Web3 & DAOs, What Are They?
Web3 & DAOs, What Are They?
Deep dive into what Web3 and DAOs & how we can participate in them
Dear Sunday Investors:
Welcome to this week’s edition of the Sunday Investor! I hope everyone enjoyed their Thanksgiving with family and is ready to jump back in to this week’s post. To our new members, the format of this weekly newsletter will be a deep-dive into one investment-topic. This week, we will focus into the evolution to Web3 and the organizational concept of DAOs. We will discuss what Web3 is, how it is different from our current Web2 tech stack as well as potential opportunities to invest/participate in Web3/DAOs moving forward.
Read, enjoy and share with any friends. Let’s build wealth together.
Weekly Market Recap
Let’s dig into some of the most important events that happened in the markets in the last week:
The entire cryptocurrency market retraces 20%+ Friday night in relation to global market nerves on edge with the COVID-19 Omicron variant spreading. For long term investors, this is nothing new as there have been numerous 20-40% drawdowns in previous market cycles.
Square changes company name to Block, Jack Dorsey steps down as CEO of Twitter and is looking forward to dedicating more time to Square’s growing portfolio of crypto & blockchain solutions.
A popular DeFi protocol, BadgerDAO has been hacked for $115 to $120 million in wrapped-Bitcoin (WBTC), a tokenized representation of Bitcoin on the Ethereum (ETH-USD) blockchain.
Joe Biden has reconfirmed Jerome Powell, as chairman of the Federal Reserve; this continues an uncertain future with “transitory” being dropped from describing current inflation of USD.
The Evolution of the Web?
The web has experienced continuous evolution from the time it was created in the 1990’s; This progression of the web can be separated into 3 stages, Web 1.0, 2.0, and 3.0.
Web 1.0:
This was the first iteration of the web which lasted from 1991-2004. Think of this time as the “read only” web. Most participants were consumers of content and the creators were typically developers who built websites that contained information in text or image format.
Content was static on the web and there was not much interactivity within sites. The main purposes of the web in these times were to look up and consume information from other web participants.
Web 2.0:
Web 2.0 is our current version of the web and refers to worldwide websites which highlight user-generated content, usability, and interoperability for all users. Think of Web 2.0 as the participative social web!
In the web2 world, you do not have to be a developer to participate in the content-creation process. Many apps are built in a way that easily allows anyone to be a creator (Think YouTube, Facebook, Instagram, TikTok).
With these, there have been giant corporations that have emerged from the massive growth of web usage. Companies like Google, Meta, Twitter, and Snapchat are free for users to utilize, but they use data to provide personalized ads. This leads to more clicks and ultimately more ad revenue.
If you don’t pay for the product, you are the product
The centralization of user data is a main notion for concern as current users have limited control over their data and how it is stored/used for centralized companies benefit. But what if it didn’t have to be that way?
Web 3.0:
Web 3.0 refers to the future of the web with decentralization at the core which would be the main difference from web2 to web3.
Web3 technology is not built or deployed on a single web server where all users data is stored in a centralized database. Web3 applications either run on blockchains, decentralized networks of many peer to peer servers, or a combination of the two that forms a cryptoeconomic protocol. These apps are often referred to as dapps (decentralized apps) which you may have heard in a previous article when we talked about Ethereum; we will see that term used often in the web3 space.
Web3 Benefits:
Anyone who is on the network has permission to use the service – or in other words, permission isn't required.
No one can block you or deny you access to the service.
Payments are built in via the native token of a decentralized protocol like ETH.
Identity in Web3 is tied to a wallet address, not sensitive personal information which can be hacked/stolen from a centralized database
Web3 Limitations:
With any new technology, there are obstacles to overcome to continue growth:
Scalability – transactions are slower on web3 because they're decentralized. Changes to state, like a payment, need to be processed by a miner and propagated throughout the network.
User Experience – interacting with web3 applications can require extra steps, software, and education. This can be a hurdle to adoption.
Accessibility – the lack of integration in modern web browsers makes web3 less accessible to most users.
Cost – most successful dapps put very small portions of their code on the blockchain as it's expensive.
Want to learn more? Check out my sources on web3 on Ethereum.org, and freecodecamp.org for more info!
What is DAO?
A DAO stands for Decentralized Autonomous Organization. DAO’s have a great potential for growth in the near future. In its simplest terms, a DAO is a group of people pursuing a shared goal, using a blockchain to make decisions in a transparent and efficient way.
DAO’s offer an alternative way to build what we traditionally thought of as a company, and are gaining tremendous momentum and investment from both traditional developers, retail investors as well as well-known venture capital firms.
How Does it Work?
DAO’s are a type of organization that are tokenized and turn the idea of organizational structure on its head, offering real, liquid, and equitable ownership to larger portions of stakeholders with aligning incentives. The initial funding of DAO’s is typically made through crowdfunding where tokens are given to the funding participants. These tokens have a variety of uses such as governance of the protocol allowing holders to vote on the future of the protocol, as well as the ability to buy or sell your stake in the project at any point.
Examples of DAOs:
Some DAOs offer unbelievable APYs, some provide incentives and voting rights, and others gather people together in a common cause with lofty ambitions. This is made clearer through some examples below:
Uniswap DAO:
Uniswap is one of the leading decentralized exchanges, and it became a DAO when they launched their UNI token which gave the Uniswap community a say over the day-to-day running and development of the project.
Anyone holding UNI tokens could either vote or delegate votes on development proposals that could alter the operation or infrastructure of the Uniswap Protocol.
Furthermore, any UNI holder can submit a proposal to alter or introduce new features and have them approved by other community members.
Curve DAO:
Curve Finance is a decentralized exchange for stablecoin assets and it implemented an on-chain governance system in mid-2020 when it introduced Curve DAO token (CRV)
CRV token holders determines the shares of daily CRV rewards that are distributed to each liquidity pool on the Curve ecosystem and they decide the parameter for governing the operations of pools, including the fees paid by traders.
To participate in the Curve governance system, you have to lock your CRV tokens on a voting escrow to receive weighted voting power, called veCRV.
Olympus DAO & Wonderland DAO
Instead of being pegged to the value of fiat currency, OHM/TIME receive their value from being backed by an underlying basket of crypto assets.
Each OHM/TIME token is backed by a basket of assets (e.g. DAI, MIM) in their treasury, giving it an intrinsic value that it cannot fall below.
Olympus (OHM) is currently offering an APY of around 7000%, TIME is offering 72,000% APY. Both of these yields are compounded every 8 hours at the end of each rebasing period.
Click here to learn more information on Olympus DAO, or Wonderland DAO. Keep in mind that both of these projects are fairly new concepts into the market and have extreme volatility in yields/token prices.
ConstitutionDAO:
ConstitutionDAO is a decentralized community that coordinated to buy an original version of the Constitution; in 7 days they raised $40M, onboarded thousands into crypto and educated millions.
After the Sotheby's auction, in which ConstitutionDAO lost to hedge fund CEO Ken Griffin, the founders of the project asserted on its official Discord that, though they lost, "we still made history tonight."
ConstitutionDAO’s token $PEOPLE has seen over 1000% gains since it was created and it is still unknown what the next use-case for $PEOPLE will be; more on the token and where to trade it can be found here
Investing in Web3
Crypto is at the forefront of Web3 and there are many opportunities to be involved with projects that support Web3 ideologies such as the couple I have outlined below:
Helium is a decentralized wireless network competing with the likes of AT&T, Verizon, and other internet providers.
Helium’s network of miners receives rewards by sending out radio signals with their equipment. The users are the internet service providers. Click here to see if there are miners in your area currently.
With power, an internet connection, and $400 for the least costly Helium miner, you are apart of the HNT network that can transmit small bits of data. Companies then pay money to be able to use this network. Internet service giant DISH recently partnered with Helium as well as Lime Scooters, and Salesforce.
Polkadot goal is to provide the infrastructure that boosts the efficiency of the entire cryptocurrency ecosystem
Starting last month, Polkadot started its parachain slot auctions. Think of parachain auctions as companies competing to get on the NASDAQ, but the crypto investors who hold DOT get to choose which gets in by investing in the project they like most.
The winners of Polkadot’s parachain auctions get to utilize one of Polkadot’s 100 available parachain slots.
Brave Browser is a free and open-source web browser which focuses on a privacy of it’s users. Think of Brave as Chrome, but it automatically blocks online advertisements and website trackers for you.
Basic Attention Token is taking on the digital advertisement industry by allowing users to be directly compensated for their time viewing ads as well as being a token to directly “tip” other content creators on the Brave platform.
There will continue to be innovation in this space and I am excited to see where the future of Web3 evolves to. Comment below for any other Web3 projects you are invested in or want to learn more about!
Next Week
Next week, we will be be back in business taking a deep dive into a new investing topic!
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Not financial or tax advice. The content in this newsletter is for informational purposes only. Every investment and trading move involves risk. Do your own research when making a decision.