The Fabled “No Risk Investment”

The Redeemable Treasury model introduces venture-like returns with no downside risk. It is designed to completely protect an investor’s principal capital. The key innovation is a novel risk profile that we’ve never seen in early-stage investing. Most venture investors expect most of their investments to go to zero, but a rare few will 10x or 20x, which will carry the entire fund. Venture has always been high risk and high reward. Now, venture can be “no risk, high reward.” 

How Does It Work?

Nascent Founder, Dan Elitzer, wrote a very thoughtful explanation here. In my words, it works like this:

1. Capital Deposit. Investors deposit funds (e.g., BTC, ETH, USDC) into the treasury, which is deployed into low-risk DeFi yield strategies (e.g., ~4% APY). 

2. Token Allocation. In exchange, investors receive $FT tokens (fixed supply, no inflation) at a set valuation (e.g., $200M raise at $1B FDV for 20% of supply). The team gets no upfront allocation. 

3. Yield Utilization. Generated yield (not principal) funds operations, marketing, liquidity incentives, and $FT buybacks/burns. Protocol revenues also contribute to buybacks (up to 50% supply) and burns. 

4. Perpetual Put Option. Investors have downside protection via an onchain redemption right. You can return your $FT anytime for the original principal, burning the tokens and reducing supply. 

5. Selling Mechanics. If tokens are sold on the market, the put is invalidated; the principal is released to the protocol, which uses it for market buybacks and burns, further deflating supply. 

The FT token blurs the lines between tokens, equity, and a stablecoin. It’s like a stablecoin because the value is backed 1:1 by a real asset that can be claimed at any time. It’s like a token or equity investment because it could be 5x or 10x for you.

An Endowment For Companies

The purpose of an endowment is to provide a sustainable and perpetual source of operating capital by preserving (and growing) principal capital in the long run. Universities and foundations have done this for years. They use interest and investment proceeds to fund operations and avoid ever touching the principal capital. Flying Tulps is planning on running entirely on interest income, meaning that the only “risk” that users take is that they’re not generating yield with their assets for themselves. 

Rug-Resistant By Design

There are so many bad crypto projects out there. Most of them leave financial contributors extremely exposed and allow creators to easily extract value. That's not good. I like that Andre has set this up so that the team has no tokens up front. They have to earn their success. They must perform and deliver a positive outcome to be rewarded. This is the way.

An Evolution From ConstitutionDAO

A lot of people have asked me, “Why did ConstitutionDAO get so big?” It was in large part, because of the treasury design. From the onset, it was designed to be 100% refundable, thanks to Juicebox. The structure was simple: contribute one ETH and get one million tokens. The same ratio held for any contribution amount. People contributed over 12,000 ETH (worth over $40 million) in just a few days after I launched the project. As you know, we tried to buy an original copy of the Constitution at a Sotheby's auction and lost to Ken Griffin. After the auction, they were able to get a 100% refund by returning their tokens. This whole return process happens programmatically, no interventions. In fact, if you still want to return your contribution receipts, you can.*  

The structure had the effect of a free call option. If you put in $100, you were promised to be able to take back $100. We had a Redeemable Treasury. But an odd thing happened: a lot of people decided that they wanted to hold on to their contribution receipts. It was a part of history. In fact, a lot of people who didn’t have a chance to contribute originally also wanted to hold a part of history, so they bought $PEOPLE tokens from contributors. A person's receipt for their $100 contribution quickly turned into $1,500. A lot of people made a lot of money. And weirdest of all, there was zero risk.

So a mythical 10x is possible with zero principal risk? Genuinely, yes. And Andre’s model just took it to the next level.

Andre’s structure takes the great parts of ConstitutionDAO’s Redeemable Treasury and supercharges it. It has two key improvements: (1) capital is programmatically put to work to generate interest and (2) redemption is a continuous option rather than a discrete thing that is turned on or off.  These are critical improvements to evolve the model and focus on a long-term sustainable organization that has meaningful funding for operations. 

Hello, HIRPies. 

To a degree, this is a High Interest Rate Phenomenon. Flying Tulip’s Redeemable Treasury model is very interest rate dependent. It wouldn’t work as well in a low-interest rate world since it would slash his operating budget. This is the opposite side of the coin from zero interest rate phenomenon (ZIRP) that introduced novel models suitable for uniquely low interest rate environments. In a high-interest world with new mechanisms, we’re going to see more HIRPies: High Interest Rate Phenomena (yes, I’m going to coin that). 

I point to the dependency on interest rates as a point of caution, not criticism. I think we’re likely in a structurally higher interest rate environment in the foreseeable future. That means that there’s a massive window that innovators should absolutely build things with. However, it is critical that founders, operators, and investors understand this relationship because it introduces different risks and challenges. 

If the macro environment moves us to even higher interest rates in the years ahead, you can expect to see even more innovations built for these conditions. The higher the interest rates, the more HIRPies will spread. 

Even More Treasury Designs

I love Andre’s treasury design. I think this (in addition to many of his other inventions) will cement him as an all-time great mechanism architect. But I also think that treasury design space will evolve even further. 

Right after ConstitutionDAO, I expected there to be much more innovation around treasury architecture. A programmable treasury was very obvious to me. At the time, I was working on a variety of investment structures: REITS, LBOs, Credit Facilities, SPACs, sovereign bonds, and more. Most of these had unique capital structures, incentive mechanisms, and governance. I got intimately familiar with a lot of bylaws and capital structures. There are still much more ways to borrow well-tested mechanisms from TradFi and use them programmatically with smart contracts in even more interesting ways. At some point, I will need to share more about my previous work on “Regenerative Treasuries." The space was far too immature for this model in 2022, but the market may be mature enough for it now.

Another example of a next-era treasury design is Jango’s creation of RevNets. I'm also hopeful about Gabe Shapiro's work on BORGs, which are working to emulate traditional capital structures onchain, but have the potential for further innovations. It is a model that programmatically defines the relationship between revenue and ownership with crystal clear rules.

People have not yet wrapped their heads around the consequence of innovating on capital structures. New ways of aligning interests and rewarding financial contributions will reshape the fundraising and startup landscape.

Up to this point, DAOs (Decentralized Autonomous Organizations) have dominated the mindshare of onchain organizations. However, many DAOs are neither decentralized nor autonomous – and they often have great reasons for this to be the case. The industry’s early conception of the “right way” to run an onchain organization was too narrow. Onchain organizations is a broad umbrella phrase, including DAOs.

Just as the governance of our federal government must differ from the governance of a Fortune 500 company, the governance of a Protocol DAO must differ from a City DAO, a Network State, a Smart Company, and a Guild. The tools which they use will also differ. The optimal structure for an organization should be dictated by its purpose; there will not be a one-size-fits-all solution. 

In the years ahead, we will see mass proliferation of structures for onchain organizations. Some will closely emulate familiar structures, like a company or congress. Yet others will push the frontier of governance with methods to easily shift support (delegation), distribute power (quadratic voting), or leave (rage quit). It is in everyone’s interest to support many differing approaches and experiments. For the first time in history, humans can rapidly implement and stress-test new methods of coordinating with each other at unprecedented scale. It is only through experimentation and variance that we will find the most suitable organization structures for different use cases.  

This piece is designed to provide an approximate ontology of the current array of onchain organizations and define some key clusters with similar approaches and strategies. This also acts as a survey to include some of the most meaningful projects in each category.

The Onchain Organization Alliance is an industry group that's committed to accelerating the migration of organizational governance and finance from offchain to onchain. We conduct research, discuss topics, host events, and advocate for our industry segment. We're composed of founders of Onchain Organizations, software providers, service providers, and VCs. If you're interested in joining, please send a DM.

While there are many ways to dissect the structure and attributes of onchain organizations, a few key characteristics stand out. Is the organization digital-first or is it oriented around a geography? Does it aspire to be entirely automated by smart contracts, or will it perpetually include human dependencies? Is the organization’s purpose primarily for building things, allocating capital, or aggregating humans with commonalities?

In the following sections, we will give many examples of these organizations and dive into each of the branches, from top to bottom.

Onchain Organization → Digital-First → Autonomous

The “A” of DAO stands for “Autonomous”, which means there is no surprise that there should be a category dedicated to autonomous (and autonomous aspiring) organizations. These are organizations that operate with an incredibly high degree of automation, facilitated by smart contracts, in such a way that all players are entirely aware of the rules of engagement and corresponding limitations.

Frequently, people use the phrase “gradual decentralization”, but this is also generally accompanied by “gradual automation” and the removal of human intermediaries in favor of smart contract execution.

While there are many types of entities that allocate capital onchain (also including investment clubs and grant councils, which we’ll see later), the protocols in this section are uniquely oriented toward autonomous allocation of capital, conducted by smart contracts.

Onchain Organization → Digital First → Operational → Products & Services

Another category of onchain organizations is operational, meaning that there are substantial components of human decision making and coordination. Most of these organizations expect to remain this way in perpetuity, although some may eventually automate through the adoption of protocols. While many identify themselves as "DAOs", and embody the "culture" of web3, this cluster of organizations are often neither decentralized nor autonomous.

Although many of the sub-categories are likely self-explanatory, these are rough definitions for many of the operational onchain organizations:

• Products - usually teams of software developers building products. Examples include teams building tools for  fundraising (Juicebox), governance (Decent DAO, Raid Guild), and others

• R&D - teams who have  aggregated capital and choose which experimental project to fund. Examples include Vita (longevity science) and MoonDAO (software and space exploration)

• Service Guild - those who complete work for other teams, usually for cash, token, or equity compensation. Examples include dOrg, BD3, and Growth DAO.

• Talent Collective - An aggregation of people who may be well suited to help with a particular type of work. For example, LexDAO aggregates lawyers, Vector DAO specializes in graphics, UI and interfaces.

• Media - similar to traditional media companies, these are teams who publish writing, content, videos, or other media, and potentially share in the revenues. Coinage, for example, has owners via NFTs and is structured to issue dividends to members of the media organization.

• Professional Delegates - this is an emerging category of governance analysts who comment and submit governance proposals for large organizations, the largest DAOs often compensate these groups

• Mixed - some organizations touch many of the categories above. For example, Gauntlet has an advisory service, but also participates in governance and they build products. 
  

It is generally true that most of these organizations have pooled assets of some sort, generally in a multisignature wallet like Safe (formerly Gnosis Safe). These organizations may need tools for capital formation (fundraising, crowdfunding, donations, grants), for capital expenditure (payroll, billing, expenses, offchain expenses), and in many cases revenue generation (subscriptions, transaction fees, membership models, NFT models, invoicing, digital sales). 

Onchain Organizations → Digital-First → Operational → Capital Allocation

Capital allocation simply refers to organizations whose primary purpose is distributing a pool of capital for a particular purpose – profit, impact, ecosystem development, or for collecting items. Capital allocation organization in this category are very operationally intensive and require substantial efforts from a core team to keep them functional. They have processes for aggregating research, deciding where to allocate capital, and the team is often compensated for their time and efforts (payroll).  

• Grants-  these groups usually have a budget given to them by a DAO and a mandate for them to achieve. These are often described as “subDAOs” or selected by DAO governance in some way.

• Investing - these are profit-seeking entities making strategic allocations of capital in teams and businesses. Some may be very centralized, others are democratic. 

• Collectors - usually collecting NFTs and/or artwork. Usually tokenholders vote with their tokens to make decisions, but there may also be some delegated responsibilities to specific individuals.

Onchain Organizations → Digital-First → Operational → Interest Groups & Social Organizations

There are two more clusters of “operational” onchain organizations. They are often referred to as “Culture DAOs”, “Social DAOs”, “NFT DAOs”, “Affinity Groups”, “Interest Groups”, and other related phrases. These are loosely clustered since all of them have very different objectives and styles. Some are very specific, like Assange DAO, which raised tens of millions of dollars to support Julien Assange’s legal fees. Others are more broad, like Bored Ape Yacht Club (BAYC) including anyone who happens to hold the NFT. 

These groups may or may not have a treasury. Sometimes they hold events in person or digitally. 

Onchain Organization → Geography-First → Onchain Societies

Onchain Societies have an important aspect of geography – there’s some kind of physical location. This may be a single site for a short period of time (Zuzalu), or it may be an ambition to build a new type of self-governed society with autonomy and political recognition, like Praxis. 

Onchain Organizations → Geography-First → City DAOs & University DAOs

City DAOs are generally composed of many people in a specific geography. Activities may include events, meetups, conferences, and sometimes more. Many city DAOs are the primary organizations behind major events like EthDC (DC DAO) , Taipei Blockchain Week (BuZhi DAO), and Eth Denver (Spork DAO). 

They may or may not have permanent treasuries, their operations are usually a hybrid of onchain and offchain activities. Some have loose governance structures, others are very formalized. 

City DAOs are  also closely related to University DAOs. These may be simple clubs at universities, sometimes they may manage money, run an accelerator, host events, or build products. 

There are a few important axes in which onchain organizations may differ. These are high-level attributes that will inform which kind of governance structure is most suitable and who the participants will (or will not) include. 

• Decentralized / Centralized

• Flat / Hierarchical

• Public / Private

• Permissionless / Permissioned

• For profit / Non profit 

• Tokenized / Securitized 

• Unregulated / Regulated

• Autonomous / Operational

• Fully Onchain / Hybrid 

• Anonymous / KYC'd

• Token Voting / Per-Human Voting
  

These categories are best established at the beginning to align expectations. These are not always binary factors or permanent traits. For example, many organizations start centralized, but have thoughtful plans to gradually decentralize over time. Some organizations may move more of their governance and finances onchain over time. These attributes will also inform key operational tasks like selecting smart contracts and choosing a legal structure. 

The structure of organizations themselves have undergone very little innovation since the advent of companies and democracies. Onchain Organizations, however, offer an enormous amount of organizational diversity in structures in attributes. There will be many more structures that evolve in the years ahead as groups continue to experiment with governance, mechanism design. Future research pieces will cover emerging models, like RevNets, Smart Companies, and BORGs.

Thank you to additional contributors and feedback from: Florian Glatz, Kevin Owocki, Austin Cain, Mohib Jafri, Dara Khan, Jon Hillis, Pruitt, Cole, Traub, Aashraya Rau, TommyJo, Tobalo, and more.

A16Z's Chris Dixon describes blockchain as "web 3" now that we can read (web 1), write (web 2), and also own (web 3). Digital ownership without intermediaries has enormous consequences across every sector of the economy, but I'm most interested in exploring the effect on enterprises. At the risk of hijacking Chris’ framework, we’re also in the third era of modern enterprises:

Old School → Online → Onchain

First, there were the Old School Enterprises (1.0). These are the companies your great grandfathers worked at. There was no software. Larger "Old School" companies had “billing departments” and “payroll departments.” The company may have had a literal physical vault to store the assets, like cash. Customers delivered cash to pay for goods and services. The financial records were recorded in fairly meticulous notebooks. 

Second, there were Online Enterprises (2.0). These are companies who lost the cash registers and vaults in lieu for digital bank accounts and credit card payments. They started signing documents online, like Docusign. They started tracing their ownership with spreadsheets and software like excel and carta. They used software like Quickbooks to organize their records for bookkeeping, filing, and auditing by people. They use software like Gusto and Bill.com for payroll and invoicing, reducing the size of their billing and payroll departments dramatically.

Finally, we're entering an era of Onchain Enterprises (3.0). These are organizations who send and accept stablecoins, like USDC. Assets of the organization are held in multisignature wallets. The ownership structure for onchain companies is tracked onchain. Financial records are automatically generated through queries of verifiable data. Invoicing, fundraising, vesting, payroll, and treasury management are smart-contract based software packages controlled by the companies themselves. Agreements are sealed with cryptographic signatures. Perhaps the organization is called a "DAO", or a "guild" or a "Smart Company".

They were building at the wrong level of abstraction. They were trying to build blockchain networks and consensus mechanisms (IBM’s Hyperledger, JPMorgan’s Quorum, etc). "Enterprise 3.0" shouldn't be focused on blockchain architecture itself, it should be focused largely at the application layer. Smart contract-based software will be the cornerstone of enterprise software 3.0.

The less frequent attempts at  “application-layer” enterprise products over the last decade have also been focused on IoT,  inventory tracking, and supply chain processes. These applications are not as interesting as software that touches an enterprises’ finances: invoicing, billing, fundraising, payroll, vesting, cap tables, and more. Moreover, they were built on doomed networks, ensuring their failure from the onset. It’s very important to build on successful rails, like EVM networks. 

Enormous Market. Enterprise blockchain is easy to meme, it's a blue ocean opportunity, and the crypto industry is in desperate need of a new narrative. It turns out that  "unstoppable casino" isn't very compelling.

New Approach. Very dissimilar from enterprise blockchain attempts of the last decade. The next wave is focused on smart contracts & applications, not L1s and consensus mechanisms. This cycle, we're going to have crypto-native funds backing the next generation of enterprise software because it'll be built ATOP the infrastructure that they've already invested in.  

Infrastructure Maturation. Thanks to account abstraction, smoother on/off ramps, and lower gas fees (100x+ reductions), public blockchains are finally ready for prime time for serious applications to be built on them. 

Fundraising, billing, payroll, vesting, invoicing, token-gating, permissioning, membership management, financial reporting, grant management, share/token distribution, revenue methods, donation portals, capital structures, crowdfunding, expense tracking, and more. 

1. Portability (no platform lock-In). Enterprise software built on TradFi rails (Bank APIs, Stripe, Wires) is composed of “walled” logic. If you set up a payment schedule, vesting program, fundraise, or invoice from a given platform, that logic cannot be transferred to another interface. You’re locked-in to using a particular service provider. Moreover, they act as an intermediary. Even if both sides have connected wallets and digital assets are transferred, the offchain logic is a poor fit for onchain assets. 

2. Current Incompatibility. The logic that controls the transfers of assets should be native to the software that tracks the state of the ledger. For Online Companies, this meant software that was built on TradFi rails. For Onchain Companies, this means software that is built for blockchain rails. 

3. Safety & Certainty. Smart contract based software reduces vulnerabilities, intermediaries, exploitation, censorship, and denial of service. 

4. Low-Cost Verifiability . An organization with 100% onchain finances can have live audited financials, verifiably accurate financial statements, and near-zero overhead for reporting, bookkeeping, and auditing. Enterprise 3.0 software delivers more certain results with less costs. 

Enterprise 3.0 is the software that is needed to natively support onchain assets and transactions

Onchain organizations like protocol DAOs, developer guilds, and grant councils. These are organizations that are likely crypto-savvy and have an inclination toward doing things onchain, even though the infrastructure is still maturing. 

We're going to see way more than DAOs onchain. It is only a specific subset of onchain organizations. This will be a massive category with a huge amount of organizational diversity, many types of structures and setups: 

• Decentralized / Centralized

• Flat / Hierarchical

• Public / Private

• Permissioned / Permissionless

• For profit / Non profit 

• Tokenized / Securitized 

• Regulated / Unregulated

• Autonomous / Operational

• Fully onchain / Hybrid 

• Anonymous / KYC'd

At first, it will be “weird” organizations who simply have ideological preference to do things onchain. Much like early users of blockchain payments, these will be “innovators” and “early adopters”. This will mean starting with the long-tail of organizations (i.e. developer guilds, grant councils, collector DAOs) before we see adoption by more mainstream organizations  (venture-backable startups, venture funds, small retailers, etc).

Because of the unique nature of smart contracts, the upper limit on the quality of software (and benefits for users) is much higher than enterprise software built atop traditional financial rails (see the “Why” section).

These are currently nascent, but their characteristics make them interesting candidates for onchain organizations:

Each organization is unique, but there are many overlapping needs:

DAOs are just the tip of the iceberg. They’re a novel structure of an organization, but far from the only kind of organization that will run and operate onchain. 

Incredibly early, essentially nascent. First inning, at best. Estimates of the current number of onchain organizations range between a few hundred to a few thousand.Simply capturing the existing market is not an interesting prospect. We expect to see the continued growth of participants (40x in the last 3 years) and assets (55x in the last 3 years) in onchain organizations. As this number grows, the types of organizational diversity will grow too.

Yeah, it's huge. Enterprise software that touches an organization's assets or financials is worth hundreds of billions of dollars. All financial software will migrate from TradFi rails to blockchain rails, leaving massive surface area for disruption of slow-to-evolve software companies built on antiquated financial rails.

More to come, subscribe here: