The Tally Newsletter, Issue 58
December 31, 2021
DAOs have truly stepped into the spotlight in 2021. For issue 58 of the Tally newsletter, we’re looking back at the biggest DAO trends and achievements of the past year, along with some predictions for 2022.
Governor DAOs take hold
From an initial set of just two protocols (Compound and Uniswap), Tally has expanded to cover over 25 DAOs. The Compound governor framework underlying these protocols has become a key standard for defi and NFT DAOs.
Rich voter profiles
Tally has also focused on voter identity and profile details, to help give more context into key DAO governance decisions. Profiles for registered users now include voting history for linked addresses, social integrations, and POAPs. We’re planning to add further depth to voter profiles in the coming year.
We also made appearances at ETHCC, MCON, NFT.NYC, Liscon, and many other great events and hackathons throughout the year. You can read more of our work from the past year in our blog.
Treasury management and protocol controlled value
As Defi and NFT DAOs rose to prominence over the past year, they have begun to focus on treasury management and financial longevity.
One group of organizations put a primary focus on amassing treasury assets, also known as “protocol controlled value”. This includes OlympusDAO, Fei Protocol, and NounsDAO among many others.
Even many of the original defi DAOs have begun to amass larger warchests, and I expect this trend to continue into 2022 as the inevitable end of the bull market draws closer.
Internal DAO conflict and minority holder protections
In the past year, we’ve seen some early examples of internal DAO conflicts break into the open. So far, they have primarily centered on contributor offboarding/firing decisions or other personnel conflicts. The most notable examples include Sushiswap’s team issues and resignation of their CTO, along with 2 separate contributor offboarding proposals being considered at MakerDAO.
The public and transparent nature of DAO work requires a new approach to people management to balance performance goals against contributor privacy. Organizations that get this right will have a much easier time attracting and retaining talent.
In addition to managing personnel, DAOs also face significant challenges around minority investor rights and protections as they accumulate larger treasuries. We’ve seen early examples of this in the case of DigixDAO, which was ultimately dissolved after a long period of controlling holders extracting funds through the project’s grants and BD program. More recent examples include Gnosis and Nexus Mutual, who are both trading far below book value of their treasury as small token holders have no way to force payouts.
The Fei-Rari merger’s inclusion of a “rage quit” mechanism, allowing users to redeem their tokens for a share of the project treasury, represents an important precedent in this area. MakerDAO has an alternative minority protection feature in the form of “emergency shutdown”, which allows a quorum of 75,000 MKR (roughly ~8% of supply) to force system shutdown in the event of malicious majority actions. Particularly for well capitalized projects, these sort of safeguards should become common practice to avoid asset stripping and self dealing by majority holders.
While 2020 showed some early examples of consolidation with Yearn’s series of cross project partnerships, the shift towards full mergers only took hold this past year. Top mergers from the past year include:
Threshold cryptography projects Keep and Nucypher merging into a combined protocol
Asset rich Gnosis entering the L1 space with acquisition of xDAI STAKE protocol
Fei protocol acquiring Rari Capital’s money market and yield aggregator projects
The Gnosis-xDAI and Fei-Rari mergers in particular were largely financially driven. xDAI needed vastly more resources to compete in the alt L1 space against well capitalized ecosystem reward programs, and Gnosis provided the financial firepower to back this up. And in addition to natural synergies between Fei’s stablecoin and Rari’s Fuse money markets, Fei also had enough resources to pay off Rari’s earlier hack losses and fund future development without contentious token supply change proposals.
In the coming year, we’ll likely see more opportunities for well capitalized projects to buy up less well resourced competitors. Who are the potential acquirers and targets?
Acquisitions will most likely be led in the short term by well capitalized protocols like Uniswap, Fei, Gnosis, and BitDAO. But there’s also a likelihood of mergers being targeted at specific sectors that have high returns to scale and liquidity network effects. This could include liquid staking protocols (eg. Lido, RocketPool, pStake), asset management platforms (see recent PieDAO buyout of BasketDAO), or even stablecoins.
B2D and D2D collaboration
As DAOs with significant resources increase in operational complexity, there’s a growing potential for external service providers. We’ve seen the first examples of business to DAO (“B2D”) interaction play out with Gauntlet Network’s risk management contracts at Aave and Compound, as well as the Compound auditing contract that was recently awarded to OpenZeppelin in a competitive vote.
DAOs are beginning to enter the space as well, with organizations like VectorDAO and DeveloperDAO providing services directly to other decentralized orgs (DAO to DAO services or “D2D”).
2022 will likely see an increasing number of protocol DAOs outsource operational responsibilities through B2D or D2D contracts. This will bring some significant challenges that are already present in traditional government contracting and vendor management fields; how will organizations award contracts in a fair and transparent manner, and how will they manage providers to ensure quality work?
Cross chain governance
While several L1 and L2 platforms have exploded with activity over the past year, we’re only beginning to see multichain governance mechanisms take hold. Aave is leading the way here, with plans for cross chain governance messaging to replace trusted admin multisigs on their multichain deployments. Gnosis is also pushing ahead with cross chain multisig execution features.
In the coming year, we should see further development of multichain governance control mechanisms, as well as L2 voting and other features to reduce the friction in DAO governance participation. We’ll also likely see more and more apps more towards cross chain deployments to capture users priced out of Ethereum mainnet, following in the footsteps of Sushiswap and Aave.
Over the course of the year, we’ve seen some of the most successful DAOs are not permanent organizations; rather they represent a short term coordination tool to achieve a specific goal. The most notable org in this category was ConstitutionDAO, which despite failing to acquire the constitution managed to raise tens of millions of dollars in under a week and put DAOs firmly on the map. Simple fundraising and coordination tools like Juicebox Money will make these flash DAOs progressively more accessible to the masses in the coming year. By the end of 2022, it’s likely that many of the most well known DAOs will be centered on events, art, or community rather than defi protocol management.
Happy new years, and we look forward to working with you in 2022!