The Pomp Podcast - #883 What The Hell Is A DAO?! w/ Alexander Taub

Starting point is 00:00:00 what's up everyone this is anthony pompliano most of you know me as pomp you're listening to the pomp podcast simply the best podcast out there now let's kick this thing off alex tob is the founder and ceo of upstream they just raised a massive round and we talk a lot about dows and the various instances of what's going on in that vertical of crypto i really enjoyed this conversation with alex and i hope that you do as well before we get in this episode though I want to quickly talk about our sponsors. Today's episode is brought to you by Pipe. Crypto is all about giving the power back to the people, and our sponsor Pipe is doing that in a big way. Pipe is the world's first trading platform that allows you to trade recurring

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Starting point is 00:03:33 We've got a special treat. We've got Alex Taub joining us from Upstream. Alex, how are you? What's going on, man? How you doing? We're doing fantastic. Last time I saw you, we were talking about Zed Run and potentially getting into the horse racing game in the digital world. This time, I want to talk to you about DAOs. What the hell is a DAO? Everyone keeps talking to me about DAOs, and I'm like, look, man, I don't know. Let me find somebody who can tell me all about DAOs. So here you are. What the hell is a DAO? yeah um so actually out of all the like the complex crypto blockchain concepts i think dows are probably the one of the more easier ones for like a regular person to understand

Starting point is 00:04:12 so you're calling me stupid okay no no no um but it's really like uh conceptually imagine you and uh you know nine friends all put a hundred dollars into a bank account and then um you and so now you had a thousand bucks. And then what you did is you, um, you made proposals on what to use that money for, and then you voted on them and then you executed based on the vote. So let's say you and nine friends put a hundred dollars into a bank account. So now you have a thousand bucks. And then you said, okay, um, you know, let's, uh, you made a proposal to go out to, you know, sushi in Miami. Uh, and like, let's say only three of you were based in Miami. the seven other people are probably not going to vote for that they're not going to want their

Starting point is 00:05:00 money being used for that so what they'll do is they'll probably vote against it it probably won't pass but maybe you made a proposal that everyone wanted to do maybe you wanted to buy a digital asset maybe you want to buy an nft maybe you want to buy a digital horse uh and you you made a proposal for that and then it passed and then you execute on it and then you sort of collectively own it so dallas have become really popular recently because uh well initially it became really popular around collectibles, being able to sort of collectively put money together to buy things that potentially individually they couldn't buy. But now they're becoming even bigger because a lot of people believe this year that DAOs are going to explode in the similar way that NFTs

Starting point is 00:05:41 exploded in 2021. And I think right now in the next sort of three to six months, some of these use cases are going to sort of pop up. The most popular one right now is like these investment clubs, where it's like, you know, sub 100 people, sub like $25 million, where you're sort of pulling money together, and you're buying digital things. But this is a really sort of exciting new way to organize as a as a as a company, you know, as a sort of like a potential future LLC replacement. When you think about this, what give me an example of a DAO that we can talk through, like how it exactly works? What's one that you think is super interesting? So it's funny, the ones that are like the more public ones, they're not really DAOs.

Starting point is 00:06:25 Okay, explain that. Why do you say that? So Constitution DAO never became a DAO, really. And the reason I say that is because I contributed to Constitution DAO. I never voted on anything. So it sort of became this, and maybe if Constitution DAO, they actually won the Constitution, it would have evolved into a proper DAO. um but it just became sort of a weird uh alternative like sort of crowdfunding where like everyone pulled together money and then they didn't deliver anything but um so in terms of like a dow you probably would understand is is more like um uh an investment club it's probably the most popular one right now uh so you and a handful of people pulling money together and let's say you and 20 friends, you all put in $5,000. And now you go and decide you want to bid on things and

Starting point is 00:07:19 buy things and own them collectively. That's probably the most popular and pretty easy to understand how it works. And DAOs in and of themselves aren't legally anything. So if you set up a DAO right now, the US does not recognize it as anything. So it will be looked at as a general partnership. So a lot of people wrap it in LLCs or C-Corps, or if there's other ways to do it, you could do, there's a popular like UNA structure that Andreessen Horowitz put out there where UNA stands for an unregistered nonprofit association. It's really like sort of seeking 501 status. Actually, probably the most popular one recently is ApeCoin, which just launched last week. And Ape is a foundation. So it might have been a UNA at one point,

Starting point is 00:08:07 but they're seeking at least 501c3 status, foundation status. So this is all just like really cutting edge in terms of blockchain and ways to sort of coordinate and pull money together. When you start to think about this, what is the perfect use case for a DAO, right? Like you're talking about buying collectibles, et cetera. Let's fast forward 25 years. Like where do you think this ends up is every company replaced with a dow is every like uh investment club uh now a dow do we say okay dow's actually only used for one very very specific use case and everything else was all bullshit like where do you come out on this i so okay well let's do like a year or two in the future or let's say five years in the future and then let's do 20 years

Starting point is 00:08:54 in five years i think one of the most interesting use cases are around um non-profits like you contribute to a non-profit right now you don't really know like how they're using the money or anything dows give this like well i just assume they're getting rich probably um but like so i actually let me take a step back because the best way to think about the way that we sort of approach it at upstream and the way that i think about it is it's it's the future of community so community 1.0 was like very much IRL. So it was like, where were you born? I was born in New York. I'm a Knicks fan. That's not the greatest thing right now, but I'm a Knicks fan. You're born in Brazil. You might be a fan of the Brazil national team. You're born in LA. You might be a Lakers

Starting point is 00:09:41 fan. You go to a certain school. You're friends with people in that school. You grew up in a certain community and maybe you're part of a certain religion. So you go to a certain church or synagogue or mosque that's like community 1.0 it's very irl community 2.0 is like we call it url it's online interest-based groups it's reddit it's discord it's facebook groups it's twitter groups it's linkedin groups it's slack whatsapp telegram i mean the list goes on and on and it's like if you have an interest like a singular interest you will find someone on the internet with that same interest i have you have to find an interest where it's you're the only person in world that has that. So that's like community 2.0. And then in terms of the promise of community 3.0

Starting point is 00:10:23 or, or like, you know, web three in general is it's, it's not just IRL. It's not just URL. It's both it's it's ownership. So now instead of, uh, you know, funding an admin of a community to make a bunch of decisions, you're funding the community directly. You're getting ownership in it. You're getting transparency, you're getting upside and you're sort of have the ability to know what's happening. So the reason I took a step back and explain that is because a nonprofit, I could totally see in a few years from now, the bill, you know, I donate to a certain nonprofit, and I can see exactly, they're making proposals, the people who are contributing, have a say in what happens, I think that could be really cool. 20 years from now, I think it could be looked at as like, you

Starting point is 00:11:07 look at your local government, right? You pay tax, I mean, we're in Miami now. So we don't, you know, pay some of those taxes, but you pay taxes and, um, you know, you know, seeing how much money is in the local government treasury and the decisions that they're making and having that on the blockchain and being transparent and being a vote, you know, a paying a tax paying citizen and be able to make votes. Why not? Why not 20 years from now that like, it's all in the blockchain, it's all transparent corruption is like, if it's not on the blockchain, is it corrupt? I don't know, you know, like, is someone trying to hide something? So there's a lot of potential here. So when we think about this, uh, obviously this stuff's super complex, like, uh, you need

Starting point is 00:11:51 wallets, you need voting, you need all this stuff. And, uh, in the DAOs that I've seen, uh, or I've, you know, peeked my head into some of these discourse, madness, chaos, like it's like getting, you know, a bunch of four-year-olds in a preschool to come together and try to make decisions like it's literally madness and that's not because the people it's just the nature of when you have 500 or a thousand people trying to make a decision together you begin to realize why corporations that need organization clarity leadership etc they chose to go with a hierarchical structure like hey that person makes the decision these people help execute it and so when you think about that how are technology i know this is kind of what you guys are doing with upstream in that

Starting point is 00:12:34 you have this like Dow in a box, but like, how do you start to use technology to address the complexity and kind of chaos that happens when you just put a bunch of people into an organization without that hierarchical structure, or some of the things that corporations have used for, you know, at this point, centuries now, to figure out? Yeah, no, that's a great question. And sort of I look back at to like the decision making process of like how we got here, because we were thinking about the future of community. Since we started, the whole idea of upstream was like the future of professional community and like sometime last summer we started to think through like what is the web3 community play and very quickly it was very obvious that it was it

Starting point is 00:13:15 was a DAO so we sort of look at the landscape and we saw all right starting a DAO right now is pretty pretty complex in terms of the the it's not that it's necessarily complex it's that it's sort of like starting a website in the 1990s like you could do it probably had to pay someone out the wazoo to do it um but like the number of people who could actually build websites was much smaller and there wasn't a you know shopify or squarespace or wix or even wordpress to building websites or blogs or whatever so the first thing we noticed is that it's really hard to start start a dow the second thing we noticed was that even once you started a dow all the tooling for it was really fragmented you're using like aragon for governance and snapshot for voting and you know

Starting point is 00:13:58 discord for the community and communication and collab land for token gating and you know juice box for the treasury and the list sort of goes on and on and we said okay the opportunity here is building a sort of no or low code and then full stack so everything in one place sort of down a box that you could spin it up really quickly um so that's what we initially launched in mid-november and you know we the announcement last two weeks was we raised our series a about 12 and a half million um but in terms of in terms of answering your question um one of the things that we just released that's we haven't really even done a blog post about it yet if you use the product you know it because it's sort of live in there is we have something called dynamic delegation so if anyone

Starting point is 00:14:42 here has ever bought uh you know a well not ever but at a certain point when you bought a dot eth domain. So, you know, I had like, you know, etab, alexetab.eth or whatever. ENS domains basically airdropped people the governance token. And you had the option when you claimed it to either keep your vote or delegate your vote. It was sort of an all or nothing. And that's cool. That's great. But what we did is we launched something called dynamic delegation. And what that does is that allows you to, you know, keep, you know, portions of your vote, delegate portions of your vote. So So for example, if I want to keep, you know, my, my votes around, you know, adding people to the multi-sig wallet, I can keep that.

Starting point is 00:15:27 But if I want to add just members to the DAO, I can delegate my vote to my friend, Sarah. If I want to keep, you know, all my votes for any proposals that have to do with five ETH or above, you know, that, you know, I can keep that, but I, under five ETH, I can give it to someone else. And when you think that's going to be a big change, you know, that plus the ability to vote from your phone, which is something we also released. So mobile voting, the combination of those two things will allow for the decision makers to get the power they need to move quicker, the more active people. So you don't have to just chase people to whip votes. I mean,

Starting point is 00:16:03 that's not the whole point of a DAO. The whole point of a DAO is not to make it more complicated to do things. It's supposed to get transparency and consensus in a much better way. So we have some things we're working on to help on that. Joe, John, what questions you guys got? Alex, what's going on, man? My question would be around just DAOs being labeled as a security. This is obviously a longstanding argument between people as to whether it could or potentially not be labeled a security by regulators. What are your just general thoughts on that? It's a great question. There's a lot of, DAOs are really bespoke right now. And what I mean by that is like, we're walking through the legal side of like four different types of DAOs. One is like an

Starting point is 00:16:45 investment club so investment club is under 100 people under 25 million there's no that's not a security uh you go above 100 people or you're you know there's certain things you can do so you to do a like a investment club you wrap it in an llc and then you either can issue k1s to everyone or you can um tax it as a corporation um then we're doing one that's like a university there's a bunch of people who own a bunch of land in sandbox and they're starting something uh i don't want to say the name publicly because i don't know if they're like announced yet but basically they're starting a university in in the in the metaverse if um you know there's a model like you look at nyu nyu owns a bunch of land in new york uh they have a university they're

Starting point is 00:17:32 non-profit so there's the non-profit association or a una obviously there's some things you can't do you can't distribute profits you can't issue dividends but like you can hire people and have them be professors in the metaverse university um we have one where we're working with a corporation that wants to do something that's like a collaboration uh dow where the people the members of the dow are working on a new brand this is a clothing brand and that brand is going to be their like partner and supply the stuff but the people in the dow are going to vote on what the what the outfits that they're going to be sort of creating so in terms of the security stuff no I haven't seen any case law yet that like has someone has gone after specifically the Howey test

Starting point is 00:18:16 because there's one piece of the Howey test that like might not apply to DAOs and there's just no for example one of the I think it's the fourth I'm not quoting it exact but it's like it's like investing in an enterprise and you know the the fourth piece is something around like uh like the others work as opposed to your own work and in dows it is your own work because you're involved and you own a percentage so i think someone will probably try to take it and figure out if if the howey test applies to to dows but in the meantime if you want to be the most conservative and you want to be the most um in line with what like the legal sort of precedent is is you need to wrap the dow in something that exists in current reality because if you don't

Starting point is 00:19:05 you're just opening yourself a for personal liability if it's looked as because it's not illegal in and of itself to just like have a dow uh but it could be if let's say you do a an investment club with like five friends and there's a dispute there's no like there's like Like if you have an LLC, there's limited liability. But if not, it looks as a general partnership, and they can go after your house, your car, whatever they want. Now, they might not get that, but they can do it. So that's how we've been looking at some of these smaller groups of like investment clubs. Gotcha. And one quick follow-up question off of that would just be around the LLCs, right?

Starting point is 00:19:44 So is this something where one person owns the LLC and essentially controls the DAO, or is the LLC essentially like fractionalized like we see in collectibles? Yeah, so the way that I've seen them so far is that you'll set up an LLC and then you'll also set up an entity. It doesn't have to be an LLC. It could be there's a bunch of different entities. You'll set up an entity and then you'll also set up an operating agreement.

Starting point is 00:20:06 And that operating agreement will dictate how the DAO works. Are we just listening to the DAO? You might want just one person's name on the LLC. You might want multiple people. You probably put it in the operating agreement. Eventually, what we want to do is we want to productize that and and and make it something that like when you when you set it up like legally we don't have to require it it can be optional uh it could be recommended hey like we don't recommend you

Starting point is 00:20:31 running a DAO without setting up an operating agreement with all the members in the DAO uh but legally we we're also like a front-end experience for it so like we're not holding anyone's money the DAO is truly decentralized we're just like a nice front-end experience for the DAO, our sort of logic behind it is most people don't know how to launch a smart contract. Most people don't know how to interact with a smart contract. 99.999 people will never learn how to launch a contract or how to interact with a smart contract. So you need like a web 2.5 feel for it to actually use it properly. But it is truly decentralized. The people who are in the dao own it completely if you in theory wanted to go somewhere else take it somewhere else just

Starting point is 00:21:17 interact with the contract directly we have no control over it so you know in terms of us like we're not in the we don't want to put ourselves in the middle of the legal stuff but we do want to help all the daos that start do it correctly and do it properly john we got for us alex what are your thoughts around the governance structure and governance tokens and their use within daos yeah it's a it's a hot topic right now um you know apecoin launched last week um you know i have a an nft project uh called illuminati nft that i launched with a few friends and we a big piece of it was 50 of the mint is going into uh a dow um that's mostly set up right now we're going to be uh launching it probably in the next we need a little bit of design work for the dow token

Starting point is 00:22:01 um i think there's two ways to go about it right now one is you could do what like apecoin did is And you say, okay, there's X amount of tokens, a billion tokens, and then there's different tokenomics. X percentage goes to holders, and X percentage is in the public market, and X percentage goes to the team or investors. My personal thoughts on that is that those type of things, while it creates some liquidity, it gets a little bit weird in terms of – the people in the DAO could also not be holders of the NFT. So someone could just go buy ApeCoin. That's fine. That's cool.

Starting point is 00:22:47 What we're doing on the Illuminati one is a little bit different where we're going to be, you know, initially from the jump, it was 50% of the mint is going into the DAO. So there's like a thousand ETH sitting there waiting for the DAO to start. And what we're going to be doing is giving people a token that is if you own the Illuminati NFT, you'll agree to the terms and the bylaws of the DAO and you'll get a token you'll be able to claim a token and that token will be your voting power in the DAO so if you have one Illuminati NFT you

Starting point is 00:23:12 get one Illuminati NFT DAO token so the idea there is that like it's not like you're getting 10,000 tokens and you sell 5,000 of them like you know what I mean that to me is like other people are going to be voting on how to use our money in the DAO for the members of the you know of the community so there's a few ways to go about it i we happen to be going about it a different way but i think will be better for the holders of illuminati nft um because they'll be able to actually control what happens with that money alex when you start to think about this my last question for you is uh as people come in this idea of like providing infrastructure what's your vision for upstream over the next you know three four five years is it that dows have to explode

Starting point is 00:23:58 you guys are that infrastructure um and then that's really the the value proposition here or is it something else yeah i think in the next six to nine months someone will emerge as the open sea or the coinbase or the robin hood of dows i think i think investment clubs in and of themselves are a little too niche uh for mainstream like there will be an nba top shot moment for dows you know and when i say nba top shot moment i mean you know this was like end of last end of 2020 beginning of 2021 and it just became like nba ip is like super recognizable you can come in really easily you didn't have to understand crypto and you could go by this moment and it exploded and that led to the apes and that led to the cats and that led to all these other things so i think

Starting point is 00:24:51 there's going to be an NBA top shot moment for DAOs. It probably could have been Constitution DAO, I think, if done a little differently. But something will happen and there will be, I just think the use case is not fully there yet. And I think the next sort of three to six months, three to nine months, people are just going to throw things against the wall. I think like NFT projects, like if I go and sell a million dollars worth of, you know, fuzzy flamingos, and i say that 10 of that is going to go into a dow for the community i think that's a really interesting use case where the community can now control what happens with that hundred thousand dollars um and i think that might you know take off but if you look at the sizing of the dow

Starting point is 00:25:35 market it's like 10 billion dollars i'd say like 90 of that probably maybe even more it's like defy stuff related dow's which is totally fine it's massive it's great but it's not really consumer and i would say like the rest of it is like a mix of you know consumer to you know single purpose dows to uh you know maybe investment clubs and things like that and i think for to take off in a similar way to nfts that's the pie that needs to grow exponentially so what we want to do is we want to throw as many things at the wall as possible because the space is multi-trillion dollar space and it doesn't really matter who's first uh who figures out that initial use case that explodes it's you know who builds the best product and continues to delight their customers

Starting point is 00:26:22 and make them happy so you know i'm i'm excited for more people to get in this space and you know some someone will figure out that that killer use case for dows i love that idea uh one of our sponsors is eight sleep miami company just like upstream uh what do you think about eight sleep you got any uh any sleep schedule uh changes since the last time we talked man my sleep is terrible i probably need to buy eight sleep um come on man all right i got what is it pump the code i'll get money off by the way that's free alpha right there if you use eight sleep.com slash pump you get money off so don't say i never did anything for you now you're gonna sleep good and have more money in your pocket a little extra change for a dow investment that you're gonna make

Starting point is 00:27:01 i'll buy another nft all right where can we send people to find you on the internet or find uh upstream yeah personally i'm ajt on twitter and then uh upstream is upstream app.com or i think it's at join upstream on twitter um and yeah uh thanks for having me here dude super excited about this thank you so much for coming you you now are my dow expert whenever i have questions you're coming back to tell us uh all about dow's and uh next time they people do some crazy shit with dow's you're definitely coming back to explain why we should or should not participate in the constitution dow then have ken griffin front run us and buy the dow instead tell me yeah that's that's something that definitely needs to change for dow's is like you know showing your hand in

Starting point is 00:27:46 poker like you can't you know rich guy we got 44 million he's like cool i got 45 exactly all right buddy sounds good thanks so much thanks alex all right take care thanks so much for listening to today's episode i really hope you guys enjoyed this one make sure you're subscribed on apple spotify or your favorite podcast player and if you're looking to try to transition to get a new job in the bitcoin or crypto industry we've got you covered head over to palmscryptocourse.com we've developed a curriculum with the top teams across the industry it's a three-week intensive training program with over 50 events packed into that three-week time period go to pompscryptocourse.com to learn more and i'll meet you guys for the next

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The Pomp Podcast - #883 What The Hell Is A DAO?! w/ Alexander Taub

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