A couple weeks back, a DAO (Decentralised Autonomous Organisation) called ConstitutionDAO tried to buy a copy of the US constitution, then got massively trolled by a hedge fund manager, but has now gained back their standing.
Starting from the beginning…
What is a DAO?
Theoretically, a DAO is an organisation with no central leadership, i.e. they are owned and managed by their community members.
They have built-in treasuries that are only accessible with the approval of their members. Decisions are made via proposals and group votes.
What is ConstitutionDAO about?
The mission of ConstitutionDAO was to purchase the copy the US constitution that was up for public auction at Sotheby’s on Nov 18.
For the first time in 33 years, one of 11 surviving copies of the “Official Edition of the Constitutional Convention” of the United States was publicly auctioned.
It is the only copy that was still owned by a private collector and ConstitutionDAO wanted to bring the ownership into the hands of ‘The People’, i.e. all the DAO members.
The idea spread like wildfire and within a week, the DAO had raised over $40 million from over 17,000 people.
Everyone was excited, but unfortunately, the mission did not succeed and they were outbid by someone else.
The initial disappointment turned quickly into anger, when the world found out a few days later that the winning bidder was in fact Ken Griffin.
Ken is the CEO of Citadel, the hedge fund that played a major role in GME stock short squeeze earlier this year, which caused many retail investors to lose money on their trades.
He and his fund are widely known in the industry for being cut throat capitalists, and he proved it again by intervening ConstitutionDAO’s mission.
What are potential drawbacks of a DAO?
Transparency is a double-edged sword: When you are in a competitive situation such as an auction, it probably isn’t the best idea to share how much you have in your war chest. Because of ConstitutionDAO’s transparency, it was pretty easy for Ken Griffin to place a bid just over the amount that the DAO had available.
Cost of blockchain transactions: After the failed auction, the DAO offered refunds to everyone, but then people realised that processing the refunds would be so expensive, that almost half of the members wouldn’t actually get any money back. This is because the DAO’s governance token ($PEOPLE) was set up on the Ethereum blockchain, where a transaction could cost between $100-200 to execute.
Complexity of alignment: As one would probably imagine, it is very hard to manage and influence the opinions of over 17,000 people. The group broke into chaos and after a week of discussions, it was decided to close down the DAO because it was simply impossible to agree on a new direction. A few people then complained that ConstitutionDAO had in fact a central leadership team who made the final call (which goes against the principle of decentralised decision making), while others argued that it shows that a somewhat centralised leadership is needed for DAOs to function.
What happens now?
Here comes the next funny thing (in true web3 style): ConstitutionDAO is ending, but $PEOPLE is now trading as a meme token and has increased in value by almost 30x (!) at its high this past Saturday.
In other words, if you had contributed $300 to the DAO, then your $PEOPLE tokens would have been worth around $9000.
It looks like ‘The People’ are not done with this project yet and the new intention is to make $PEOPLE grow bigger in market cap than Ken Griffin’s net worth (around $20 billion). We shall see if that happens… you never know in the crypto world.
I hope you enjoyed this! Please let me know with a quick and simple vote here: