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Revolutionary and revolutionizing. These words are often thrown around. Rarely are they applied to anything genuinely new and even less often to anything capable of bringing truly radical change. In the case of the ‘DAO’ though, these descriptions are apt.
DAOs (decentralized autonomous organizations) are a truly new innovationone that might be the key to unlocking the potential of Web 3.0. In corporate finance, the revolution has already begun.
Here, DAOs serve as communities that can be formed around a central idea that each member thinks is worthy of investment. Making it possible, the DAOs blockchain and smart contract infrastructure.
Once the specific rules and relationships have been determined and encoded, the DAO autonomously runs in a streamlined fashion, governing transfers of value, keeping track of contributions and apportioning governance rights.
DAOs solve a number of problems in corporate finance in ways never seen before, shifting what was once bureaucratic and centralized into the algorithmic and digital.
Benefits of DAOs for corporate finance
Backing the right startup can bring huge returns on an investmentsometimes a hundredfold. Think Facebook, Google, PayPal, and Uber.
It is the venture fund that has specialized in injecting the capital that transforms the unprofitable, nascent good idea into a high-growth juggernaut.
The traditional venture capital (VC) approach has benefits, bringing large investments, expertise and access to networks. But there are some significant disadvantages, such as slow decision-making, demands for control and high expectations and valuations.
The traditional approach also does not serve small projects which must then rely on bigger firmsthe VC funds to prosper.
This reliance on only a few large ‘gatekeeper’ VC entities is inefficient, resulting in many good ideas falling through the net or fighting through the red tape that comes with dealing with big companies. As a result, good ideas go to waste, and both budding startups and potential end users lose out.
DAOs offer an alternative that addresses these issues, leveraging blockchain technology to access funds from multiple sources. This includes the capacity to crowdfund retail investors with minimal amounts.
One of the best examples of this sort of DAO fundraising happened in November 2021. In a five-day period, Constitution DAO raised close to $47 million to buy a rare copy…
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