The role of DAOs in the NFT space

NFTs have come a long way since the first minting in 2014 of ‘Quantum’ on the blockchain. The market has experienced prolific growth, offering investors the ideal intersection between cryptocurrencies, traditional assets and digital ownership. As of May 2022, more than a million crypto users have bought or sold NFTs, and the global NFT market is expected to grow from USD 3 billion in 2022 to USD 13.6 billion by 2027.

Non-fungible tokens are unique digital assets held on the blockchain, giving holders of physical assets the opportunity to extend ownership into the digital realm for the first time. Such ownership can include a range of ‘real life’ collectibles from art, to fashion, sport and even physical objects. Since the introduction of the ERC721 token standard in 2018 and the breakthrough sale of “Everydays: The First 5000 Days” by Beeple in 2021, which marked the entry of NFTs into mainstream culture, NFTs have empowered communities of developers to invest, create and self-custody their own creative financial assets. NFTs are also seen to represent the next level of digital rights management. Increased hype around digital ownership of these assets has also drawn in art collectors, exploiting the gap between traditional and digital art while largely starting to attract broad audiences from gamers to celebrities to crypto enthusiasts. 

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NFTs are the new brands and IP franchises

It is important to understand that NFTs are not merely collectible images. The biggest NFT collections, like Bored Ape Yacht Club, Azuki, RTFKT and Loaded Lions, have emerged as mainstream brands and Intellectual Property franchises whose ownership is shared between their creators and the owners of each NFT unit. Each of them conveys a specific world view, brand narrative and visual imagery. Just like Marvel characters or Transformer toys, they appear on branded merchandise, feature in physical and virtual events, and are expected to give rise to video game franchises.

Shared ownership means that these brands have the potential to generate much deeper engagement with fan communities than traditional brands, which explains why mainstream brands like Nike, Hublot and DC have created or invested in NFT initiatives.

From the standpoint of the NFT unit holders, shared ownership means that having an NFT in one’s crypto wallet does not merely give access to exclusive experiences (also called token-gated experiences). It creates an expectation that the holder will have a voice in the direction and governance of the brand and will participate in the value creation of the franchise in the long term.

How does this governance work? Enter DAOs (Decentralized Autonomous Organizations).

DAOs and NFTs 

DAOs replace formal corporate hierarchies with community-owned structures without centralized leadership. Although still in their infancy, they are gaining in popularity and ultimately support the vision of Web3 whereby the value of a network is distributed back to its users.

DAOs are digital-native, community-led organizations powered by blockchain technology, where members vote on the direction and vision of their entity. For both the crypto-curious and natives alike, a DAOs utility comes with its ability to power Web3’s aim of democratizing the creator economy with more direct and transparent links between communities and specific projects. Enabled by technology, DAOs are replacing legacy institutions with more agile and configurable governance models than the one-size-fits-all rights given to the shareholder of a massive corporation. 

Furthermore, control and ownership are considered to be more democratic, similar to a cooperative organization. Each owner within a DAO is given voting rights through a ‘governance’ token which has an underlying code that is 100% transparent, meaning no one individual controls the community and decisions are therefore faster and more efficient. NFT creators and community members can collectively decide on the future of an NFT project and shape the direction of the company by casting their vote in a secure manner that is visible to the other owners. 

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The DAO-NFT community

DAOs have the potential ability to help emerging NFT creators foster a sense of community and bring together a group of investors to participate in gated community events, raise funds and provide access/voting to smaller projects. Users are able to meet, discuss and agree on a collective mission for the DAO across various social networking sites, and they can then contribute funds using Ethereum contract development.

Often there are early adopter benefits when deciding to participate in a project, where investors are able to acquire rights to the discounts on products and lower fees. In an increasingly borderless world, DAOs can also have the advantage of bringing together global communities to collaborate and coordinate on a shared vision. With an internet connection and governance tokens, virtually anyone can participate in building the future of Web3 within a DAO. Participating in a DAO also gives individuals a sense of ownership akin to being a start-up cofounder since they can steer the investments of the project’s treasury, controlled by a multi-signature crypto wallet, further driving innovation and even financial rewards. 

What’s next for NFTs and DAOs

In terms of NFTs and DAOs, they present the philosophical question of what is the next frontier in the peer-to-peer economy and how can the purveyors of Web3 make it more accessible to the next generation? For DAOs, we will continue to see unique use cases: spanning music, art, purchasing high-value assets, and more. 

Case studies for collaboration between DAOs and NFTs are emerging, and we are beginning to see how DAOs, leveraging a co-op model of organizational structure, are offering new avenues of participation for those people who participate in the creator economy in their own, small way. Critically, with NFTs offering people ownership and real-world benefits, and DAOs offering new on-ramps, the fit of asset and community will continue to drive innovation

As both traditional and crypto markets face challenging times ahead, individuals are increasingly looking at ways to write their future financial history through the empowerment and tools of Web3. 

Ken Timsit is Managing Director of Cronos chain and Cronos Labs, the first EVM-compatible Layer 1 blockchain network built on the Cosmos SDK.