Decentralized Autonomous Organisations (DAOs) are the future of venture capital, says Olaf Carlson-Wee, the CEO and founder of San Francisco-based venture capital firm Polychain Capital, in conversation with Decrypt executive editor Jeff Roberts at this year’s virtual Ethereal summit.
DAOs use automated decision-making processes and Ethereum smart contracts to mimic the governance of a real organisation, like a political cabinet or a shareholder-led company. By holding tokens for the relevant projects, strangers can coordinate on how to spend money or structure a protocol, and some DAOs control billions of dollars.
In 2016, when Carlson-Wee was in his mid-twenties, he founded what would become one of the largest venture capital firms, controlling close to $600 million in assets under management. He was also first employee.
He told Decrypt that DAOs are poised to be “the second big breakthrough in the space after digital cash.”
Said Carlson-Wee: “I’m really excited about DAOs… the ability for global capital coordination and allocation based on just anonymous people from around the internet is absolutely fascinating to me. A lot of people don’t realise the sheer magnitude.”
He elaborated: “The capital coordination we see in and in , it’s actually bigger than IPOs. I think a lot of people don’t realize that just the sheer magnitude is already bigger than most IPOs. And it happens a lot faster.”
The young Polychain founder pointed to the growth of the DeFi industry, highlighting how a year and a half ago, the amount of capital raised by DAOs was about a billion dollars. Today it stands at around $75 billion. Carlson-Wee said that the growth, spurred on by DAOs, outpaces even the two largest cryptocurrencies: and .
He also predicts that as DAOs become more complex, they’ll be able to tackle broader challenges: “The scope of applications that DAOs are managing is going to expand more dramatically with the launch of more scalable platforms, platforms which allow developers to explore more complicated logic,” he said. Carlson-Wee thinks that these applications will look and feel a bit more like traditional web apps, websites or file-sharing and storage apps, than the forbidding mathematical financial apps they’re currently being used on.
For Carlson-Wee, the appeal of governance platforms run solely on software will vastly exceed that of traditional governance systems, which are tied down by “jurisdictional apparatus.”
Carlson-Wee also flagged up the current pitfalls of DAOs. Currently, he thinks DAOs struggle to figure out how to allocate money. As a result, he believes we’ll see “more experimental models” in the coming years “like for-profit companies competing for DAO-based capital to act as a contractor for the DAO, so then you can emulate some of the benefits of a for-profit company.”
His vision of DAOs integrating with the more traditional financial space is striking, and Carlson-Wee is certainly optimistic about DAOs going forward: “We’re at $75 billion today, this number is easily going to go to a trillion… In a pretty short time.”