Nowadays, it seems like new acronyms in the crypto space are popping up faster than Miriam-Webster herself can add them to her dictionary (literally, we checked). Recently, DAOs have been the hot topic, integral to the functioning of web3 and the metaverse.
So… what on earth is a DAO?
DAO stands for Decentralized Autonomous Organization. A DAO is a way for people to organize and democratically vote on issues, without the need for a single person or company (dare we say ~institution~) to be in power. Essentially, it's a decentralized way of organizing investors, creating a complete fact hierarchy. DAOs are built on a blockchain using smart contracts (digital one-of-one agreements).
Investors who typically buy their way into the DAO will be given virtual cryptocurrency tokens that are stored on an online wallet. These tokens can then be used to vote on issues brought to the DAO. One token equals one vote, so if you own a hundred tokens of the total supply of a thousand tokens, you have control over one-tenth of the vote.
Any investor (and sometimes outsiders) can bring forward a 'proposal'. A proposal asks the DAO members to vote on an issue concerning the DAO. For example, the DAO may vote on whether more tokens should be created (otherwise known as minted).
Once a voting threshold has been hit, the votes will be counted up and whatever option has the most votes wins. The DAO will then automatically act upon the outcome.
How will this change crowdfunding in real estate?
Currently, if you want to get a group of investors to organize how their property needs to be run, you require lengthy meetings, dreaded equity distributions, and someone 'in charge' to make the decision actually happen.
With a DAO, you could have a decentralized way to organize this group.
Let's say a property needs a new washing machine. A proposal will be put forward by an investor stating what the property needs, in this example: "We should replace the washing machine with a new one". The DAO will now vote on this issue.
If the majority of investors agree, the DAO will then have to agree on a price (via another proposal and vote). Once that has been agreed, funds will be released from the DAO to fund this upgrade of the property.
When profits come out of the property and are due to be given back to the investors. It will either be paid back in cryptocurrency or through a dividend type feature that will put money into the investor's bank accounts, once again, completely decentralized.
As you can see, the DAO provides a seamless and decentralized way for investors to organize their property. Now, crowdfunding doesn't complicate the decision-making process. Instead, investors are invited to collaborate in a harmonious way.
Is this being done already?
DAO crowdfunding has been done throughout cryptocurrency history. The most famous example is the venture capital fund literally named The DAO. If only their name was as groundbreaking as their strategy…
The DAO’s DAO (?) was the first DAO ever made and raised over $150 million in Ethereum. It has been named 'one of the greatest crowdfunding efforts' by CoinTelegraph. Unfortunately, the DAO suffered an attack that resulted in a third of the fund's money being stolen, in one of the biggest cryptocurrency hacks of all time.
Since then, we haven't seen a DAO hack on that scale but we have continued to see large crowdfunding projects using the DAO framework. Some notable examples include:
A platform that provides people with cryptocurrency loans.
Perhaps the most famous as of late, Raised $40 million in a week in order to try and purchase an original copy of the U.S. constitution, and erm … they failed.
NFT collectors crowdfunding to invest into, you guessed it, NFTs.
Ok…but are there any successful real estate DAOs?
Truthfully, a real estate DAO is yet to make big waves in this space.
Part of the problem is that despite all the hype, DAOs are extremely complicated to set up. There are some companies trying to create what I like to call DAAS or DAO-As-A-Service in the real estate space. They hope to be able to offer a platform for other real estate companies to build their offerings on.
What could DAOs mean for reAlpha?
If you’ve been following reAlpha's journey for a while, you know we are driven by community as a vehicle to democratize real estate investing. DAOs are the embodiment of community mobilization. So, here at reAlpha, we are constantly exploring these ideas. Could we tokenize our properties instead of using LLCs? Could we offer property membership through NFT purchase? Could we use a DAO to allow our community to set the direction of our social impact fund? When will DAOs become “mainstream” for everyday individuals outside of web3 and crypto space….will they ever be?
The long and short of it: people are still figuring it out, we’re still figuring it out. There is a lot of opportunity for innovation and growth using DAO structures. But, there is also a lot of gray area that needs a bit more color.
Who knows what the future will hold. There may be a future where a reAlpha DAO exists. So, we want to hear from you! What do you think? Would you invest?
Read more about how reAlpha is revolutionizing real estate investing here.