operational decision making at DAOs (voting for a marketing initiative or product feature) is fraught with sybil resistance, and new tools are being built to combat malicious actors.

Prioritized voting maintains a high bar on resource allocation: energy is only spent on the most important, which is capital allocation:

https://twitter.com/hasufl/status/1532702820410998785?s=21&t=prXoMlO-J0CCM-rL8yQiDg

Moving Forward

Ultimately, investment DAOs become an exercise of standardization in decentralization, where contributors specialize in key investment functions like sourcing deals, vetting opportunities, managing portfolios, and implementing tooling, versus the traditional limited partner / general partner fee structure model. 

While deal sourcing and proposal approval processes may be decentralized, one-token-one-vote based mechanisms dictate capital is invested based on the interests of the largest institutional holders or the earliest of contributors which hold the highest volume of tokens. 

For example, BitDAO has a delegated voting system where Bybit has delegated voting power to Autonomous Entities, Labs, Ventures, and Growth Teams. Delegates include active participants in governance and proposal contributors like Windranger Labs, Jonathan Allen, and SHL0MS.

Feedback loops are longer in earlier stage investing as teams are assembled, products are built, and adoption curves drawn, and the largest tokenholders who dictate go-forward decisions may not be as “close to the action” to make an informed bet on project success.

Strategies from Optimism’s recent Airdrop could be used in investment DAOs to push forward decentralization, like granting additional votes to wallets who contributed most to a proposal, most engaged with diligence, or demonstrated relevant expertise in a functional area. 

Attempts to democratize one-vote-one-token date back to 2020, but with crypto-native contributors investing crypto-native assets into crypto-native projects, building infrastructure in today’s bear market ahead of the next wave of demand will be critical.  

In a crypto market which has abruptly shifted from hype-and-delight to useful-and-productive, consistent effort to increase broader tokenholder education is imperative.

Ping me at @kishandao in case I can help. 

About author:

@kishandao has 15 years of experience building billion dollar technology companies as a COO/CFO and was previously a growth equity investor at Goldman Sachs.

Thank you to LBrian, Drea Burbank, Irina, Kevin, and Muk for reviewing drafts of this post.

• Playing offense by chasing FOMO-driven upside investments is never prudent. Especially in today’s bear market, defensive diversification ensures survival. 

• Great treasury management proposals inspire a community to realize its vision, not promote a financial transaction. This post examines proposals from BitDAO, Uniswap, FWB, and others that achieve this.

• I include a summarized framework and treasury diversification proposal template to streamline governance initiatives.

Framing

Treasury management should not be limited to one-off events like swaps or token sales. It is an end-to-end capital allocation strategy and operating performance framework to manage liquidity, optimize capital structure (debt and equity), profile risk, manage market and counterparty risk, and ultimately improve value capture of a DAO’s governed crypto project.

Bottoms-up investing communities are more than meme stocks, and active investment management must be transparent on-chain.

Standardization is not the enemy of decentralization - it sets clear expectations for market participants, reduces bias, accelerates deal terms, and ensures composability across transaction structures.

While crypto treasury diversification is necessary, proposals can lack a unified framework, which fail to educate DAO contributors on (1) why they should care and (2) financial benefits. Solving for these 2 pain points should invite more community participants into the conversation and improve DAO treasury management more broadly.

Proposal Framework

At Stanford’s DAO Symposium, Blockchain Capital Partner Kinjal Shah elegantly summarized treasury diversification proposals in ~100 characters: Make a case, list options considered, disclose who was involved, and participate in governance forums.

Here is an eight part checklist for treasury diversification proposals: 

1. Introduce and define your capital allocation strategy (how your finances align with your mission) in an inaugural post. Define strike zones for characteristics of ideal investments including:

   1. Founder background and credibility

   2. Product ecosystems and tech stacks

   3. Stage (private: Seed/A/B/etc, liquid: revenue size or product adoption footprint)

   4. Initial check size and follow-on capital opportunities 

   5. Timing and deployment schedule

   6. Co-investor relationship

   7. Or anything that may be beneficial to educate the community, anticipate questions, and garner support

2. Profile existing treasury allocation and P&L, and desired diversification targets (i.e., native governance tokenholdings, stables, NFTs, or themes to explore). If contributors only desire exposure to their own token, it would be best to know this early. 

3. Create an intake mechanism and standardized template using strike zone criteria for strategic partners and DAO members to submit diversification proposals. Pin this Google Form or Airtable to your Discord, governance forum and website to aggregate opportunities. 

4. Accelerate the standard tradfi investment committee process by creating a “soft proposal” process where anyone can submit a potential investment, but adhere to a standardized template of no more than two pages (1K words) covering:

   1. Why should the DAO consider this, and how does this fit within the DAO’s treasury goals?

   2. Team background and contributions to date (if applicable)

   3. Transaction summary: total investment size, financial and commercial terms 

   4. Projections: the process of developing a forecast for number of users, revenue, and value creation is inherently valuable since the author shares their assumptions on drivers and data. Accuracy will inevitably vary.

   5. Expected risk / reward: highlight traction and performance

   6. Token investment deployment and vesting schedules

5. Create a standard security checklist including wallet infrastructure and tooling, which continues to improve by the day.

6. Publish source post on governance forum, with commentary and links on Discord, Twitter and Telegram. Important: encourage open discussion in the governance thread and avoid private 1:1 conversations to reduce asymmetry of information to be inclusive of non-vocal DAO contributors.

7. Introduce a standardized voting process with time-boxed milestones for:

   1. Days to review proposal

   2. Days to vote

   3. Days to execute multi-sig

   4. Funding

8. Institute a monthly portfolio review framework and cadence, publishing an update on pipeline status, key milestones and outcomes achieved in period, plan for upcoming month, and asks from the community. See example from Aave.

Treasury Diversification Proposal Examples

BitDAO

BitDAO has the 3rd largest liquid DAO with $1.5B of assets and is growing a web3 ecosystem of tools and technologies across arts, education, media, finance, and gaming. 

BitDAO’s partners include Pantera, Dragonfly Capital, and Peter Thiel, but most notably the global crypto exchange Bybit which contributes 2.5 basis points of its ~$10B of average daily trading volume into BitDAO, with an average daily contribution of $2.5M. 

There have been $736M of contributions to-date, 50% in ETH (116K ETH) at a blended price of $3.2K, with the remaining 50% split in USDT and USDC.

Despite its relationship with Bybit, BitDAO is funding a broader financial ecosystem through its 1% token-swap with FTX (currently $100M of value), co-authored by Alameda Research.

BitDAO is supporting a series of autonomous entities (AEs) which function as subject matter expert subDAOs including GameDAO ($500M blockchain gaming initiative to fund and build community-owned gaming), EduDAO ($11M annual commitment to support university students from Harvard, Oxford, Michigan (Go Blue!) for research and blockchain innovation), and zkDAO ($200 commitment to promote Ethereum scalability and adoption). 

BitDAO will also fund arts and entertainment AEs, starting with the approval of BIP-8 through its investment in PleasrDAO. This proposal highlights PleasrDAO’s mission, contributors, artists, NFT inventory ($20.2M of asset purchase value) and financials (forward-looking six quarter P&L projection).

Finally, BitDAO is increasing tokenholder value through BIT-9’s proposal to buyback $700k / day of BitDAO’s native BIT token on secondary exchanges via Bybit’s $2M daily contribution. These tokens could potentially be burnt, reducing supply.  

BitDAO is seeking to evolve past the one-token-one-vote model with new governance frameworks to increase participation and drive more equitable outcomes. 

FWB

Friends with Benefits, a web3 creative community, passed a proposal to reallocate $1.5M of its $10M USDC balance into Aave Curve pools through Enzyme, a leading on-chain asset management application. 

This initiative accomplished two key goals: first, securing interest income of ~8% (an incremental $120K) to fund community initiatives like FWB Garage and prospecting headless creative partnerships like FWB’s upcoming takeover of Opensea’s homepage, and second, embedding treasury management infrastructure through Enzyme to simplify trustless custody, yield enhancement strategies, and automated performance reporting against crypto benchmarks like ETH. 

Uniswap

According to DeepDAO, 99.9% of Uniswap’s treasury consists of its native governance token. Airbayer submitted a thoughtful proposal for UNI to invest $1M-$5M in Index Coop’s BED index, a passive vehicle to diversify into crypto’s most popular assets:  

While it seems this initiative did not pass, I appreciated Marc from Index Coop participating in governance forums with direct, honest feedback, without shilling: 

Think of BED as your UNI proxy token that can be the first thing sold when needed. And feel free to sell when needed! It won’t hurt our feelings, or the price. BED is new and as such currently has limited liquidity, however, like DPI, it can be broken down to its base components which have deep liquidity and can be sold with minimal slippage.

Gnosis and Agave Token Swap

Agave is a lending protocol on the Gnosis chain which suffered a flash loan hack. As part of Agave’s plan to reimburse users, a DAO-to-DAO token swap was offered through Hedgey alongside a capital injection. 

https://twitter.com/hedgeyfinance/status/1522205008002965504

After the Terra fallout, I expect more post-mortem style posts chronicling what happened, how compensatory measures were evaluated, paths forward, and considerations for voting.

Ping me at @kishandao in case I can help.

About author:

@kishandao has 15 years of experience building billion dollar technology companies as a COO/CFO and was previously a growth equity investor at Goldman Sachs.

Thanks to Irina, Kyle, Evan, Kevin, Mirana, Enzyme, and Kaito for reviewing drafts of this post.

• Open standards for DAO financial reporting and benchmarks accelerates decentralization.

• Web3 enables more transparency into financial reporting for engineers, community builders, and users, but should not be a time-hassle.

• Upcoming DAO infrastructure, tooling and benchmarks will simplify operations and highlight performance.

• I have included a financial reporting package template to get started, and example financials.

Why should anyone care about DAO financial reporting?

According to DeepDAO, there are ~2 million DAO members as of April 2022. For context, Forbes estimates 1 billion knowledge workers.

The number of DAO contributors may 1000x over the coming decade, which will require increased coordination. Without accurate and timely financials, product / user / governance decisions will be delayed or avoided.

Until now, decentralized financial management has been in its infancy:

Source: Electric Capital Developer Report and Defi Llama

Wallets are publicly verifiable on the blockchain, which has disintermediated basic financial reporting.

Why bother producing the classic set of centralized Profit and Loss, Balance Sheet, and Cashflow statements, when anyone can check token movement, price, wallet holdings, and monthly DAO grants and contributions?

However, visibility is not transparency.

Enter the current state of DAO financial reporting

A wave of financial professionals have entered web3. Credit to the builders at MakerDAO (financial presentation link) and Aave (financial presentation governance thread via Elliott) for bridging TradFi and DeFi by delivering clear, concise, and timely financial reporting.

New forms of Web3 native accounting software and financial infrastructure are emerging, with use cases ranging from simplifying and aggregating blockchain transactions (Cryptio), rationalizing tax reporting (Ledgible), improving accounts payable (Request Finance), or serving as an all-in-one solution (Multis).

A roadmap for the future

In Web 2.0, the twenty year proliferation of subscription companies (Software-as-a-Service or SaaS) created a host of new comparable benchmarks to gauge financial performance. These include the alphabet soup of LTV:CAC, Rule of 40, Burn Multiple and many others.

These standards have allowed for streamlined decision-making and useful heuristics to determine business health. Standardization is not the enemy of decentralization.

For publicly traded companies, Public Comps aggregates these metrics from SEC filings for investors and operators. Eventually, there will be open standards for DAOs to generate instant comparables to gauge health, performance, and benchmarks.

Open standards and simplified data aggregation enable decentralized decision making.

Think an AMM for labor, where there are spot, dedicated and market clearing prices for contributions and impact. Annualized revenue per monthly active DAO contributor, on-chain in-period revenue growth, or time-to-launch-and-execute governance proposals could be trustlessly verified.

And while DAO treasuries have eclipsed $10B, the best approach will be to avoid the temptation to create a “DAO Hedge Fund” exclusively focused on generating financial returns (i.e., degen) and instead build a regen flywheel where more financial returns > hire more contributors > build more products > gain more adoption > generate more revenue > reinvest back into product enhancements, new products, and even deflationary pricing decreases.

Transparent financial information for contributors and viewers creates a decentralized check/balance versus the urge to ape in on trendy yield-chasing opportunities that are not aligned with the DAO’s vision.

A Template to Fork

I created a ten slide presentation summarizing Key Performance Indicators, Financial Statements, Roadmap and more. See links for:

1. Presentation: Version to view/comment and version to copy.

2. Spreadsheet: Version to view/comment and version to copy.

Ping me at @kishandao in case you have any issues.

About author:

@kishandao has 15 years of experience building billion dollar technology companies as a COO/CFO and was previously a growth equity investor at Goldman Sachs.

Thanks to Muk and Kevin for reviewing drafts of this post.

Just through April 2022, venture capitalists have invested a whopping $16.2 billion dollars into 570 crypto projects according to DoveMetrics year-to-date, in a mix of equity capital and tokens.

Until deployed into building/improving products and networks, this capital remains stagnant on private company and DAO balance sheets, and subject to the highly volatile token market. Even the largest market cap protocols are not immune to fluctuation. Fifty percent drawdowns occur twice per year in crypto:

Unfortunately, expenses are largely fixed, with minor exceptions for hosting costs which correlate with usage. During the past twelve months, contributors would have been underpaid relative to stables for half of the year, and Treasuries may have had to seek “curing” functions to account for this.

Below, I lay out current practices for crypto treasury management and suggest new frameworks and resources for private companies (i.e., the 50+ private, VC-backed unicorns) and DAOs which may have a liquid native governance token.

In Practice

Let’s consider the following two scenarios:

1. Privately owned VC-backed company that operates in the crypto industry.

Your product generates revenue natively in crypto.

However, your company pays its expenses in fiat including staff to build, market and support software products, and go-to-market activities including conference sponsorships and advertising in crypto channels to attract users.

Your balance sheet has a mix of fiat via your last VC funding round and the ongoing crypto paid to you by users and enterprise customers.

However, it is unlikely all vendors will accept crypto (i.e, tax authorities) and you will need to swap. Or you could immediately swap all crypto into stables or fiat, but lose out on all upside.

The Web3CFO takes a builder’s orientation to the typical crypto VC’s investment process by creating a bespoke framework to govern swapping decisions based on price movements, token concentration, project runway, fundraising climate, revenue acceleration, cost modeling and individual preferences.

You could continue accepting crypto revenue by incentivizing all vendors and contributors to be paid in the same token, or use a tool like Request.Finance to send/receive invoices and expenses with native swapping features to enable contributor and vendor choice.

Even Terra, the stablecoin of Luna has diversified $2 billion of its treasury through purchases of Bitcoin and USDC via the LFG:

2. DAO with a native governance token

DAOs have workstreams which are swimlanes for different functional responsibilities - a  Product workstream might manage planning, execution, delivery and engagement of software, while a Marketing workstream might build, deliver and track the performance of content.

Contributions are assigned native token rewards based upon completion of tasks.

I see lots of debate on crypto twitter on treasury diversification and wanted to see what exists in practice. Here’s a sampling of token diversification courtesy of DeepDAO to understand the composition of what the contributor receives:

Reviewing the data, it seems there are currently two approaches: DAOs that engage in Treasury Management, and DAOs that don’t.

This implies a circular: as a contributor, do you want your contribution reward to purely reflect the network you are building? Or do you want exposure to a diversified index fund basket of digital assets? Somewhere in the middle?

And to double click, the above data excludes any sort of hedging instruments or participation in DeFi pools. For example, Origin Protocol swaps into stables and then earns a 5% yield:

See documentation here, or another example from FWB’s Aave Curve pool proposal.

Goals and Considerations

A core benefit of Web3 is incentive alignment across users, contributors, and investors. Therefore to #buidl for the long term, diversification is required to sustainably compensate contributors, vendors and ecosystem participants.

To visualize a crypto treasury, plot on the below matrix:

Any point in the above graph could achieve desired goals.

High conviction: A private company could make select strategic investments in new projects to complement its product offering with capital.

Ecosystem fund: A project which has seen multiples of price appreciation could swap out a portion of its own token into stables and participate as a Seed or A-round investor in a number of high reward / high risk illiquid venture investments. See Uniswap’s new venture unit announcement, or Emilie’s post launching Coinbase Ventures.

Proxy for Cash: A DAO with a high expense/burn rate could swap its token into stables to continue steadily paying contributors.

DeFi & yield farming: A project generating high cashflow could seek liquid mid-single-digit % blended returns similar to the Origin and FWB proposals above.

An overall treasury could live in one of the single quadrants, or could take a portfolio allocation approach across each quadrant.

For more information, I lay out a summary on building an ecosystem fund here: Mirror: 3 Page Summary on Building a Crypto Investment Program

Resources:

There are a number of ambitious teams tackling this and I suggest reviewing Electric Capital’s database of DAO tooling with ~1K dApps covering governance tools, data services and more: Airtable link

About author:

@kishandao has 15 years of experience building billion dollar technology companies as a COO/CFO and was previously a growth equity investor at Goldman Sachs.

Venture capital investors poured a record $32.8 billion into the blockchain sector in 2021, a figure larger than all prior years combined. 

There are at least 50 (announced) crypto unicorns, which is rapidly climbing as more growth equity and crossover investors support Web3. 

As a former COO/CFO at venture capital backed > publicly traded companies, I’ve seen 100 - 10K+ employee organizations set strategy, accelerate product and revenue growth by optimizing finance and operations. 

I lay out how Founders should think about the Head of Finance / Operations role, and strategies to maximize growth, improve business health, and optimize treasury management.

The role

A Head of Operations or Finance can serve as a thoughtful business partner to technologists (developers) and community builders (marketers) to support growth in a decentralized and volatile Web3 environment. This is a widely scoped role with oversight of Strategy, Finance, Operations and Execution. 

Skill buckets to look for:

• Ex-bankers, consultants, investors, accountants, and operations leaders that bring finance and accounting experience, with bespoke financial modeling skills to run scenario analysis based on a range of market, price and regulatory shifts.

• Scaling experience from high growth private tech companies that have seen new products built and adopted in triple digit YoY growth environments. Fundraising and storytelling skills to finance business model acceleration and pivots. 

• Public market skillset to plan, manage and execute goals alongside volatile liquid tokens. Endurance to continue moving forward despite rapid changes in market conditions. 

• Excel in a distributed remote-first environment by over-documenting, asynchronously communicating, leveraging software tools, and creating content to engage with global communities, tokenholders, and ecosystem participants.

• Insatiable curiosity to learn and tinker with new technologies. The crypto industry has a faster product development cycle than Web 2.0 due to technical composability and a vociferous community of early adopters. Finance/Ops should humbly bring the best parts of Web 2.0 and TradFi, but build enough mental plasticity to reinvent a new paradigm. Maintain emotional clarity when markets drawdown 50%+ multiple times a year and protect your organization from getting rugged.

Growth

Facilitating growth-stage fundraising. While Seed and A rounds focus intensely on the team and market, later stage fundraising is driven by metric-defined growth and product engagement, competitive differentiation, and TAM realization. Nine-figure+ rounds from larger institutional investors require a different lens of relationship building, storytelling against comparable benchmarks, fund lifecycles, and detailed due diligence processes. In parallel, Finance/Ops will own ongoing investor relations alongside reporting and tax requirements.

Delivering product excellence. Design financial operating plans to build and refine existing and new products. Forecast Engineering and Product effort (# of hours by developer type) to build feature sets, develop upcoming releases, and provide ongoing maintenance / support. Provide scenario analysis on product acceleration paths by building a prioritization framework for new feature sets. Add in a healthy buffer to plan for delays and changes.

Build multiple revenue models at once. Crypto startups are uniquely beautiful in that an earlier stage company can pursue multiple business models. A single product could have subscriptions, fees on percentage of assets, variable transaction fees, take-rate on a marketplace, and other embedded primitives. 

Invest in community. Versus the traditional Web 2.0 playbook of purchasing Facebook and Google ads, crypto communities organically build content to create brand awareness, educate on feature benefits and increase adoption. Technically robust products only matter if users use (ideally love) them.

Model out incentive design paths. Serve as a financial business partner to founders on developing tokenomics and voting mechanisms. For those new to crypto, Delphi Digital and Messari research are excellent.

Business Health

Whether crypto or not, rule #1 always remains true: never run out of money. I’ll address private crypto companies versus DAOs (see my prior post on Big Tech employees contributing to DAOs). I also recognize a private crypto company can have a sister DAO or foundation.

Expenses to fuel protocol growth: There will be a monthly / quarterly / annual budget including headcount volume and compensation amount by employee (base, bonus, equity and tokens) by function, staged out by hiring date. Hiring plans are tied to product roadmap goals and can be elastically flexed based on fundraising timelines and revenue spikes. The “non-labor” budget will include all marketing and advertising expenses including sponsorships, team gatherings, co-working office rental, etc. Timing of expenses directly impact cashflow. A good rule of thumb is to have 12 - 18 months of cash runway, and a thirteen week (one forward looking quarter) cash forecast always prepared. 

Progress tracking: Build operational dashboards to track workstream progress and milestones, with an eye of collaborating with decentralized talent networks. Think two steps ahead of the Web 2.0 “remote-first” office environment and directly plug into the metaverse with every tool you build.

Software stack: Tooling and infrastructure could be an entire post, but the quick hitlist would be Accounting, Revenue (Billing/Collections/Payments), Payroll, Expenses, Invoices, and Insurance. Quickbooks, Ripping and Carta are three easy places to start, with point app integrations for crypto employee payments (Gilded) and crypto tax (Ledgible). 

External party management. Finance / Ops will manage tax preparers, annual auditors and other financial consultants. Bookkeeping services may be outsourced to firms like Pilot or Bench for financial statement preparation. 

Treasury Management (or avoiding your own crypto winter)

The traditional Web 2.0 financial value creation tools of equity based compensation, stock buybacks, M&A, and cash reserve yield enhancement are magnified in crypto. 

Unique advantages of liquid tokens. Token swaps can play defense, serving as diversification against concentration in a native governance token. A solution like Hedgey enables covered calls to generate yield without spot selling, facilitating OTC deals with discounts, time locks and other perks typically reserved for VCs. Swaps can also play offense by serving as a new form of M&A or financial investing. I cover how to build an ecosystem fund in my prior post 3 Page Summary on Building a Crypto Investment Program.

Hedging Options for Contributors. Great projects will take 75% declines and struggle to raise money for no fundamental reason. Be prepared. 

Compensation packages in Web 2.0 are rigorous labor-intensive annual procedures, but Web 3.0 protocols enable customization at scale. Platforms like UMA provide KPI options to build custom synthetic tokens that pay out additional rewards if the KPI meets predetermined targets before the preset expiry date like releasing engineering commits, achieving product adoption, or growing engagement count. More on DAO Compensation structures in my previous post. 

Crypto-native yield enhancement. Typically, on-balance sheet cash would be held in a money market account generating de minimis interest income. Traditional companies are using DeFi onramps like Meow (4%) or Circle (6.25%) to gain access to higher yielding strategies with minimal risk and operational burden. DAOs will have many more exotic strategies, tools and practices. I recommend Evan Fisher’s post on DAOs and the Progressive Decentralization of the CFO and tinkering with apps listed on DAO Masters.  

Finally, for Web 2.0 employees contemplating jumping into crypto, I recommend Dan McCarthy’s piece The Community Garden: The Case for Leaving FAANG Companies for Crypto.

About author:

@kishandao has 15 years of experience building high growth technology companies as a COO/CFO and was previously a growth equity investor at Goldman Sachs.

Using the benefits of token-based liquidity, Corporate Development programs are emerging to support cross-chain, cross-use case, cross-user projects through financial investment and acceleration opportunities (i.e., joint marketing and branding).

A buy/build/partner decision cranks the flywheel: more capital > more products and services built > more user engagement > more marketing opportunities > increased financial returns (and not just limited to investors, but specifically to tokenholders who earn rewards via contributions or staking).

For chains or projects seeking to build an investing workstream, I am open-sourcing a playbook built in tradfi institutions and web 2.0 tailored to crypto. There are plenty of opportunities to improve this and I hope you ping me @kishandao to improve:

1. Align on vision:

Rather than setting aside an allocated sum of investment dollars, “work backwards” from goals of the investment fund (i.e. achieving desired financial returns through adding more awareness of your project, enabling new product roadmap features or experiences, onboarding X# of projects or devs, etc).

Then confirm the total investment pool in terms of dollars to deploy, timeline, risk/reward curves (assume the earlier the stage, the higher the risk/reward and lower the check size).

2. Build tools and mechanisms to scale the end-to-end deal underwriting process:

Crypto projects can spool up DAO contributors (or centralized companies like Coinbase employees allocate nights/weekends) to build “investment tooling” to scale program efficacy and performance.

The craft of investing requires judgment, conviction and luck. The better the process, the higher likelihood of program success. Here is a framework to map out an individual deal process end-to-end:

• Build a CRM (Customer Relationship Management software like Salesforce or Hubspot, but could be as lightweight as an Airtable/Coda/Google Sheet) to track pipeline of total projects, stages (raising, not raising, in-process, executed, missed).

• Build a prioritization framework for buy / invest / build / partner. Understand what is critically important to your Engineering, Product and Marketing teams. Estimate the total amount of engineering, product, and marketing effort in hours (and accompanying dollars) to build similar experiences - your estimates may be completely off, but the process of thinking through this can calibrate your thinking in “hot” deal situations. If you find a truly visionary team or incredible project, you should move forward.

• Create a standardized diligence process for the research and analysis you will conduct on each project. I like Soona’s template on “Raising Capital as a Pseudonymous Founder” where their template covers on-chain history, software commits, and community references.

• Create a one-pager investment memo template to summarize the investment opportunity. Forcing a one-page limit increases the likelihood of getting high quality feedback (people don’t want to read 60 page slide decks) and forces a constraint on clear, concise thinking.

  • I like covering: Founder Passion / Background, Market Opportunity, Deal Dynamic, Key Risks and Mitigants, and forward looking Financial Model with summarized KPIs (key performance indicators). Here’s an example from Messari on Avalanche/AVAX:

• Build an investment committee to guide decision making and approve investments. This can be centralized (limited highly vetted group of < 5 individuals to ensure accountability) or decentralized (snapshot based DAO style governance vote). Fund investments with the assumption the first check is an opportunity to continue exercising subsequent pro-rata. Build a follow-on diligence process for subsequent rounds.

• Create documentation to memorialize equity and token vesting / distributions.

• Build employee participation tools. I would love to see a front-end Emeris-like experience built for internal contributors.

• Support ongoing invested projects by deploying capital in liquidity pools, voting on governance proposals, running nodes, designing token feedback loops, providing mutual portfolio introductions, recruiting, and general shilling :)

All of the above could be slotted within a general Treasury Management diversification strategy.

3. Build the best proprietary research and sourcing machine:

What I love about web3 is the boundless information and research available (in most cases for free). Dune Analytics, Token Terminal, The Block, Messari, Delphi are great places to start.

Craft market landscape maps with proprietary themes and theses. Remix your views across different formats like blogs, video, Twitter Spaces, etc. Amplify content via chain-specific channels to reach the most engaged users. Each chain has its own media ecosystem - for example, Cosmos has CryptoCito and CoinBureau providing thought leadership. Promote your views on crypto panels, conferences, and in third-party content streams.

In the spirit of open-source, share research and analysis with project Founders and co-investors. I see two camps of institutional investors: (1) Ecosystem builders who build and fund dApps on-chain including Harmony, Alchemy Ventures, FTX Ventures, Solana Ventures, Coinbase Ventures, and (2) financial investors who are crypto-focused VCs and crossover funds.

Important: the best projects can come from within your own ecosystem, so building mechanisms to support existing contributor projects early will be valuable. A quadratic funding model built by Gitcoin could be employed.

4. Scale by hiring a specialized team.

Once you build out above (and know the basic frameworks to succeed), hire a team to specialize for sourcing, deal execution, tools/enablement, ongoing portfolio support and project marketing/acceleration.

About author:
@kishandao has 15 years of experience building high growth technology companies as a COO/CFO and was previously a growth equity investor at Goldman Sachs.

In a two trillion dollar market, all outcomes and possibilities are available. Profit and loss, fundamentals and frauds, short-term traders and long-term investors. I find this endless noise to be highly distracting, and serve to offer five frameworks below to demystify the overall market for the crypto-curious.

1. Productive vs. Non-Productive

By far, the most common question I get is, “What are the use cases for crypto?” This can be boiled down to what a token owner wants to achieve with their crypto:

Source: Galaxy Digital Research

Productive assets: Layer 1 smart contract platforms like Ethereum, Solana, Avalanche provide payments, lending, and staking use cases.

My favorite example of this is Solana Pay, where a retail merchant can integrate their existing point-of-sale to accept payment for goods or services with the following benefits:

• Avoid fraud or chargeback risk

• Forgo the usual 2-3 business day settlement window

• Avoid a 3-5% payment processing fee on goods sold

• Employ loyalty and rewards marketing automation to manage customer relationships and accelerate revenue

• Simplify accounting reconciliation at a customer and transaction level

• Gain access to treasury management services (not typically offered to SMBs) to earn yield on revenue

• Simplify provenance and possession of goods, which is particularly helpful for any secondary market transactions and determining authenticity of goods. See the asset-backed NFT wave.

There are trillions of dollars of market cap of payment processors, loyalty and rewards marketing automation software, and banking services in this single announcement.

Non-productive assets: Bitcoin is a digital store of wealth (common analogy: digital gold) that is: (a) self-sovereign (not controlled by any single nation or state), (b) censorship-resistant (not tied to any political party or affiliation), (c) scarce (limited to 21 million bitcoin), and (d) secure (Bitcoin has never been hacked) money.

There are common misconceptions that name-your-country can ban Bitcoin, however a country cannot ban a decentralized network but impose limitations on mining, restrict access, and assert taxes.

The other risk with non-productive assets where the use-case is to buy and hold is security, where a holder’s wallet will be hacked. This is true and based on the walletholder’s internet promiscuity. It’s best to use a hardware wallet like Ledger or popular wallets like Coinbase Wallet or Metamask.

2. Abundance vs. Scarcity

Abundance: Anyone can create a cryptocurrency. In a permissionless world, builders can build with less friction. You can use an existing platform like Ethereum, fork (copy) an existing blockchain or use a software development kit (Cosmos SDK) to create your own blockchain built on existing rails (more here).

However, the endless abundance of crypto invites frauds and hucksters. To revisit the beginning of our post, there are 18K unique crypto currencies, and most folks have only heard of a dozen coins at most. Crypto gossip and salacious news headlines are generally in the form of “This cryptocurrency skyrocketed by 1000% in 2021” which detracts from its benefits.

Abundance may also come in the form of abnormally high supply (see Shiba Inu which has 589.7 trillion coins), but this may be misleading where demand may never catch up to supply and in turn permanently depress prices.

Scarcity: Assets like Bitcoin have a fixed supply of 21 million tokens. Non-fungible tokens, are unique one-of-one digital assets.

Digital scarcity is a paradox: in a permissionless world, anyone can create a digital asset, but assets are only valuable if there is increasing awareness leading to demand.

So for asset managers who live on the risk/reward curve of Cash > Bonds > Equities > Top 10 Crypto (~82% of total market cap) > Remaining ~18K coins (~18% of market cap), we can look to the Lindy Effect which teaches us that as something exists for longer, life expectancy increases. The dominance of Bitcoin (2008) and Ethereum (2015) are indicative of this.

3. Insiders vs. Outsiders

Insiders: Twenty years ago, if you wanted to engage in sophisticated financial strategies like lending, borrowing, hedging, and gaining exposure to structured products, you had to be located in a fancy hedge fund office in New York City, London or Tokyo.

You needed ivy league credentials, networks, expensive software, human-based risk managers (read: extravagant salaries and benefits), custody expenses, legal documentation (produced by $1000/hour+ lawyers), lines of credit blessed by a bank, financial licenses, and a bare minimum of tens of millions of dollars in capital to be granted a seat at the table.

Outsiders: The global 24/7 crypto market democratizes tools previously only available to insiders.

Today, anyone can be a “global macro investor” from their computer or mobile phone. You can take directional risk on asset price movement on popular US stocks (Tesla, Microsoft, etc) on platforms like Mirror.

You can get loans in minutes by depositing your crypto assets as collateral on Aave, with loans costing just a few percentage points of interest.

There are newer strategies like staking where you can delegate your owned tokens to a validator in exchange for a PIK (payment-in-kind) yield.

And of course, you can speculate on a wide variety of “alt-coins” if you are seeking higher risk / reward strategies.

4. Centralization vs. Decentralization

Centralization: When a single party (a company, government or individual) controls an entity, power is centralized. If you were to purchase crypto through a centralized exchange (CEx) like Robinhood, you would not own the keys associated with your tokens. You would not be permitted to stake, earn yield, or borrow against your crypto.

If Robinhood was down, you could not access your crypto. You could also not transfer your crypto to another wallet you own, or execute a peer-to-peer transaction. The common rallying cry is, “not your keys, not your crypto.”

However, if your account was hacked and funds were stolen, you could contact Robinhood customer service and they would likely do the right thing for their customers and credit your account.

Decentralization: through a decentralized exchange (DEx) like Uniswap, you can own your keys and trade, lend and stake your crypto in a permissionless 24/7 environment.

Centralization and Decentralization also refer to cryptocurrency architectures. Ethereum is fully decentralized vs Solana which provides lower transaction fees and faster transactions per second to users in exchange for a more centralized validator base.

5. Passive vs. Active

I’m not referring to popular asset management strategies, where an investor selects passive index funds or actively managed hedge or mutual funds. Instead, I focus on activity and how you can spend your time in crypto.

Passive: After the 2017/18 ICO (initial coin offering) boom and bust, the large web 2.0 social networks chose to ban crypto related advertising from their platform. This led to a passionate group of crypto builders generating self-created content in the form of videos, podcasts, and blogs to leverage the distribution of the internet to educate millions (and potentially billions) on the benefits of crypto.

Bankless has hundreds of podcast and youtube videos covering crypto and the decentralized finance landscape. The Block publishes several articles a day on the latest developments in digital assets. Subscriptions from Delphi and Messari provide market data, insights, and institutional-grade research. Crypto Twitter (Zhu Su, Brittany Laughlin, Balaji Srinivasan, Meltem Demirors, Kyle Samani, Matt Huang, Austin Federa and Irina Marinescu) has plenty of content ranging from market observations and developments to fun memes.

And of course, you can buy-and-hold cryptoassets over the long term.

Active: If you want to get more involved in crypto, here’s a list of activities to pursue your passions:

• Stake your purchased crypto to earn yield. Depending on risk/reward, you can earn 5% to thousands of APR %. H/T Staking Rewards.

• Mint an NFT. Cumulative NFT sales increased from $71 million to $42 billion in 2021 (billions not a typo, below courtesy of Dune Analytics):

• Here’s a beginner’s guide to NFT minting courtesy of Coindesk.

• You can contribute to a DAO to buy a golf course, an F1 team, or even a fast food restaurant. Here’s my previous post for web 2.0 employees seeking to join DAOs.

• Get a Gitcoin grant to build public goods, or build cross-blockchain products through Harmony which is providing $300 million to launch 10,000 new startups.

About author:
@kishandao has 15 years of experience building high growth technology companies as a COO/CFO and was previously a growth equity investor at Goldman Sachs.

Web 2.0 companies have achieved global scale. Trillions of dollars of market cap and revenue have been built by millions of talented employees. What incentives drove this?

As a COO / CFO of growth stage technology companies, I have built, designed, and optimized compensation packages for my companies. Generally, the simplified structure is:

A new compensation structure in Web 3.0

Web 2.0 employers optimize for time of service. Employees receive more cash and equity compensation the longer they stay at the company. Talent migration in the Great Resignation demonstrates otherwise.

Enter Web 3.0.

DAOs (decentralized autonomous organizations) optimize for contribution vs tenure. Contributors are paid transparently in public forums in native DAO tokens. 

There are hundreds of DAOs, with the 32 largest DAOs representing $19B in total treasury value (OpenOrgs). $8.4B of this (44%) is liquid. 90%+ of this value is held in native tokens (see Hasu’s post on A New Mental Model for Defi Treasuries).

The biggest misconception is that Web 3.0 contributors are paid in “funny-money” tokens that can’t be used like good ole greenbacks. For context, total crypto market cap has increased by ~5x in the last 3 years to almost $3 trillion. For comparison, the NASDAQ has appreciated by 2x in the same period.

If a contributor is seeking liquidity, tokens can be swapped on decentralized exchanges faster than adhering to stock trading windows (Harvard Law: Employee Trading Windows), or even levered on decentralized finance protocols.

New models for contributor incentives

https://twitter.com/cdixon/status/1440026954086944775?s=20

To build DAOs, length of service windows would be a skeuomorphic construct.  

DAOs incentivize contributors through performance based rewards, where compensation is earned based on task completion and subsequent results. 

Incentives are aligned: DAOs clearly state what they need, Contributors complete tasks and document findings. 

High growth private company employees built generational wealth by taking a bet on joining the pre-IPO Facebooks, Airbnbs, and Coinbases of their day.  

These employees withheld cash or liquid stock compensation in exchange for private company stock options, which required time-based vesting windows and large outlays of personal cash to exercise options. 

If an employee left, they would need to come up with hundreds of thousands of dollars cash within 90 days (Rishi Gupta from Stanford CS) from their last day of employment to participate in the upside they built.

DAO Contributor Compensation Roadmap

I’m starting to see Web 3.0 native compensation structures emerging. 

The DAO raises the bar on “job descriptions” and defines micro-tasks. Contributors knock it out of the park and gain 20x multipliers based on their performance. 

A marketer creates more content, a business development rep closes more deals, an engineer deploys more accepted code. 

Products get built faster, adoption increases, and contributors see upside quicker. Decentralization > an old-school HR department. 

Compensation packages in Web 2.0 are rigorous labor-intensive annual procedures, but Web 3.0 protocols enable customization at scale. Platforms like UMA provide KPI options to build custom synthetic tokens that pay out additional rewards if the KPI meets predetermined targets before the preset expiry date like releasing engineering commits, achieving product adoption, or growing engagement count. 

Thus, every KPI token holder is aligned in the sense that they would stand to earn more by collaborating to ensure the KPI is reached, rewarding DAO contributors based on growing the underlying fundamentals of the protocol.

New questions will emerge: what will cross-DAO contributor benchmarks look like? Will contributors need to be retained over time? Will there be any exclusivity?

My opinion: in a positive-sum world, talent is inherently mobile, free to deploy their skills to projects they want to support, devoid of arcane non-competes and IP lockup. And the best DAOs will attract the best contributors.

About author:

@kishandao has 15 years of experience building growth stage technology companies. A veteran of big-tech and scaleups, Kishan has served in multiple COO/CFO roles and was previously a growth equity investor at Goldman Sachs.