Does it operate on a one person, one vote model? Or is it based on how many tokens you hold?
We do both – we have weighted voting, which scales your vote based on how much DAO share you have. We do it for things that impact our constitution: who we are, our investment thesis, how we allocate our investment funds, things like that. But we’ve capped our distribution to make sure no one person can sway the vote too much.
We have the opportunity to start from scratch and adopt the best parts of the structures in place with the new opportunities offered by Web3.
Then within the DAO we have a bunch of different areas that oversee things like protocol investments and cash management, and those are sub-DAOs that are given parameters that they can just execute.
So when an investment opportunity arises, we assess which group is the best to assess it, and then they will be empowered to go meet with the founders, do their due diligence, and then vote, which is done on an individual basis. . They can invest up to US$100,000 on behalf of the DAO as long as 75% of the group approves.
Can someone just go buy some tokens in your DAO?
No, we only offered units by private invitation to people with whom we had a relationship. But if we were to build relationships, have a relationship with someone and feel like they would really add to the DAO, if they had a relevant skill set and were an experienced investor, they could be brought in .
Under Australian law currently, you cannot actually structure a business as a ‘genuine DAO’. So how is Upside DAO structured at the enterprise level?
We are structured as a unit trust because it is the best solution for what we want to do right now. We hope to be an extension of a traditional syndicate of angel investors, and we believe that funding will be very different in technology, especially Web3. But we know where we are today and we work with the best structures available.
Is your cash in fiat currency or crypto?
We hold off-chain and on-chain funds. Off-chain funds are what we use to pay for DAO services and overhead that will generate transaction flow. We will spend money off-chain to help find the best founders and then invest on-chain. Our cash is currently in USD Coin, which is pegged to the US Dollar, as we believe it is the safest stable asset.
Isn’t that a risk? We have seen some stablecoins crash completely and other scenarios where DAOs invest their cash in risky assets and lose it entirely.
We believe the USD Coin is very stable given that it is backed 1:1 with reserve assets (mainly US Dollars). There’s always a risk, but it’s an acceptable risk, and we think it’s very low.
We currently have a subgroup that is looking to put Treasury to work, considering whether we divest the farm or diversify our assets and hold other things like Ethereum. We are privileged to have Apollo Capital and others who are asset managers in the DAO to help create these strategies.
Crypto has had a pretty tough time over the past 12 months, is that a plus for you as an investment syndicate or does it make things harder?
In terms of timing, it’s good for us. Other funding options have dried up a lot, so being a group that invests capital strictly in Web3 projects is advantageous for these founders at the moment. And our wait for a return is much longer, which means we can better align with the founders and stretch our vesting terms much longer.
And then when these projects are launched, there are better prices and better expectations for the retail market, which is really positive for everyone, much more sustainable and better for the space as a whole.
So do you think we’ll start to see more DAOs popping up in Australia in the future?
There’s a lot of optimism that they can be a really effective structure – especially in investments, they make sense and can work really well. We have the opportunity to start from scratch and adopt the best parts of the structures in place with the new opportunities offered by Web3, so I think we will see DAOs become more prolific. I think we’ll see a lot of other areas pop up where they work well too.
At the same time, we’re learning lessons about what’s good and bad about DAOs. They are certainly not a solution for all business models.
My experience with DAOs over the last 12-18 months is that they’re not very self-sufficient yet, and that’s inefficient. So we’re certainly trying to identify the right way to do a real decentralized self-governing organization, and people in the compliance space feel really optimistic that they understand what we’re trying to achieve and will work to make sure the regulations is fit for purpose.
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