Technology of DAOs and the Metaverse
This article is co-authored by Mr. Khor Zijian, Ms. Faith Teo, Ms. Emmy Teo, Mr. Lin Fangyi and advised by Dr. Alex Lin, whose LinkedIn profiles have been linked.
There has been growing interest in this space of Metaverse, Decentralised Autonomous Organisations (DAO), and the Play2Earn (P2E) economy. To get a better sense of how these new technologies will change the way society interacts, how work is done, and its implications to real life, a few friends deep-dived into the tech of this new world.
What Is The Metaverse?
The term metaverse was first coined by Larry Niven in his novel “Burning City”. It was an internet-like network of virtual reality worlds, said to be an immersive, persistent online universe that is boundary-less, and is a massive simulation that contains the collective knowledge of all its participants (like the Matrix).
Today, as we watch it evolve, it mainly is three things:
- A social experience: A 3D Virtual/ Augmented Reality (VR/AR) world controlled by AI;
- Community Governed: run by Decentralised Autonomous Organisations (DAOs)
- Self-Sustaining ecosystem: Financially sound, enabled by Tokenomics and cryptocurrencies
All these were made possible by Web3 and the blockchain.
What is a DAO?
DAOs can be hugely influential on metaverse’s ecosystem. Metaverse will be able to operate autonomously, creating a new ecosystem built around tokens. When a metaverse is governed by DAO, it is controlled by the members of the DAO. The metaverse DAO will vote on proposals that affect the metaverse’s future. Anyone can contribute to it and be rewarded for their participation.
Unpacking DAOs conceptually is three things:
1.Decentralised – In a DAO, the power to create rules and processes that run an organization is fractalised and anonymised, allowing each individual to propose new directions in the group and look out for their self-interest. Checks and balances ensue when the community debates, supports or counter-proposes such actions, aligning self-interest with the greater community.
2. Autonomous – run by smart contracts/ programmable code, this cuts out expensive intermediary parties (such as lawyers or accountants). By automating trustless transactions through smart contracts, and operating in a secure manner through decentralised ledgers and computing platforms (i.e. blockchain), it allows the group to vote digitally and without fraud (thanks to the immutability and transparency of the blockchain). Smart contracts will then quickly (and automatically) execute the decisions, be it a change in code, rewarding work or accepting/ rejecting new members.
3. Organisation – aside from governing and administering organisations, the DAO organises work organically. Most DAOs are equipped with a communal bank (or Vault), which serves as a treasury to hold cryptocurrency/ tokens. When work is performed for the DAO by its members, say an improvement project on code or writing a marketing article to promote the DAO, rewards are paid out from the vault. Since members are free to propose, vote and execute work, the DAO constantly evolves and efforts are directed to meaningful work agreed upon by members.
Although DAOs start out centralised to ensure resource and activity efficiency, as it grows, it becomes more decentralised. This extends beyond the rules and processes, to products and services (and the development thereof), funding and operation (and their research etc.), marketing and growth strategies, human resources management processes (recruitment/ interviews etc.), leadership teams etc.. Think about Google if it was run by its employees instead of its shareholders and decentralised across employees worldwide. We will dive into some of these implications later.
How Will Metaverse and DAOs be used?
In short, the possibilities are endless. The Metaverse is the future of living. With the pandemic strongly raging on (even as we write this article, the Omnicron variant just emerged), and youths feeling the brunt of aimless living (‘lie flat’ movement in China that spread around the world), the Metaverse offers the escape of a lifetime, and a glimpse into how people will live, work and play.
Community-Based/ Open Source Software/ Product Development
DAOs support community-based software and product development via the ‘gig economy’, and take this idea one step further by removing the need for a centralised administrative figure, automating everything from payroll to decision making.
DAOs enable members to connect and collaborate in new ways not possible with centralised organisations. Community contribution means a more involved, engaged, and invested community. Delegating tasks, providing feedback, participating in community voting – anything that is required to help develop a community product/ project. Now aside from shareholders, the community is vested to see the project succeed.
DAOs accelerate community crowdfunding. The Ethereum DAO was the first-ever crowdfunded DAO in history, raising $20million in 21 days back in 2016. More recently, ConstitutionDAO raised $42million in 72 hours, and KrauseHouse netted 200 ETH (~$480k) in 15 minutes, 1,000 ETH (~$4.1million) in 4 days. Compare these figures (and speed) to Kickstarter (over $9 million within 2 months in 2010) or Indiegogo (over $1 million within 3 years in 2013), one can see the potential for DAOs to be the new fund pooling secret sauce.
Now imagine all these layered atop the Metaverse, a world governed by code, controlled by AI, built based on community consensus with incentive-aligned economics. Sound like a dream?
Automating Government Bureaucracy
DAOs is a governance experiment, tested on companies and community groups. Can this work on a country level? Governments aim to provide long-term public infrastructure, goods, and services to minimise deadweight loss of society. Yet, justifying the bureaucracy and high costs associated with running government functions is not easy; and hard to condone.
DAOs can exercise a positive influence on the government. It allows a degree of transparency, autonomy and forward-thinking not possible in current government setups. Without the need for human oversight, DAOs can help governments to self-organize efforts, adapt to market forces and business interests quickly, deploying resources and efforts for the actual public good. DAOs will automate government bureaucracy, and free many levels of government from red tape.
A More Inclusive Society
DAOs came from the need to better coordinate efforts and resources in a communal fashion, aimed at better servicing the community. In the future, we believe (altruistically) that DAOs and the Metaverse will be the backbone of an inclusive society.
DAOs are designed to continuously return value back into the ecosystem they are built upon. For an individual, the Metaverse allows anyone with a smartphone, internet access, and a digital wallet to access and play/ work in the Metaverse.
Cue in the Play2Earn Economy, which means both playing games and earning money. It has been around for a long time. In the past, players put in hours to level up, trade rare in-game loot, and sell high-level accounts for cash. With blockchain technology and crypto, the Play to Earn model has been improved. Gaming operators incorporated Non-Fungible Tokens (NFTs), that allow for the asset, ownership, and open economy for in-game assets.
This set in motion a revolution where work no longer revolves around traditional notions of a job. This opens doors for the socially disadvantaged and less abled persons to regain their dignity, and in doing so, build a more inclusive and just society.
Revolutionise The Investment Market
DAOs disrupt the investment market. It allows people to invest in projects, vote on decisions like fundraising, participation in projects etc.. The investment DAO manages tokens inside of it which are proportional to the value of assets in the vault, and recorded on a blockchain which (i.e. ledger) for recording transactions and holdings within the DAO.
An investment DAO can be programmed to hold multiple types of digital assets. These include cryptocurrencies, securities and NFTs. It is even possible for an Investment DAO to hold other Investment DAO tokens, which allow for secondary market trading where investors could trade between different investment DAOs.
One of the first companies to utilise an investment DAO concept was the Art gallery project Maecenas. Users and investors share in the profits and ownership of artwork, represented by tokens. Over time, as tokens are traded between parties, they increase or decrease in value relative to the underlying asset.
Today, the investment DAO is still a new concept. However, a growing number of projects use the NFT standard to create unique digital assets with the usage of DAO as a fundraising tool. These include gaming platforms, art galleries and blockchain utilities.
Shortcomings Of The Current Metaverse/ DAO Technologies
With the immense applications and technologies behind Metaverse/ DAOs, it became clear as we were experimenting that the technology needed to catch up to the use cases.
Firstly, setting up a DAO was not intuitive, especially to non-programmers and non-crypto users. The team took some time getting used to DaaS (DAO as a service). DAOHaus and Aragorn, both of which had varying levels of functionalities. DAOHaus was easy to use with basic functions (voting, guild kick, ragequit, etc.) whereas Aragorn had greater functionality but required knowledge in programming and was difficult to onboard users (complex). Poor UI/UX didn’t help, as DAOs were a more functional solution to community-driven efforts, and catered to a very specific group of persons, likely stemming from gaming communities or programmers. If one did not understand code/ have another person onboard DAO functionalities, it would be a challenge operating/ using it.
Secondly, security and vulnerability issues remain a challenge for DAOs. In 2016, the Ethereum DAO was hacked due to code vulnerabilities. The Ethereum DAO (and hence blockchain) eventually took a hard fork (Ethereum and Ethereum Classic) to restore the stolen funds (essentially negating the whole incident). More recently, Rari Capital lost 2,600 ETH in May, EasyFi and ForceDAO lost up to $60 million and $367,000 in April respectively. Code vulnerabilities exploit has been and will continue to be a challenge.
Thirdly, since DAOs are very nascent, everyone is learning as they go. Application scenarios are not sufficiently extensive and comprehensive, since most codes were patchworked when DAOs met with new scenarios. Add on the voting and clearing time for code change, and it might become frustratingly slow to implement. Also, DAOs are decentralised, and can be worked on different blockchains. This makes coherent development and knowledge management difficult since one would have to be familiar with cross-chain languages to adapt to scenarios. In addition, the difficulty and complexity in Solidity (smart contract developments) prove to be a continuous entry barrier for newbies.
Fourth, current DAOs operate on a limited “autonomous” state where various DAO as a service solution provider shares their best practices and governance methodology. However, when such practices still require the execution of various human intervention, when can we be truly autonomous?
Where Is The Technology Development Heading?
The vision of the DAO is community self-governance run by rules encoded in computer code, without any central control or management. DAOs are powered by blockchain technology, which allows organisations to be transparent, secure and efficient.
The main technologies that allow a DAO to function are:
Blockchain – this allows people to create rules and run programs across a network using open source code, rather than trusting in the abilities of people running them. The organisation is decentralised, relying on cryptography to ensure trust in the system, instead of a central authority.
Cryptocurrency – this provides the mechanism for rewarding those that contribute to the organisation and penalising those that don’t. DAOs are built on the idea of incentivised autonomy. It allows outsiders to have skin in the game, as they must pay to join the DAO, having an incentive system where those with the most to gain work harder for it.
Smart contracts – these are self-executing contracts that allow two or more parties to agree on the terms of a transaction and automatically carry out the agreed actions. They remove the need for trust between the parties involved, as all actions will be carried out according to the code.
AI – used to automatically execute smart contracts, analyse data to make decisions, and run the organisation. As AI becomes more integrated and sophisticated, it could be used to manage and monitor operations like identifying digital assets (and their owners), understanding natural language, and providing customer service. AI augmented DAO operation/ administration develops more efficient governance models and reduces frauds/ scams. AI could augment tokenomics to better financial incentives with DAO governance. This allows the organisation to scale rapidly without human intervention.
AI and DAOs in the Metaverse will augment simulation, algorithmic forecasting, and backtesting to implement accelerated reality. This would provide near-real-time experience with DAOs and eliminate the need for a “testnet” (a simulated blockchain used to test code changes).
Interoperability – this will be key. With the development of projects such as Polkadot, they work to develop common blockchains that allow different DAO programs to communicate with one another, creating a web of interconnected DAOs. Being able to deploy cross-chain DAOs could reduce the security and vulnerability issues with knowledge exchange.
UI/UX – improving the UI/UX and functionalities of DaaS software would greatly enable access to DAOs. With further enhancements, increased scrutiny and sophistication of smart contracts, and applications of governance tokens, developments in this space will extend to issues of real-world ownership, such as property, assets, and licensing.
While current Metaverse/ DAOs have their flaws, they hold immense promise for the future and are powerful tools for social change. The development of new technologies will help to solve some of the current challenges DAOs face. With more developers, academics, and blockchain enthusiasts working together on these problems, Metaverse and DAOs are just the beginning of a bright new future.
Applications of Metaverse/DAO With The Creation Of New Tech Mentioned
We will explore this in a few layers, and what it means for governments, companies/ businesses, communities and individuals
Governments – Governments can very easily reconnect with citizens who are abroad, and engage them on state matters. Voting on policy issues can also take place digitally on-chain, without the need for physical voting centres anymore.
With DAOs, societies can move towards governance that is both decentralised and democratic at their core rather than simply at their outer level (i.e. voting on policy matters vs simply voting the political party/ political office holders and expecting them to act in your best interests).
Layering on the Metaverse, it allows for policy simulations. Policies impacting country management (finance, trade, economic building, public infrastructure, environmental management, cybersecurity, healthcare, education etc.) can be put to test before real-world implementation.
Companies and Businesses – DAOs have the potential to revolutionise company valuation and business operations. In a decentralised, digital world, companies would not be valued according to their assets or revenue, but by the value contributed by the community, or through their digital currency/ cryptocurrency token value alone.
DAOs can help companies maintain ownership of their assets via the vault, and protect themselves from future legislation changes by being nimble. Although now operating at the fringe of law, DAOs will work with regulators for better synergies.
In addition, with smart contracts and AI automation, administrative functions are no longer needed, freeing up valuable manpower resources.
Communities and Individuals – Metaverse and DAOs redefines how we think about and interact with our communities. With blockchain technology, trust is established through transparency and verification of actions. This allows for online communities that are based on real-world interactions and shared values, rather than simply on likes or interests.
For example, imagine a neighbourhood community that is able to manage its own affairs via a DAO. It handles everything from collecting dues, maintaining common areas and facilities, issuing voting privileges to residents etc. In this way, the neighbourhood would have more control over their lives and be better able to manage their own affairs.
Metaverse and DAOs also promise new opportunities for social activism. Currently, it is difficult to track the effectiveness of social activism campaigns. With blockchain technology, it would be possible to track the real-world results to ensure the desired outcome.
This allows donors to be more confident about where their money is going and how it is being used, helping to prevent fraud or unethical practices by charities and social activists.
One of the most interesting applications of Metaverse and DAOs is their ability to create and manage group identity. In the past, groups were defined by their geographical location, ethnicity, religion, or profession. However, with the advent of digital identity, it is now possible for groups to be based on any shared interest or value.
For example, a group of environmentalists could come together to form a DAO that is dedicated to protecting the environment (Klima DAO). Or a group of artists dedicated to promoting and supporting the arts (Pleasr DAO). The DAO would be able to fundraise, manage the funds, assets and volunteers of the group, and would be able to take action on behalf of the group.
DAOs offer a way for people to regain control over their lives and communities, and the Metaverse offers a more desirable escape for humanity in an era where centralised institutions are no longer trusted, and governments are increasingly irrelevant.
The future may well see us living in a world entirely managed by DAOs. We work, live, and play in a metaverse created and governed by us, for us. DAOs and the Metaverse become a beacon of hope and a starting point for a bright new future as developers, academics and blockchain enthusiasts join forces.
Because everything is transparent and captured on-chain, accounting fraud and legal disputes are a thing of the past. Having a trustless society, less able individuals could contribute meaningful work, and humanity’s routine administrative tasks would be handled by smart contracts and AI. The conscious energy of humanity can be used to advance science and technology, focusing on solving the problems that really matter.
However, there are always two sides to every story, and it may well turn out DAOs and the Metaverse are used to further enslave humanity via digital conscription.
Due to this perverse tendency, mega cults can be created wherein any action against the community results in ramifications in the real world, and people, on a global nature, are paralysed, since national sovereignty cannot oppose a global agenda, let alone a community-driven one.
Uprisings, revolts and domestic chaos would be far too easy to create and exploit, as community ideology is almost impossible to kill.
How might governments react? How might governments work with DAOs to integrate them or stop them from growing? What can governments do to prevent social implosion? How might DAOs work with local legislation within countries? What happens when global consensus goes against local regulations? Or when unfavourable DAO decisions go against the government of the day? How do we prevent such digital revolutions? What if perverse actors sell their rights to a country’s governance token? How to prevent such bad actors from causing mayhem?
As we lead humanity into a future of Metaverse and DAOs, the future is likely shaped by both sides, and we are poised to make a difference. Our decisions now will determine our fate, and it’s up to us to make wise choices.