From Our Discord: "Speculation in Impact DAOs"

This is a cleaned-up version of a Discord conversation between Gaian, Appt Pupil and aia in the workshop channel from 2022-05-06 to 2022-05-09. The intent with posting this here is to make this material easier to find, reference, and share as appropriate, and to provide a focused place to continue the conversation as the community desires.

Gaian 05/06/2022

@Appt_Pupil I’ve been thinking about your DAO impact playbook.
I love the ideas overall, the thing that’s been coming up for me is this-- What happens to the value of the tokens at the end of the 4 years? Or even in anticipation of that time?

Appt Pupil 05/06/2022

If the DAO lasts all the way to 200 weeks, the different classes of tokens are granted a portion of the treasury based on the token type’s rights. DAOGOV tokens get back their initial investment (assuming sufficient resources are left to do so), DAO APPT NFTs get half the remaining treasury split among them, and DAOMT get the other half of the remaining treasury split among them. If a DAO is shutdown before that, the distributions are the same, but they would be done across fewer tokens.

Thus, the current “book value” of a token is always known. The sale price, of course, at any time can differ based on a wide range of factors.

I suspect that your question is a bit deeper than this, though. Would you be willing to paint a scenario or outline a risk you see from the approach suggested in the playbook so we can explore it?

Gaian 05/06/2022

Nicely explained.
My concern is in regards to speculation on the secondary market. Do you see that as a possibility in the model you are presenting?
If not, can you think of an iteration that would allow for this?

Appt Pupil 05/06/2022

It certainly could be. If I expect that the DAO is going to attract more resources per share issued in the future versus what it averages today, I will be willing to pay above current “book value”. I might also like the DAO APPT NFTs for aesthetic or other reasons that make me want to pay a premium for them, such as the status of owning APPT NFT0 for a given DAO.

The benefit of the playbook model, of course, is that there is more of a floor price than a typical token would have. The caveat, though, is that decision makers may invest the treasury in efforts related to the adventure-vision that will not have a financial return, which would cause the book value of the tokens to decline. Lots of factors in play here.

Gaian 05/06/2022

For sure. I think people being able to speculate on a token is a great way to bring funds into the ecosystem, but it would probably make sense to have a required locking period that is sufficiently long to reduce volatility (i.e. a season or a year.)
The question for me is if the project will be closing out it 4 years, what might that do to it’s price near the end of that term.
It would likely reduce speculation, unless there is a sense that some aspect of the DAO will continue on.

As a parallel-- in the NFT space, I heard Kevin Rose talking about NFTs with utility and how he knows creators that have promised ongoing utility that essentially puts them in the position of having to upkeep something for a lifetime or go back on their word. His answer for his NFTs is to ive them 3 years of promised utility and then allow them to be exchangeable for unique artistic NFTs by the end.

I’m wondering if there could be some utilitarian version of that for DAO tokens. They will stop being produced, so you want to get some while you can, before the project closes out.

Appt Pupil 05/07/2022

You bring up an important point about speculation bringing funds into the ecosystem a DAO operates in, as I have a different take on this topic.

The primary mechanism for an Impact DAO to bring additional resources into its orbit is via the following mechanisms:

  • The auctioning of 10 unissued DAO APPT NFTs during each episode, which brings additional financial resources into the treasury.
  • The release of additional DAOMT each day, which brings additional staff resources into the pods.
  • The grant of DAOMT for prediction accuracy, which brings additional insights into the expected future results of the DAO’s activities.

This is a more direct way to get resources into the DAO, as speculation in the broader market is more likely to take resources OUT of the DAO’s ecosystem. If I buy a token from a DAO for $5 and sell it to a speculator for $10, the speculator has invested $10 into the token, but only $5 of that is available to the DAO, while I can take the $5 profit and invest it in a tofu sandwich.

The playbook incentivizes speculators to direct their investments in ways that will most directly benefit the Impact DAO’s adventure-vision.

Gaian 05/07/2022

Thanks for taking the time to get into the details.
To this point-- “This is a more direct way to get resources into the DAO, as speculation in the broader market is more likely to take resources OUT of the DAO’s ecosystem. If I buy a token from a DAO for $5 and sell it to a speculator for $10, the speculator has invested $10 into the token, but only $5 of that is available to the DAO, while I can take the $5 profit and invest it in a tofu sandwich.”
From my perspective, the value isn’t lost here. Additional value has been created, and with vesting periods, sales tax, etc., some of that value can be absorbed into the DAO. As I see it, this is a key mechanism in web3. It’s basically taking the role that would normally only be available to venture capitalists that are required to have considerable funds but are able to experience considerable upside and opening it up to everyday people. Web3 is the internet of money, where everyone is an investor. To me, sidestepping this function feels like it would be a loss.

I have a couple of questions around the APPT NFTs you are discussing.

  • What is their utility, if any?
  • What does APPT stand for? (I know you wrote this down somewhere but finding it on discord would be quite a thing)

Appt Pupil 05/07/2022

APPT is a backronym I made up mostly as a joke and stands for “Adventure Propelling Provisioned Token”. It does not have any direct utility or decision rights, just an entitlement to a share of the treasury upon DAO shutdown. There is no reason they couldn’t be designed to have aesthetic value or other utility, of course, but the point on not having decision rights is important to limit money having undue influence on DAO decisions.

I agree with you that making it easier for others to get access to the upside of a DAO is important. That is why there are the staggered distributions of tokens for purchase and for earning from valuable activities. There is nothing in the playbook’s design that would preclude speculation, it’s just not the primary way for getting people involved.

My suspicion is that the primary concern for many would be the fixed DAO duration and the inherent cap that would seem to put on speculation, since at DAO shutdown the treasury is fixed and the distribution is known. Thus, as we get closer to that event, it would seem that any speculative value above “book value” would go away. Thus, the risk is that a rush for the exits would happen once someone tries to profit on the speculative excess, as it were.

However, a key point is that just because the DAO is shut down, it does not mean that we must destroy the tokens. They would just have no utility or exchange value at that point. They could certainly, though, still have aesthetic or collectible value just like any other token (or could be exchanged for one that does, like in the Kevin Rose example mentioned earlier. For instance, who among us wouldn’t want to own an Orca token for sentimental value, even if the project came to an end? I could see the market for APPT NFTs of noteworthy DAOs being desirable even after shutdown, which means they would still have speculative value even with shutdown imminent.

I’m enjoying discussing the implications of this - thanks for diving in (ha ha) with me

Gaian 05/07/2022

Yes, it would definitely dampen speculation to know that the tokens would no longer have utility. That was my initial concern.
In talking this through, it occurs to me that the emission could stop before the utility, meaning that there would be a commitment to continue to do work in the ecosystem for a set period. As the tokens were spent on goods and services, they would be burned.
This option could provide a happy medium of allowing for speculation that wouldn’t die down in anticipation of token supply ending.
It could actually increase their value for that reason.
Of course, there would need to be the commitment to continue to honor the tokens during that period, which would be easier for some types of goods and services than others. Also, if there is the option the the DAO continuing in a new form, there could be some option for carry over in token value.

Appt Pupil 05/07/2022

I can see your point and would love for experiments along these lines to see how different approaches impact this.

aia (:dolphin:, :trident:) 05/09/2022

I may be mistaken, but I think you’re conflating the ideal kind of projects for which an Impact DAO really makes sense, with a different kind of organization. A Service DAO and an Impact DAO are significantly different organizations in my purview. Even when the actual value creation is virtually the same, the raison d’être for the two are totally different.

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Thanks for posting this here! I’m proposing the implementation of the Playbook for ACRE DAOs - we will definitely need a fair bit of education and discussion in the community (a bootcamp really!). This is a helpful conversation I can tag in our forum to help folks get acclimated.