#13. Spice DAO’s collapse and the promise of DAOs
January 24, 2022
I wrote a few weeks ago about ConstitutionDAO that pooled stakeholders (investors) to submit a bid for an original copy of the constitution. A few DAOs have sprung up to catalyze passionate people around a cause - buying movie studios, professional sports teams, pieces of art. SpiceDAO recently made headlines for buying an original copy of the book Dune via a Christies auction. But they made headlines for the wrong reasons. SpiceDAO paid ~$3m (100x the expected sale price) with the belief that buying this original copy would give them access to the copyright in Dune. Alas, that’s now how buying books or copyrights works.
Logically, once news broke that SpiceDAO paid an astronomical amount for a first edition, the price of SpiceDAO tokens reacted accordingly, by dropping 50%.
Twitter and much of the anti-web3 media exploded with glee over these silly technologists proving technology doesn’t work. In turn, pro-web3 voices sprang up in defense of collective imagination and passion.
It was very exciting to watch from the sidelines. But the moral of the story is not that DAOs are stupid. The DAO worked - pool people passionate about a project, collect funds, purchase a good that everybody owns a stake in. The moral of the story is DAOs are not just passion projects, but are still investments and organizations. As such, there still needs to be research and DD done on what the tehsis is and what you're buying.
SpiceDAO would have been an outright success if the goal were just to own the book because stakeholders were simply that passionate about it. That's fair, normal and everybody's right. And I agree with the above tweet that calling SpiceDAO and their investors “Crypto Losers” is petty and small. But two things here are wrong with SpiceDAO:
If the goal was only to buy the book, there’s no reason to pay so much for it. Keep the rest of the cash for something else. The book was expected to go for a (at that time) whopping $28,000. Paying 100x takes away from doing literally anything else toward your mission.
Just owning the book was very overtly not the point of SpiceDAO. SpiceDAO organizers wanted to make money off the copyright as stated in their victory lap tweet. So they were not coming together over a shared love of sacred text, unless that text is the "in god we trust" on hundred dollar bills (see what I did there?). They invested and they did it poorly.
The people who bought into SpiceDAO were caught up in hype and possibly envy. Those are two emotions that guarantee poor investments. Ga. Ruhn. Tee.
What’s become clear is people aren’t just YOLO-ing money into DAOs, but YOLO-ing into creating them. But it’s easy to be a Negative Nancy peanut gallery, and I don’t think it’s admirable to sit on the sidelines and naysay, so here’s what I yaysay:
I got a question last week after my piece on VC and DAOs as to would people really trust their VC fund to being a DAO, where some other randos vote on where you can and can’t invest. My answer was for some that is desireable, others it isn’t, and both are do-able with a DAO structure. But there’s no one answer right now because there’s still a lot of figure out about where DAOs are and aren’t useful. As we’ve seen already, DAOs can be a great vehicle do coalesce people with seemingly niche interests (Dune, the Constitution) to not just act together as one, but to own together as one.
For many people, ownership in a fast growing organization has been unattainable due to regulatory requirements (i.e., to invest in a start-up, you must be an accredited investor according to the SEC). So DAOs can be a fantastic wealth creation tool (until the SEC swoops in). While lots of the value is in the decentralization, that doesn’t mean DAOs need be structureless. For DAOs to gain more legitimacy, the first thing needed is technology to help spin up well-structured DAOs more easily (currently being done by a handful of startups). Next will come aggregation tools, due diligence, and fundamentals. This is all part of the normal creation of a technological frontier. Where we are today is the chaotic part - and that’s either fun, stressful, or both depending on your personality. We will see frauds, pump-and-dumps, and genuine mistakes (which, by the way, are not exclusive to DAOs *ahem* Theranos *ahem* Enron, Worldcom, Madoff). But we will also see huge successes, heartwarming stories, and a glimpse of a new organizational structures that can be used in the future. Yaysay.
