This article serves as the key to understanding DAO: from the beginner level to the DAO mechanics deployed by Afford.Capital. The DAO mechanics have been implemented and tied to the fund, so this knowledge is a must for our community members and those who are willing to invest in early-stage startups. Exploring the world of venture investments through a DAO together with Afford.Capital starts here.
What is a DAO?
DAO, short for Decentralized Autonomous Organizations, is a community-driven entity without a central authority. All the decisions within a certain ecosystem are made via proposals the group votes on during a specified period.
Excluding the possibility of getting control by an individual or by a group, DAOs democratize decision-making through a decentralized governance system. It is simple to consider a DAO as a Board of Directors, where every single member is a Director, as everyone is given a say in how the entity is run without even being a large shareholder.
Use Case Example:
In 2022, DAO-constructor XDAO started cooperation with PARQ, a mixed-use residential and commercial real estate complex. Both platforms are committed to launching the PARQ token, which unlocks membership in the project's DAO for holders.
The token holders will be able to pay for goods and services within the complex using PARQ tokens. In addition, they will actually "own" the relevant real estate as long as the stake in the coins of the complex is maintained.
In the future, token holders, and hence DAO participants, will be able to vote and make decentralized decisions on the development of the PARQ complex.
DAOs operate via smart contracts that can be described as a thing to execute anything when specific criteria are met. This happens on an automatic basis, without the need for someone to take control of it.
In case more than 50% of PARQ token holders decide to update the functionality of the residential complex by voting, the update process will be automatically initiated.
All details of the agreement, voting rules, and the percentage of votes at which the DAO decision is made are also written in the smart contract. After its launch, the smart contract can only be changed by a collective vote of the DAO.
Smart contracts can be deployed on many blockchain networks, however, Ethereum remains the most popular option nowadays. DAO rules, criteria, and other conditions are set by these smart contracts.
💡 The most common way to take part in a DAO is through the ownership of a token.
The voting rights are acquired through having a stake (tokens) in a DAO. By having the number of tokens needed to get access to a DAO, an individual can pull his/her weight and influence how the organization operates. This can be done either through voting on an existing governance proposal or by initiating a new one from the scratch.
DAO can be used in many fields, such as freelancer networks, where contracts pool their assets in order to cover software descriptions, venture capital firms where investments are being collected via a DAO pool, etc.
What Are the Key Advantages of a DAO
DAOs have numerous advantages over traditional organizations. These advantages are the keys to understanding why DAOs aren’t just storm in a teacup, but a sustainable and revolutionary structure.
💡 Think about it: just one smart contract can save anyone from the need for banks, credit institutions, and courts. This list is endless.
TransparencyAny traditional organization requires trust aspects in the people behind it. Here’s where DAOs step in with their significant advantage - two parties don’t have to trust each other and rely on each other.
When talking about DAOs, only the smart contract’s code needs to be trusted. Trusting a chunk of code is way easier, as it can be audited and tested in a fast manner before the project’s launch takes place. After a platform’s launch, any kind of decision has to be approved by the community members (DAO participants) behind it.
DecentralizationWithout having a hierarchical structure, an organization can proceed with its further development milestones and growth being controlled by stakeholders. The control itself is reached by voting power while holding the project’s core token.
PARQ Example: token holders retain the rights of DAO members and continue to “own” real estate.
Boosting DevelopmentAnyone can put forward an innovative idea that the entire group will consider and improve upon. Further disputes are resolved through a built-in voting system. All the conditions are pre-written in the smart contract. There are no limitations, and there are no local teams, but a lot of “new brains” with new and innovative ideas.
PARQ Example: DAO members can vote to update the rules of the complex, nominate a new manager, or, for instance, repair the utility rooms.
Connecting PeopleDAO introduced the facility for communities worldwide to connect with each other and work on productive goals together. Anyone, anywhere can enter the world of Web3, having just a stable internet connection and some governance tokens of a DAO in a wallet.
Afford.Capital: DAO Explained
Afford.Capital is a DAO fund. As mentioned earlier, participating in any DAO implies token ownership. While in the traditional governance model it is a key to voting and proposals, Afford.Capital opens doors to investing in promising startups at their early stages.
There are several key differences between a traditional investing fund and Afford.Capital DAO fund:
- You do not have to be an accredited investor and invest large amounts of your capital, as the entry threshold is lowered drastically due to the deployed DAO mechanics.
- Investing through a DAO is part of the Web3 economy, security is provided by smart contracts, making all the stages 100% transparent. As the code is opened, it can be audited by anyone, anytime.
- As an additional layer of security, Afford.Capital offers its investors to sign a “Simple Agreement for Future Tokens” (SAFT).
Taking into account the above-mentioned advantages, Afford.Capital allows investors to pool funds via sub-DAOs. It gives them a chance to invest in early-stage startups and decentralized projects at the earliest stage possible, with the best and exclusive conditions possible.
LP Tokens and Investing through the Afford.Capital DAO
A separate DAO (sub-DAO) is created for each startup/project during its fundraising stage. By investing in one of the projects, an investor acquires LP tokens of a separate DAO of that particular project. These criteria are set by the smart contract’s code so that it automatically knows which sub-DAO your LP tokens are belonging to.
LP tokens (or Liquidity Providing tokens) are special tokens that you receive in proportion to your investment in a particular startup.
💡 The more funds you invest, the more LP tokens you will receive. The very common ratio is 1 LP Token = $1.05-1.10.
Venture capital investment in the early stages is a long-term journey. Realizing this, our investors are waiting for the projects they invest in to move from the stage of hypothesis testing to a fully operational product. The latter is accompanied by the issuance of shares (IPO stage) or listing on crypto exchanges and other venues.
💡 Our shared mission is to find new Unicorns ($1B+ capitalization projects) like Apple with a $22 share price in 1980 at the time of the IPO. This became possible thanks to our own scoring system with 30+ parameters.
How do I invest via Afford. Capital DAO?
You do not have to be a crypto geek or a blockchain developer to join the Afford.Capital investor community. The team made it as simple and convenient for you as possible.
Getting started with your DAO investment journey is simple – just book your consultation, and we will discuss all the exclusive conditions we can provide to you.
The fund’s investment specialist will be happy to shed some light on all your doubts and also answer any questions you may have.
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