Why investment DAOs are game changers in financing

Blockchain has transformed the investment world. Previously, only a narrow circle of venture funds and family offices decided where to direct millions, but now anyone can join an investment pool and influence asset selection. This is the essence of investment DAOs — decentralized organizations where each participant's vote carries weight depending on the number of managing coins.

How an investment DAO works: in simple terms

An investment DAO is essentially a collective assembled by the Blockchain. Participants purchase governance coins, and each coin gives them the right to vote. The more coins, the greater the influence on decisions. The community discusses potential investments, makes proposals, votes — and smart contracts automatically execute the majority's decision.

No paperwork, no lengthy approvals. The DAO operates on immutable code that will continue to function even if people lose interest. This is revolutionary compared to the traditional venture world, where everything depends on the decisions of specific managers.

From Idea to Investment: the Mechanics of DAO

The process of making an investment decision in a DAO looks like this: a participant submits a proposal for investment (, for example, in a DeFi protocol or a GameFi project ). To ensure the proposal is serious, it is usually required to hold a certain amount of coins — this is a filter against spam.

Then the DAO initiates a vote. Here, a “snapshot” is used - a record that captures the number of coins in each wallet at the time of voting. This prevents speculators from buying coins at the last moment to influence the outcome.

After the voting, the decision that received the majority of votes is automatically executed. The profit from investments is returned to participants either through airdrops or through a staking mechanism — when coins are locked in a smart contract and generate rewards.

Where Money Comes From: Three Sources

Sale of management coins. A new DAO issues a coin and sells it to investors. If the investment strategy of the DAO looks attractive, it will attract capital. Funds come in crypto — BTC, ETH, stablecoins like BUSD.

NFT and additional rights. Some DAOs issue NFT collections. In addition to speculative value, such NFTs may grant additional rights for managing the DAO or access to exclusive information.

Income from existing assets. If the DAO is created by a DeFi project that is already generating income from its services, this income can be redirected to the investment pool.

Risks That Are Important to Understand

Decentralization is powerful, but it's not a panacea.

Code errors in smart contracts. A bug in the code can freeze funds or allow malicious actors to steal them. The DAO is only as safe as its smart contracts.

Poor investment decisions. The voice of the majority is not a guarantee of profit. A DAO can invest funds in a project with zero return. No one will protect the portfolio from poor choices.

Improper asset management. If the DAO does not diversify its portfolio or poorly manages the treasury, investments can quickly depreciate.

Investment DAOs vs Venture Funds: Who's Who?

This is not competition, but different worlds.

Traditional venture companies have an advantage: established contacts, legal support, experience working with traditional assets. For a startup outside the crypto sphere, a venture fund can be indispensable.

But in Web3, investment DAOs offer what venture capital funds cannot: transparency, democratic principles, and truly equal conditions for all participants. DAO members often have a better understanding of blockchain technologies than traditional venture investors. And most importantly, DAOs do not charge incredible fees for their services.

However, investment DAOs remain in a “gray area” legally. Most of them only work with crypto projects precisely because traditional investment regulations have been cumbersome.

Legal Status: Fog and Ambiguity

The legality of investment DAOs depends on the jurisdiction. There is no single standard, which creates confusion.

First, it is necessary to determine whether DAO coins are considered securities in your country. If so, licenses and special permits may be required. Second, the concept of collective investment is already regulated in many countries – for example, in the USA, there are requirements for investment clubs. The third point is the general regulation of cryptocurrencies in your region.

Before participating in the investment DAO, be sure to consult with local authorities and lawyers.

Conclusion: the future of investments is being written right now

Investment DAOs soared on the wave of the crypto boom of 2020–2021. They provided an alternative to traditional venture financing — accessible, transparent, majority-governed. This attracted small investors and blockchain enthusiasts.

However, investment DAOs are still young, and they face challenges ahead: improving the legal framework, developing security technologies, and enhancing the quality of investment decisions. If you are considering participating in an investment DAO, carefully assess the risks, analyze the strategy of the specific organization, and ensure that you understand what you are investing in.