gm fam, fresh off the press:

▹ Week's Top Signal
▹ Jihad Esmail w/ Tokenized Communities Value
▹ Billboard on Chaos by Songcamp
▹ Andrew Hall on DAOs Governance
▹ Tascha on Utility Tokens <> Adoption
▹ Jane Liu on Financialized NFTs
▹ Facebook Upcoming NFT Feature
▹ ... much more
 
Plus: Market Pill, What else is Poppin'

Let’s get into it.

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DAOs have a power concentration problem. This isn’t news. A Chainalysis report recently observed that “across several major DAOs, less than 1% of all holders have 90% of voting power.” This is true for most communities listed on the Forefront Terminal as well: most communities have a Gini Score above .85, indicating intense inequality of governance token distribution.

On one hand, this isn’t unique to DAOs at all. Power laws rule the distribution of wealth no matter where in the world you look. However, web3 is supposed to be different – at least somewhat.

Instead, we see problems of performative governance (e.g. the Solend debacle we discussed in last week’s newsletter), centralized platforms that LARPed as “web3” pausing withdrawals and falling apart (e.g. Celcius), and many other DAOs aspiring to solve these problems but struggling at a fundamental level (e.g. MakerDAO).

The market downturn is only exacerbating the problem. As DAOs are faced with tough financial decisions and governance becomes more important, the social and infrastructural debt that these organizations have found themselves with is becoming overwhelming.

This will change fairly quickly as DAOs are forced to adopt best practices and improve their token mechanics and distribution in order to survive. However, expect many organizations to die before they’re able to reach that point.

TAKE NOTE
The bear market is forcing every DAO to look in the mirror. From governance to token distribution and more, DAOs will need to hustle to make good decisions, do right by their holders, and pursue their missions in a sustainable way.

What Makes Tokenized Communities Valuable? Forefront core contributor Jihad Esmail is back with a follow-up to his initial Tokenized Communities essay to answer a simple question: what makes tokenized communities valuable? He walks through a three-part value framework – Production, Network, and Ownership Value – and explains how these three create a flywheel that is unique to the platformless, positive-sum nature of web3 communities. The conclusion? Tokenized communities are meme-driven capital allocation machines that are valuable because of their ability to fund people and projects working toward a common mission. In other words, tokenized communities are valuable based on how well they fund people to do cool stuff with their friends.

How a 50-Person Band Wrote a Web3 Hit With ‘Camp Chaos’ NFTs. Chaos, a “headless band” launched by Songcamp, is still making waves even a month after they dropped their initial music NFTs. This time, Billboard covered the project. The article covers everything from the Chaos podcast (Chaos Radio) which told the story of the camp as it happened, to the insane sales milestones that the band reached: 2,334 NFTs were sold at .2 ETH apiece for 446.8 ETH ($532,750) in primary sales, as of this week. The article also traces Chaos’s roots back to Matthew Chaim and Songcamp’s origins, an incredible story of creativity and creator empowerment. Huge shout out to the Chaos fam!

What Web3 Organizations Can Learn from the History of Governance. In this piece, Stanford Professor Andrew Hall and a16z team member Porter Smith explored the key issues with web3 governance today and how political science and political economy research could inform the space’s development. The duo first argues that direct democracy is inherently limited, and recommends representative democracy as a better option for DAOs. However, representative democracy in web3 still leads to folks with the most tokens holding the most voting power. Optimism’s “Citizens’ House” is listed as an example of a way to potentially combat this outcome. Hall and Smith view web3 as a “laboratory for democratic governance,” ane expect to see many more examples of these experiments in coming months and years.

Utility Tokens From Real Businesses Will Drive Next Wave of Crypto Adoption. Tascha of Tascha Labs argues that the next wave of crypto adoption will come from utility tokens of real-world companies. She argues that while ponzis eventually implode, that doesn’t negate the fact that tokenization is a powerful, novel economic model for businesses. Companies with viable products that manage to integrate utility tokens into existing business models early, she says, will be handsomely rewarded, while driving crypto adoption forward. She lists loyalty programs with liquidity as one potential example, and outlines some key factors that decide whether a business is primed for the adoption of utility tokens. We will certainly see more of these experiments as x-to-earn ponzis die off, and the real utility comes to the surface.

The Ethnography of a DAO. This essay from kelsiemvn lays out a framework for doing ethnographic research on DAOs. They lay out four questions to ask as you analyze a DAO: what is being decentralized?; who or what is being made autonomous (both functionally and politically) and from who or what; what is being automated?; and what is being organized?. This is not only a great framework for understanding DAOs as a whole, but especially so for analyzing the specific dynamics of individual DAOs. Specifically, it's a way to analyze the human part of DAOs moreso than the technological or systems aspects. The primary open question is determining how to efficiently put these findings into practice to help improve these organizations over time.

Crypto-Enabled Marketplaces. Fabrice Grinda and Matias Barbero make the case for crypto-enabled marketplaces in this essay. They first differentiate between crypto-focused marketplaces and crypto-enabled marketplaces. The former is a marketplace for crypto assets, they say, while the latter is usually a non-crypto marketplace that uses crypto mechanics. The duo then explores ways that tokens can be used to bootstrap and catalyze marketplaces, whether through user incentivization or as low-cost marketing spend. Similar to the utility tokens piece above, the essay is very bullish on the future of tokens as economic fuel for businesses and marketplaces.

Financialized NFTs: Evolving Opportunities in an Early Space. Financialization transforms illiquid assets into tradable securities, which helps to channel cash flow to borrowers and fund significant economic development. According to this essay, the penetration rate of the NFT credit market is slightly north of 1%, compared with 10% in the traditional art lending market and over 50% in the mortgage market. They argue that “greater potential of NFTs can be unlocked if two key limitations are tackled: low liquidity and inadequate price discovery.” However, some argue that low liquidity is a feature of NFTs, not a bug, which makes them great forms for cultural assets and as a membership primitive. Regardless, the space is clearly building toward further financialization of NFTs, and holders will reap the rewards of that flexibility.

Web3 Use Cases: The Future. Last week, Packy dropped a piece exploring web3 use-cases today. This week, he decided to write about web3 use-cases tomorrow. He dives into hyperstructures (free, unstoppable protocols), physical NFTs and URLxIRL opportunities, ReFi, DeSci, and more. The interesting thing about this essay is that despite talking about the future, all of these things are happening already today. We’re already planting the seeds of the next decade. Packy is a huge proponent of optimism as a lens through which to view technological development – not naive, but still optimistic. In this essay, he shows us why there’s so much to be optimistic about.

Market data on the last 7 days. Last updated July 4, 2022

Updates from the DAO

— Forefront Signal continues to deliver with the most high-signal feed of web3 news and insights, hand curated daily. Check it out at signal.forefront.club.
— From the Forefront Journal, core contributor Jihad Esmail dropped a piece on what makes tokenized communities valuable.
— The Web3 Creator Residency is still going strong – these events have been full of incredible conversation and rich insights from creators. Definitely try to attend this week!

▹ Read - DAOs as Data Trusts
▹ Crypto - Crypto Gaming Economies
▹ Opinion - Number Three
▹ Deep Dive - How to value NFTs
▹ Mainstream - Facebook NFT feature
▹ Update - 3AC files for bankruptcy
▹ Cool - heyanonxyz
▹ Interview - DIS Takes the Wheel
▹ Listen - Steve Klebanoff on Club Podcast
▹ New- Community Scores
▹ Data - NFT Trading Charts
▹ Techy - Zora ZDK
▹ Tooling - Polygon Avail

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