On The Other Side ep 3 - Kinjal Shah: Micro-economies, value creation, and accessibility in DAOs

Primer: In this episode of the On The Other Side Podcast, Kinjal Shah shares about all things DAO. Some of the exciting topics of discussion include the accessibility of DAOs, on-chain reputation, value creation, and micro-economies. Don't miss out on it.

Background

  • Joined the space 4 years ago when she was working at Fidelity Investments in Boston

  • Put on a project that looked at the broader blockchain ecosystem and had to figure out which use cases should be prioritized

  • Started going deep and fell in love with the ecosystem

"I think at the time, I really just felt like this was the future of Finance. But today, I think it's the future of much, much more." - Kinjal Shah

  • Decided to join Blockchain Capital, a venture fund dedicated to the space

  • Investments: From infrastructure & onboarding tools —> frontend applications, consumer adoption, and mainstream applications

  • Co-Founder of Komorebi Collective, a DAO focused on investing in female and non-binary founders in Crypto

The Next 5 Years From A Consumer Perspective

  • Bucket it into 2 categories:

    • NFTs had this crazy surge earlier this year. Consumers are able to buy and trade NFTs. What can consumers do with it? There's plenty of experimentation going on in this area and the Metaverse

    • DAO landscape. How DAOs could be used to organize communities and self-coordinate

  • Not sure whether DAOs will go mainstream. DAOs are opt-in communities; you get what you put in

  • Feels like the trend is to have thousands of small communities

  • Onboarding onto a DAO is more challenging. Takes time to put in work and build up social capital

  • Different types of DAOs, from lightweight DAOs to super intense DAOs. Each DAO will have its own flavour of governance

Accessibility Of DAOs

  • Accessibility exists on a spectrum. Some DAOs just require a purchase of the token while others have a higher barrier to entry

  • Tokens are a way to signal you are in a DAO

  • People are trying to figure out how to scale DAOs by doing different experiments. There's only so many people that can be involved at the MVP level

  • Not sure whether social scalability can be solved anytime soon

  • Finds that most people are willing to contribute and go above and beyond what's required of them, creating an on-chain reputation of their contributions

Feasibility Of On-Chain Reputation

  • Doesn't think it will be that black or white

  • 50 years ago, career reputation was based on your resume and a small circle of people who can vouch for your character and work ethics

  • Today, we have LinkedIn, Twitter, and blogs where people can piece together who you are as a person

"I think careers have been shifting into some sort of portfolio versus saying, like, I'm going to work at one company for 25 years, right? Now, people have side hustles, they have side projects, they do volunteering, they are Twitter influencers, and they have a full time job, like people have an entire portfolio that says, hey, this is who I am." - Kinjal Shah

  • Freelancers will have a portfolio of their contributions to various projects/DAOs, and this reputation is carried along with them wherever they go

  • Working for DAOs will be one career path that people can choose in the future. It enables one to customize and DIY their career

Value Creation Within Different Organizations

  • Internet has value because of network effects

  • Network effects are generated when each user brings on a new user that generates content

  • Most DAOs are thinking about monetizing user-generated content rather than putting it out for free

  • Wrote a piece with Cooper Turley about each member of the community having a slice of the pie. Tokens are not exactly equity, but they are a way to represent ownership of a particular community

  • With this framework, when people contribute to DAOs, what they are doing is that they are helping the value of the entire community go up, benefiting everyone

  • Different types of value capture:

    • Influencers providing entertainment, tips, and how-tos

    • People launching products and merchandise

  • Strength of the community will generate value

On Micro-Economies

  • Wrote a piece with Cooper Turley about the Rise of Micro-economies

  • There's a popular concept from early 2000s where the internet enables a thousand true fans, and that thousand true fans can kind of create a sustainable income/business for one individual

  • Further research shows that only 100 true fans are required

  • For the fans, they feel an attachment towards a given cause or mission. Starting to see such small communities scale when it comes to value creation

  • Micro-economy: take in input from contributors —> put out content/product —> creation of this living and breathing economy that is governed by a token

  • Instead of organizing around geography or a LLC, people are organizing around a digital state/city where anybody can participate in

Emergence Of The Creator Middle Class

  • There's this idea that people want to become YouTube influencers. However, only the top 1% of content creators get to that point

  • For the rest, they belong to the Creator Middle Class

  • Starting to see this evolution of people not wanting to be an influencer with millions of followers. Instead, they just need a really passionate small following to launch their small business

"I think there's a long tail of creators is going to be a much more viable path moving forward, because we now have a way to earn income capture value, that importantly, I don't think is dependent on advertising." - Kinjal Shah

Increasing The Value Of Holding A Token

  • Tokens are being used in governance. The price of the token is determined by supply and demand in the market

  • A strong token implies a strong community that holds on to the token

  • Largest DeFi DAOs have billions of dollars in their treasuries

  • Many projects have governance tokens, but what is critical is having something to govern and a strong community with conviction in the DAO

  • Multiple ways for DAO tokens to accrue value:

    • Launch products

    • Implement a subscription model

    • Earning a yield on assets they hold

Differentiating Between Building And Governing

  • Chase: Kain Warwick of Synthetix made a post differentiating building from governing. What is Kinjal's thoughts on it?

  • Offers a slightly different framework:

    • What questions will affect the financial health of a DAO

    • What questions will affect the social health of a DAO

  • Building products are aligned with the financial health of a DAO

  • Social health is more about building the community and having users participate in what you are building

  • Doesn't think you can separate the two from each other

  • More like a funnel/hierarchy where everything is governance, but not everyone should be deciding everything in governance

  • Have to make sure to get the right person to make those decisions

Drawing DAO Governance From Traditional Corporate Governance

  • Does not think that it is necessarily a bad thing to refer to corporate governance frameworks

  • Thinks that having some level of a delegation hierarchy within DAOs is needed to help DAOs scale

  • DAOs are still fundamentally a shift away from corporations today

Best Practices Across Different Types Of DAOs

  • Chase: Will different types of DAOs (e.g. DeFi, social token communities) have different sets of best practices?

  • Different communities have different objectives, but still, there might be some standardization

  • Still in the experimental phase and we would not know what's coming in the future

Time Horizon For DAO Adoption

  • Hype curve —> things slowing down —> infrastructure gets built —> rising back up again

  • Will differ across different types of DAOs

  • DeFi DAOs have reached a level of maturity that she would not have expected back in 2018

  • Social token landscape is relatively smaller. Expecting that they will be the next breakout category in the next year or two

  • NFT market skyrocketed this year before coming down significantly. People are currently building infrastructure for NFTs in the background, which will push NFTs to the next level

Infrastructure

DAOs

  • Excited about the tooling around treasury management and governance

  • The big missing piece for DAOs is a DIY DApp that can integrate the entire tech stack in 5 - 10 mins and allow the user to use a bundle of tools and services

  • What is the UI of a DAO?

    • Discord

    • Telegram

    • Snapshot

    • Discourse

  • There isn't an online "home" for DAOs where all these things are consolidated together

NFTs

  • Needs to have a wallet that is super accessible

  • Progress is being made in this area, but there's still more infrastructure to come

  • On the backend, one has to ask:

    • Who is hosting the NFT

    • Who is owning the IP

    • What does the price history look like

Focusing On Onboarding More Users Or Catering To Crypto Natives?

  • Chase: Should we abstract away some pieces to make it easier to onboard new users or let them come into the ecosystem and learn how to become crypto natives?

  • Many valid points of view. Heard from a few founders that they pick one path and then double down on it

  • Concerning the former, it's about making sure that users are not confused and can purchase things easily with a credit card. This will target a certain kind of audience

  • Concerning the latter, it is okay for your product to be more clunky or make your users jump through more hoops. The user is willing and excited to appreciate the nuances of what you are building in crypto

  • Using Mirror, the publishing platform, as an example:

    • Create an essay and auction it off?

    • Create a Media DAO and allow people to tip the writer of the essay?

  • The Mirror example might be challenging for someone who's not a Web3 native

  • Both approaches are valid. Important to know which one you are choosing

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