Andreessen Horowitz has invested $5 million in a group chat. In September, the trendsetting VC firm joined Pace Capital, Kindred Ventures, Spark Capital, and the 31-year-old New York Times–appointed “It Girl in venture capital” Li Jin in putting a total of $10 million into Friends With Benefits, which describes itself as “the ultimate cultural membership powered by a community of our favorite Web 3 artists, operators, and thinkers bound together by shared values and shared incentives.” While it may be that, in practice it’s mostly a chatroom on the app Discord, populated by around 1,500 crypto enthusiasts, artists, NFT collectors, and various hangers-on. Sure, by the standards of venture capital, $10 million is not a huge sum. But how much money has your friends’ group chat raised so far?
Admittedly, Friends With Benefits, which was co-founded by Trevor McFedries, the former DJ who created the infamous CGI influencer Lil Miquela, is something more than a group chat: It’s also a DAO, or “decentralized autonomous organization.” “Decentralized,” as in, it has no executive leadership; “autonomous” as in self-governing; and “organization” — well, that’s the “group” part of “group chat.” At their simplest, DAOs are blockchain-based co-ops with software constitutions, and in the last few weeks they’ve overtaken the imaginations of the crypto-futurist visionaries and feverish speculators who turned NFTs into in a multibillion-dollar market over the course of the pandemic — plus a bunch of eager, hopeful artists, marketers, and programmers.
To the true believers, DAOs are the institutional building blocks of “Web 3,” the blockchain-grounded decentralized utopia promoted as the future of the internet by a group of savvy investors, artists, futurists, and developers. Web 3 is “owned by the builders and users, orchestrated with tokens,” and combines “the decentralized, community-governed ethos of Web 1 with the advanced, modern functionality of Web 2,” as a widely circulated Twitter thread by Chris Dixon, the Andreessen Horowitz partner who led the investment in Friends With Benefits, put it. In this vision, a corporate-controlled, data-siphoning social network like Facebook could be replaced by a quasi-democratic DAO, in which new features and products would be debated and voted on by user-owners, with decisions and regulations transparently enforced by contracts encoded on the blockchain. And unlike with Facebook, user-owners who wanted to quit could easily sell their stake in the DAO on the blockchain, pocketing any profit. (That’s one story, at least. To detractors, Web 3 is at best a colossal waste of energy — literally — and at worst a pyramid scheme, a vast, distributed, utterly transparent scam bent on suckering the greedy and naive with promises of wealth and transformation.)
If you really buy into it, though — if you’re steeped in the ultra-positive, hyper-utopian, get-rich-quick culture of Web 3 as it flourishes across Twitter and Discord — you’re not just looking to change the web. Sure, the future of privacy, finance, art, that’s all nice. But as DAO evangelist Tracheopteryx recently told CoinDesk: “DAOs are a bet on the future of human organization itself.”
But. Uh. What actually is a “decentralized autonomous organization”? Described by breathless fans, DAOs can suggest a kind of group or corporate intelligence, a hive mind distributed across the blockchain. This ambitious, almost otherworldly conception of DAOs and their potential evokes the Scottish sci-fi writer Charlie Stross’s book Accelerando, in which spacefaring humans at the edge of the solar system encounter an abandoned megacomputer populated by semi-sentient scavenger corporations that attempt to use the new arrivals as currency. The humans escape with the assistance of an alien slug that turns out to be a “pyramid scheme … trying to hide from its creditors by masquerading as a life-form.”
Alas, so far, no DAOs have managed to instantiate themselves as slugs. (Whether they are pyramid schemes trying to hide out remains an open question.) For now, they tend to resemble an odd mash of more familiar legal, financial, and social forms. A running, self-deprecating joke among enthusiasts holds that a DAO is just a group chat with a bank account — which, for practical purposes, is about right. But it’s also a little bit joint-stock corporation, a little bit cryptocurrency, a little bit gamer clan, a little bit message board, a little bit multilevel-marketing scheme.
The basic structure of a DAO revolves around a crypto token, tracked on the block chain, that serves as a measure of an individual’s stake in the group. In most DAOs, tokens reward participation, guarantee voting rights, and, importantly, are tradable — which means they can accumulate value.
As a concrete example, take Friends With Benefits and its token, $FWB. There are one million FWB tokens on the blockchain, some portion of which are circulating on the open market at any moment. To join Friends With Benefits, you can buy FWB tokens with ether (or another cryptocurrency of your choice). As with any other crypto, those tokens can ultimately be sold on to any willing buyers. Around a third of the million FWB tokens is, at the moment, retained in a community treasury, to be distributed according to the wishes of the DAO, with a set number disbursed every few months to members, based on contributions like providing liquidity or serving on committees. People who own at least 75 FWB tokens can propose resolutions in binding elections where each token is equivalent to one vote. The $10 million VC investment in FWB — an exchange of tokens from the treasury to USDC, a dollar-equivalent crypto “stablecoin” — was put through such a process, passing with 98.07 percent of the vote.
Theoretically, the point of this structure is to encourage members to work for and promote the organization without needing executives or administrators — or even, for that matter, knowing who your collaborators are. Because each token represents a financial stake in the DAO, all members are incentivized to both increase their token holdings by doing beneficial work for the organization, and to drive up the value of their own holdings.
Well, wait — a voice pipes up — that’s all well and good, but what kind of “organizations” are we talking about? What are DAOs supposed to do? The true believers will tell you: anything. The most straightforward and obvious use is as a mechanism for pooling capital for investment. The most famous DAO is probably still “The DAO,” a collective investment vehicle launched in the spring of 2016 that described itself as “a new breed of human organization … borne from immutable, unstoppable, and irrefutable computer code.” The DAO raised more than $150 million in ether — 14 percent of all the tokens outstanding — from 11,000 investors. TechCrunch called it “a paradigm shift in the very idea of economic organization.” Six weeks after it was launched, an attacker managed to exploit The DAO’s code to transfer $60 million of its ether holdings into a separate personal account. (Deciding that “irrefutable computer code” actually meant “somewhat refutable computer code,” the ethereum community controversially voted to reset its blockchain to immediately before the attack, effectively erasing the transaction.)
DAOs of a more recent vintage are rather more secure and somewhat less vocally ambitious. PleasrDAO and Flamingo, for example, were both created to pool funds for speculating on NFTs, while VentureDAO is an attempt to build a venture-capital investment group inside a DAO structure. There are DAOs devoted to helping other DAOs with technical problems. You can imagine (and many have) a journalism DAO, where writers or subscribers are token-holders who could vote on, say, magazine covers, or assignments. The crypto publication Decrypt did exactly this in an experiment in June, resulting in the semi-decentrally assigned article “What Are Flash Loans? The DeFi Lending Phenomenon Explained.”
And Friends With Benefits? What does it do? Well, it hosts events (Diplo came to a party thrown during the bitcoin conference in Miami in June) and publishes a newsletter, but right now, more than anything else, it’s a group chat in a Discord chatroom. You can join the chat only if you own 75 FWB tokens; if you own a smaller number of tokens, you can still access other services, like the newsletter (for people who hold at least one FWB token), or community-authored guide to Miami’s “hidden gems” (for members who hold ten tokens). The “token-gated” party that Diplo attended required that attendees hold “a certain number” of tokens. Whether or not any of that sounds worthwhile to you, it’s clearly worth a lot to someone: FWB tokens — listed only on a decentralized crypto exchange called Uniswap — currently trade at around $116, down from a high of nearly $200 earlier in September, leaving the DAO with a market cap of $116 million. (Not bad for a year-old group chat.) That money will be put to use through the decentralized decision-making process, spearheaded by volunteer committees formed to answer questions like, “If FWB is building the ultimate cultural membership, what are the suite of digital and physical products that power that ecosystem?”
Though I have no doubt they will find an answer, arguably the genius of Friends With Benefits is its recognition that, at least right now, a DAO doesn’t really have to do much of anything at all. If it’s cool and exclusive — and if its members promote its coolness and exclusivity — demand for tokens will rise. Squint one way, and it sort of looks like Soho House, if it were structured like a frequent flyer program and run like an anarchist squat co-op. Squint another way it’s a cool kid’s clubhouse re-imagined as a MLM. After all: Pyramid schemes align incentives pretty well, too.
The real utopian hope for DAOs is not necessarily in what they do, anyway, but what they promise: ownership. Two decades of the Web 2.0 era have helped connect a majority of human beings on the globe to one another, but almost exclusively on private platforms over which users have little, if any, say. In some cases, you’re handing over data to corporations who turn around and sell it without recompensation; if you’re a creator or business, you might be building an audience on a platform in which you have no stake.
The token structure aims to change that. You can imagine a DAO where tokens are distributed based on contributions to a company or platform — for creating content, or even usable data. What if all that posting you do on Twitter gave you a say in the company’s decisions? Maybe more to the point, what if quitting meant getting paid out for all your contributions to the platform?
You can see why the DAO structure has attracted attention from net artists and other members of the “creator class.” “Ownership” is a powerful concept to people who contribute enormous value to internet properties without seeing much in the way of compensation — a category of person that includes not just professional creators but just about anyone who posts or scrolls through social media. A Vine owned by creators and users, rather than by a fickle parent company like Twitter, might have survived and thrived.
But creating more equitable ownership structures doesn’t necessarily translate to more democratic control, or a better end product. In most DAOs, tokens still act like shares, so whatever person or people own a majority have the most power. A YouTube where Jake Paul and the kid from Charlie Bit My Finger collectively own a significant portion of the platform would certainly be better for Jake Paul. But would it be better for anyone else on or watching YouTube?
In theory, the tradability of tokens acts as a counterbalance against majoritarianism. If you don’t like the direction Jake and Charlie are taking DAOTube, you can sell your tokens and buy into a different video-sharing DAO. This sounds fair — but it also sounds unstable. Megaplatforms are most useful and effective when they’re reliable and widespread. Platforms that rise and fall on the movements of a token market are anything but. To people for whom the Web 2.0 landscape of global megaplatforms represents a steady if sometimes suffocating communications and professional infrastructure, the ever-fluctuating DAO marketplace doesn’t necessarily look like an improvement, no matter how much more ownership and democracy it promises. On the other hand, to financial speculators, for whom volatility is an opportunity and not a drawback, it looks like paradise.
Of course, it needs to be said that this is all extremely theoretical. For all the philosophical and technical claims made about the unique status of the DAO, very little legal or regulatory work has been done to clarify what, exactly, they are in the eyes of the government. (Wyoming has passed a law that allows DAOs to operate as LLCs.) What the law is clear about, though, is that any token that gives a person a legal, old-fashioned ownership stake in an organization is a security — and subject therefore to regulation by the SEC. Gary Gensler, the current SEC commissioner, has expressed a willingness, if not an eagerness, to lay down the law in crypto world — which means that, for now, DAO token-holding represents only a social promise of ownership. If you want your rights enforceable by the U.S. government, you need to be subject to its regulations.
The current mania for DAOs emerges from the colorful froth around NFTs, the tradable digital assets whose market has exploded over the last year off the backs of bored young gamers, sneakerheads, day traders, and others prone to gambling. Newly minted and would-be crypto millionaires looking for new bets or places to stick their bulging ethereum wallets are naturally attracted to DAOs, whose exclusivity and premium on early adoption can offer the same kind of social cachet as the scene’s ubiquitous and expensive NFT Twitter avatars, called PFPs. DAOs also offer a kind of next step into the Web 3 scene, for those who discovered it via NFT speculation: a way to further immerse yourself in the ideology, culture, and, especially, the community of the blockchain. (Dapper Labs, a major player in the NFT world, recently purchased FWB founder McFedries’s start-up, Brud; McFedries will lead a team focused on DAOs.)
The first generation of cryptocurrency devotees tended to oversample privacy paranoiacs and antisocial cranks attracted by the technologies’ “trustlessness” — the supposed ability to do business with people over the blockchain without needing to trust them or even know who they were. The scene around Web 3 and DAOs certainly claims a set of political commitments — to sovereignty, ownership, and decentralization — but in place of constitutional mistrust and skepticism is a bubbly, earnest, exhaustingly enthusiastic sociability. Congregating in Discord chat rooms and on Twitter, NFT traders, DAO members, and other Web 3 enthusiasts wish each other “gm” (good morning) and reassure their compatriots “wagmi” (“we are gonna make it”).
When I spend 10 min on Instagram, I always end up feeling like shit and depressed, as if everyone else's life was better than mine. When I spend 10 min on Twitter, I always end up feeling motivated to create more, because WAGMI.LFG!!— Johan Lolos (@LeBackpacker) October 21, 2021
We should start the *third* largest GM thread ever. No other words allowed - only GM.I'll start...GM— dheerajshah.eth 🦇🔊 (@DheerajShah_) October 13, 2021
If you’re a young person (the world of DAOs skews young, for obvious reasons), sick of culture-war stalemate and alienated by the dominant social platforms online, why wouldn’t you be drawn toward an endlessly upbeat community like this, promising you both vast wealth and positive change? Especially if that community is able to provide you some kind of socially valuable exclusive membership? (This may be one reason why the potentially quite high environmental costs of a crypto-token-based economy rarely get much attention among Web 3 devotees.) I mean, I get it: Hanging out with cool people, changing the world for the better, and becoming a millionaire are three of my top interests, as well. But for all the promises of social revolution, the basic rhetoric of the DAO movement is extremely familiar: It’s a merger of Silicon Valley’s techno-optimism, televangelists’ prosperity gospel, and your high-school classmate’s Facebook posts about Herbalife. Well-known figures, like Friends With Benefits co-founder Cooper Turley, a 25-year-old self-described crypto millionaire, use their Twitter accounts as motivational seminars, LinkedIn style:
Looking for the next market trend?Join a DAO.Looking to make friends?Join a DAO.Looking to go beyond pure speculation?Join a DAO. In case it isn’t obvious…Join a DAO.— Coopahtroopa 🔥ᴗ🔥 (@Cooopahtroopa) October 3, 2021
Treat life as a positive sum game.Give without expecting anything in return.Share your blessings with the homies. Learn together, grow together, win together.Gn.— Coopahtroopa 🔥ᴗ🔥 (@Cooopahtroopa) October 22, 2021
Turley and the many other seemingly earnest boasters who populate the Web 3 scene will profit quite handsomely if their evangelical tweets drive up the value of their tokens, NFTs, and other crypto holdings. But if it’s hard to separate out genuine commitment to the political and social vision of Web 3 from token-holders talking their books — well, isn’t that the whole point?
Max Read is the author of Read Max, a newsletter about technology.