What if could place your money in an investment that earns more than ONE TRILLION PERCENT APY? Is this TRUE or NOT TRUE? The answer is BOTH.
AND if you have invested all of your money, your food, and your clothes, you might just be left in your underwear.
When the concept of the DAO (or Decentralized Autonomous Organization) came out, it was originally meant to add several key governance features for projects in the digital space. Among these features, one of its main premises was to give investors and collaborators more opportunities to vote and decide the future direction and development of the DAO. For example, if a DAO was focused on funding great startup projects in the crypto space, the governance system might have focused on providing the opportunity for investors to choose which projects to fund or how much funding should be allocated to a specific project. The dynamic treasury would be the source of funding for project incubation.
Near the end of 2021, there were several DAOs that rose to prominence. Most notably, the fame of $OHM and $TIME were reaching their all-time highs. In particular, $OHM had a very strong use case and was one of the first DAOs to utilize the idea of treasury-backed assets This inspired the growth of brand new innovative projects in a time when many crypto projects were trying to mimic the meme fad that was sweeping the entire crypto realm. The main problem was not keeping up with the trend - it was getting ahead of it.
Many followers of the original DAOs were loyal to the project and recognized its value in the crypto space. They knew that these could potentially be game-changers, especially for new crypto projects that could use some funding assistance from well-known DAOs. During the development phase of the new generation of DAOs, there were two challenging fronts that needed to be overcome to get the attention of more investors. The first was conquering the "meme" trend and the second was to provide a convincing argument as to why a new DAO would be fundamentally better than $OHM or $TIME.
The premise of many of the new DAOs that launched between November and December of 2021 focused solely on providing protocol-controlled treasury-backed assets that would stabilize the price of their DAO tokens. When compared with $OHM, this was nothing new. However, the most attractive element which brought in thousands of investors from far and wide was the juicy APYs that reached unfathomable values. When investors "staked" their tokens in these new DAOs, it became evident that their assets were growing by leaps and bounds every single rebase period (i.e., approximately 8 hours for a 3-rebase DAO). More investors began flocking to the DAO with the highest APY without any regard for the DAO's purpose or future growth. Thus, the DAO APY competition was born.
The main issue with unfathomably high APY growth is that the law of supply and demand still applies. An outrageous rate of token supply growth would eventually impact the monetary value of each token of the DAO. If one whale seller decided to sell the tokens that they had amassed, the value of the DAO token would decrease by a huge percentage. Despite this, some DAOs persisted with absurdly high APY percentages to attract new investors. But, for what reason?
The horrors of high APY DAOs appeared when the DAO fad began to emerge. The first horror was the infamous "rug pull" that was widely recognized when the Squid Game rug pull occurred. High APY DAOs would boast a robust system for investor token growth which would attract millions of (staked) dollars. Once the owners of the DAO felt that they had reached a "good" amount of staked assets, they would close the website, their social media pages, and never update the investors as to what happened to their staked tokens. They would make the scenario as if they had never existed. One great example would be $AXE (AXE DAO). You cannot see it, because it disappeared.
Then, there was also the 'slow' rug pull. You might be wondering, "How is this possible? You must be blind not to see what a slow rug pull looks like." But, it's not as simple as you might be thinking. A DAO that does a slow rug pull may not close right away. They may even stay open for a long time. They may produce a roadmap of future DAO growth and projects that they would be starting in the near future. When each phase of the roadmap is "due" they may either delay the outcome of an objective or shift a completely new objective (or "asset-growth" system) without informing the investors. Or they could complete a single objective (in a small way) and hype their achievement up so much that the original objective of the DAO is completely obscured.
In the meantime, they may reduce the staking APY to unprofitable levels or decrease the value of the treasury over a period of time without explanation about what happened to it. The owners of the DAO could also issue governance-related voting 'events' where the choice of the investors would be silently ignored over time. For example, the investors of a DAO could vote to stabilize the APY at a specific base rate. After a few months, the DAO owners allow the protocol to reduce the APY below this base rate a few times. When no one complains (or once they block all the investors that complained about it on social media), they may decide to remain below this base rate. These scenarios would eventually lead to a decrease in the value of the DAO token due to panic selling from investors. Based on some user reviews on Twitter, $JADE investor sentiment seems to lean in this direction.
Now, as of 2022, some new and truly innovative DAOs have come out and wondered, "where did all of the investors go"? Yes indeed, where did they go? I think it would not need a second thought to know that they all are either too scared to invest in another DAO or they have lost all trust in crypto. If there is a reason why they should come back, two things must be addressed upfront: (1) How would they know for certain that the new DAO isn't a rug pull? and (2) How would they know that the DAO token value would be stable (like a stable coin) with bonding and APY rates that are also stable?
Imagine this. When you put your money into a bank, you are inherently putting your trust that they will keep your funds safe. They can raise the fees or put new ones in, but at the very least, they don't physically put your cash in their pockets and run. Likewise, investors put their money into the DAO because the DAO had advertised that it was a 'safe' way to grow their assets. People don't come to a DAO to be robbed. They come there as investors looking to grow their crypto worth. Now, what DAO advertisement can they trust if fast and slow rug pulls are happening everywhere?
Keep in mind that crypto and blockchains are great innovations that were started by the leading assets - BTC, ETH, and BNB. Also, not all DAOs are bad. There are several strong ones out there that have withstood the test of time and have great use cases. In my opinion, care and research are needed if you are interested in looking into a DAO venture. If you are (or were) a DAO investor, what are your thoughts on DAOs? What have been the safest, most stable, and highest earning DAOs that you've encountered in your crypto journey? You are welcome to leave your thoughts in the comments section below.
Until next time, have a great day!
(Disclaimer: I am not a financial advisor, nor am I providing any financial advice. I am simply providing my opinions on DAOs which are subject to change over time.)
