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The DAO of (Risk) Capital

Mike

Thousands of strangers recently came together to bid on an original copy of the U.S. Constitution at Sotheby’s.

I was one of them.

If you’re into crypto / web3, then you know what’s up.

If you’re not, then you may have come across a story about it in The Wall Street Journal or The New York Times … but maybe you’re thinking: scam!

In brief, a group of people formed a decentralized autonomous organization — a DAO — to crowdfund a bid for the Constitution (and deal with all the legal and financial rigmarole).

ConstitutionDAO’s target was $20M.

It raised more than $40M.

In ~ 96 hours.

Alas, ConstitutionDAO lost the auction … to Ken Griffin of Citadel … which is comical for a variety of reasons.

Griffin bought it for $42.3M. It’s the most expensive historical document ever purchased.

Despite the outcome, participating in this experiment has been awesome.

I mean look at these comments:

Once you see the power of a networked community first-hand, you can’t unsee it.
 
It’s like The Blue Marble photo from Apollo 17 — it changes your perception of the world.

* * *

I don’t mean to be hyperbolic, but web3 has the potential to change everything.

It’s definitely going to change capital formation and entrepreneurial finance.

DAOs can help close the financing gap for businesses all around the world. While it may be a stretch to say that DAOs will disrupt the VC / PE fund model altogether, consider the following

* * *

Look, of course there are numerous issues raised in the bullets above, and loads more that weren’t even alluded to.

Developing an ethical, effective, compliant, and secure protocol is hard.

For example, even though I was excited to participate in the ConstitutionDAO experiment — and am amazed at what the team accomplished in so brief a period — I had a few hesitations.

One was participants’ reading comprehension: people seemed to think they were going to own a fraction of the Constitution (i.e., a security token) when the homepage of the DAO clearly stated otherwise.

Another pertained to governance. In return for contributions to the DAO, participants received $PEOPLE governance tokens that granted the right to vote on proposals, etc. These were allocated on a pro rata basis (i.e., a donation of 1 ETH granted you 1 million $PEOPLE). So, the biggest contributors had more votes. 

Not great … but also … as the Constitution recognized … direct democracy isn’t great either. I don’t have a firm view on an optimal solution, but I’m allergic to concentrated power in any form.

Yet another was the “gas” — the fees incurred to transact on the Ethereum blockchain. They’re too high, and they’re making ETH unusable.

Jumping from the specific case to the general, there’s a gigantic airgap where cyberspace / web3 interfaces with meatspace / reality. 

It’s one thing to get a DAO together to crowdfund a collectible or invest in a handful of hackers coding something in Solidity. 

But creating a community that has the vision and stamina to build impactful businesses and real assets in underserved markets is a challenge of a different order of magnitude.

* * *

This is the decade of digital assets.

I’ve spoken with a few people about the nexus of crypto and private markets over the last year or so — even floated the concept of a venture DAO with one or two — but I’d been downright lackadaisical when it came to putting my thoughts down in writing.

I thought there was a lot of time.

But ConstitutionDAO demonstrates that things are moving fast in web3.

And ConstitutionDAO isn’t the only story. Take a look at Audacity, DAO.VC, and MetaCartel, for example.

I’m stoked that I’ll be ringing in 2022 with the Wharton School’s inaugural course on the Economics of Blockchain and Digital Assets.

I’m hoping that it will enable me to develop a business model / protocol for entrepreneurial finance in web3, and meet people who are building in the space.

We’ll see!

* * *

One more thing.

Portico’s undergoing a slight brand refresh over the holidays.

Our website will be down for a bit, but we’ll be back in the new year with bells on.

Have a great finish to 2021!

Best wishes,
Mike

Gopal Jain on India’s Transformation

Episode 12 of the Portico Podcast features a conversation with Gopal Jain — co-founder and Managing Partner of Gaja Capital, one of the leading private equity firms in India.

It was a real pleasure to speak with Gopal because he’s lived through the boom-and-bust cycles within India’s private equity industry. Therefore, he’s able to place today’s environment in context, and impart some of the hard-earned lessons he’s gleaned over the last two decades.

We cover a lot of territory in the episode, so you don’t want to miss it!

Check it out on Apple Podcasts | Google Podcasts | Spotify

Grab Bag

Wall of Shame

Blackstone | KKR · US doctors fear patients at risk as cost cuts follow private equity deals (FT)

From the Bookshelf

Why has government been instituted at all? Because the passions of men will not conform to the dictates of reason and justice, without constraint. Has it been found that bodies of men act with more rectitude or greater disinterestedness than individuals? The contrary of this has been inferred by all accurate observers of the conduct of mankind; and the inference is founded upon obvious reasons. Regard to reputation has a less active influence, when the infamy of a bad action is to be divided among a number, than when it is to fall singly upon one. A spirit of faction, which is apt to mingle its poison in the deliberations of all bodies of men, will often hurry the persons of whom they are composed into improprieties and excesses, for which they would blush in a private capacity.
 
In addition to all this, there is, in the nature of sovereign power, an impatience of control, that disposes those who are invested with the exercise of it, to look with an evil eye upon all external attempts to restrain or direct its operations.

— Alexander Hamilton (aka Publius), The Federalist. No. 15 (1 December 1787)

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