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The future of crypto investing
15.10.2020
The DAOfi Story So Far
ANDREW LEE
@alee

Token-permissioned chat groups have grown from 571 users in July to 42,512 cumulative users in just four months!

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Cumulative users on Collab.Land.

And, there are currently over 6,000 new users each week joining token-permissioned chat groups.

New users per week on Collab.Land.

Collab.land is a Discord and Telegram bot created by the Abridged.io team that creates token-permissioned chat groups. If you don’t hold a certain number of tokens, you get booted out of the group within minutes because it links to one’s MetaMask wallet. The Abridged.io team is also the development partner for the DAOfi DEX.

So, how did we get here? It all started with a social experiment called Karma DAO.

How Karma DAO Started

After graduating college in 2013, I worked for angel investor and blogging-content pioneer Jason Calacanis. Having witnessed first-hand some of the inner workings of Silicon Valley venture capital industry, I quickly learned during those years how important it is to be value-add to stay operating in the business. I observed and took part in countless pioneering ways Jason broadened his reach in the space with the sole focus of helping founders, including startup conferences around the world, hackathons, an incubator, angel investor summits, a weekly podcast, and open office hours in SF. Through this work experience, it became innate in me to operate with the ethos of being founder-first, which means puting founders’ needs ahead of personal interest.

With my full-time attention turning to the crypto industry in 2017, I felt that it was extremely important to find ways to add value to my peers. Maximizing alpha was not the goal — adding value and being indispensable to others long-term was. I always felt that the long-term, being valuable to others and paying it forward would always be the ultimate success metric to work towards.

Despite being in an industry that was incredibly short-term incentivized, it was always much more important for me to foster long-term relationships. Some of the ways I felt I was able to help others were referring people to jobs, making introductions, providing insights and advice, leading Telegram communities, helping projects raise money, foregoing countless commission offers, hosting a virtual conference, writing a newsletter, and so on.

In early 2019, I came up with an idea to make a Telegram community called a Karma DAO. However, it wasn’t until July of 2020 when I met James Duncan and James Young from Abridged.io through an introduction from MetaCartel’s Peter Pan when ideas started to turn into action. With the Abridged team’s help, I launched Karma DAO and listed the KARMA token on Uniswap. Because of all the ways I helped others in the past and how many people were already aware of the values I operated on, Karma DAO was quickly seeded with 50 initial members. The DAO quickly grew to the rest of my extended network, and is now at 412 members today.

Karma DAO Was Successful Because It Adds Value To Members

The Karma DAO community unites people under the idea of Karma, which means cause and effect accountability for both good and bad deeds. Because of Karma DAO’s publicly stated community values around helping others and adding value, we were able to create a very inclusive, aligned and proactive online community. Karma DAO operates under the thesis that the whole can be greater than the sum of parts. Since inception, Karma DAO has had a number of successful milestones as a result of bringing together the right people under the right values.

  • Incubation: Karma DAO founders were able to meet the right strategic advisors, resulting in high quality projects raising millions of dollars in capital.
  • Turning passive investors into founders: Karma DAO has seen a lot of encouragement from community peers. Sometimes it takes just the right peer support and nudge from a peer group to take the leap.
  • Dealflow. The DAO has made referrals to a number of high performing early stage investments, which are confidential to members only.
  • Information and insights: Assessing fundamental value to crypto technology is difficult and it’s hard to filter what’s real vs. unsubstantiated claims. Collective sharing of insights and diligence can help tremendously, and there are tons of opinions and insights shared in the group almost at all times.

Karma DAO is what I call an online super community. It is truly a positive-sum game, where everyone can come to the community to both give and gain something. The idea of a positive-sum game is when all parties can have a positive outcome. A zero-sum game is when it’s impossible for both parties to win. I believe it’s a really fundamental human need to be part of value-add communities. We could be at the forefront of discovering Web3-tech enabled super communities, but we’re still early and still figuring out all the kinks, flaws and best practices.

Karma DAO facilitates positive-sum community interactions via three methods: a token membership, soon peer-to-peer tipping and wearable NFTs.

Token Membership. The fact that it requires holding tokens worth real monetary value creates a very tangible form of skin in the game to be part of the community. Since there is an opportunity cost of having money staked away, the membership requirement of holding 200 $KARMA tokens has filtered out members who do not add and receive value. Hundreds of members have left Karma DAO since the community’s launch. The end result was a more filtered group that grew closer and more aligned over time. Today, KARMA is $7.16, which translates to holding $1,432 worth of $KARMA tokens to be part of the community, because it requires holding 200 tokens to be part of the group. The initial starting price to join Karma DAO was $6.00 in July (238x).

Early wireframes of peer to peer tipping on L2 on Collab.Land.

Token Incentives. In the near future, Karma DAO will be launching peer to peer token tipping to encourage members to help others and reciprocate. In addition, there will be airdropped rewards for kind and helpful deeds in the DAO.

Wearable NFTs. Karma DAO will be airdropping rewards to members who have a rainbow frame around their Telegram photo. About a quarter of the community members have adopted this frame, and there will soon be a NFT airdropped to members so they can tangibly own the art and own a digital asset that marks their early involvement in Karma DAO.

Karma DAO members wear NFT art frames on their Telegram and Twitter profile photos and earn free airdropped KARMA for doing so.

Web3 Super Communities

Through a bit of experimentation and trial and error, Karma DAO revealed a lot of forward-looking insights as to what might lie in store for the future of Web3 communities, facilitated by DAO governance, tokens, NFTs, and DEXes.

Tokens will be an incentivization layer on top of Web2 social.

The Bitcoin community was a pay-it-forward open-source contributor community in the early days. Ethereum is a value-add community as well. Examples of altruistic efforts in the Ethereum ecosystem include grant-giving organizations such as Gitcoin, MolochDAO and MetaCartel.

Unlike the era of Web2 social applications, crypto communities are further enabled by wallets, token assets and access to liquidity via DEXes, and have unique game theoretic incentives to align and coordinate people in more powerful ways than we’ve seen before. Token assets are able to create tangible skin in the game and incentives to align people.

I see a social Web3 future where it will be common for the mainstream internet user to own crypto wallets, to know how to trade assets on DEXes, and to understand basic concepts around risk and volatility related to investments and trading. I see wallets, tokens and DEXes being layers on top of the Web2 social applications that will help foster alignment and deeper social connections.

How the DAOfi DEX Differentiates and Adds Values

After the success of KARMA’s token price, there was an emerging trend of small circulating supply tokens with single liquidity pools on Uniswap — hence the birth of the terminology “rug pull” where the liquidity is removed by the single liquidity pool creator. Countless experimental tokens began to hit Uniswap fast in August. Many of the tokens failed to launch properly because bots and traders started to seize up early cheap supply for every credible project that listed on Uniswap. The Abridged team and I realized that the 50–50 curve for Uniswap was too exponentially steep and something had to be done to fix unfair supply distribution when launching new token markets, and there was a product opportunity to fill that gap.

Configurable curves. All token markets usually start with a small community that is interested in buying and selling the asset, and the community grows from there. A major drawback to using Uniswap as a DEX for launching new token markets is its 50–50 ratio price curve that creates an opportunity for early buyers and bots to acquire relatively cheaper supply before tokens with a single liquidity pool appreciate very fast. This creates a pump and dump scenario where rent-seeking traders, who add zero value to the project and have no long-term interest in the asset, can extract value from other participants who have a longer-term interest in the asset. In Balancer, liquidity ratios are configurable, but there are still drawbacks in user-experience, speed and lack of flexibility for curve types. DAOfi offers parameters to create flexible bonding curves, whether steep exponential or low linear growth. After such token markets find a sustainable price on a curve, it’s very possible they evolve into order book trading later and trade freely on DEXes such as Serum or centralized exchanges. DAOfi is an incubation ground for launching new token markets.

Speed. Any DEX running on ETH mainnet struggles with issues of failed execution of orders, unpredictable slippage and high gas fees. These drawbacks become seriously detrimental for users that need speed for trading. Core to our product thesis is speed alone is a feature that can make a product a lot more valuable: examples from the past might include Yahoo vs. Google, SMS vs. Whatsapp, iTunes vs. Spotify. DAOfi aims to solve the speed issue by building on top of Serum’s on-chain order book that runs on Solana, which offers <~300ms block times. While we are still exploring the pros and cons of other L1s and L2 infrastructure, our initial alpha version is focusing on Serum due to benefits around speed and scalable security.

Simple User-Experience. Having a very simplistic User Interface will be paramount for reducing friction and allowing users to easily trade or create a liquidity pool.

Configurable fees. One of the features that will be important to DAOfi is allowing token creators to extract a configurable fee for every trade that happens for their token, which can result in a source of revenue for the token creator.

Serving creators. While DAOfi aims to solve all these issues above with a new product offering, the product also aims to carve out a niche and be defensible by owning the market for creators and community tokens. The way DAOfi plans to serve this market is not only via direct relationships to token creators around the world, but iterating based on user feedback and usage data based on what is needed for this specific customer base.

Conclusion

DAOfi aims to serve a small but fast and highly engaged growing audience of crypto creators that are launching small token markets with their communities. We are razor-sharp focused on serving such creators around the world with our v1.0 launch. Many community leaders within our network are blocked from launching token markets today because they see no fair way to provide liquidity for their token without rent-seeking actors coming in to destroy the early supply distribution on existing DEXes. Also, the speed and UX hurdles to existing DEX solutions make it difficult to be a small token creator today.

In the near-term, we’re really excited to support token markets for our first-degree network of friends and early supporters. We’re also very excited to see token-permissioned chat groups in WeChat take place and find adoption as well in Asia.

In the long-run, we see it being very possible that crypto assets will extend beyond crypto trader communities and into the hands of musicians, streamers, celebrities, and other types of online communities. Common characteristics to all such communities are themes of mutual empowerment and inclusivity.

We’re really grateful for all the traction and early support, and we look forward to transparently building and reflecting on our progress on learnings as we build from the ground up. DAOfi will take the approach of documenting the journey as we go, transparently showing our learnings, stumblings and approaches to problems. And, we always value community feedback and help!

DAOfi Links

🔗 Website: http://daofi.finance/

⛓ Contract: https://etherscan.io/address/0xd82bb924a1707950903e2c0a619824024e254cd1

🦄 Uniswap: https://app.uniswap.org/#/swap?inputCurrency=0xd82bb924a1707950903e2c0a619824024e254cd1

https://info.uniswap.org/token/0xd82bb924a1707950903e2c0a619824024e254cd1

📑 WP: https://docs.google.com/document/d/1usiEQBOTW_lY7kc-k–qVbiE7uAuRBwjmT8FIetH2TQ/edit?usp=sharing

🗒 Deck: https://docs.google.com/presentation/d/1dZc72-o0MxDKP5Ii63tRts-KqT2LdDmNOSicMEz1Z5A/edit?usp=sharing

📣 Announcements: https://t.me/daofiannouncement

🌎 Community: https://t.me/daofi

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