Why DAOs Need to Adopt a Two-Treasury System

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The rapid growth of the Web3 ecosystem has been driven by advances in Ethereum scaling systems and the emergence of high-performance Layer 1 blockchains. This has led to the adoption of crypto technologies across the board – from internet startups to startups Large enterprise companies.

However, the current model of Web3 ecosystem building has some inherent flaws.

Arjun Krishan is the President of Kalsi Mantle Ecosystem. This article is part of CoinDesk Crypto 2023.

Blockchain infrastructure companies are trying to solve two complex and expensive problems simultaneously: building best-in-class infrastructure and building the largest and most dynamic ecosystem. Each of these efforts requires significant expenditures of specialized teams and resources to succeed.

As a result, many blockchain infrastructure companies quickly ran out of their treasury funds. For example, the float for Polygon’s MATIC token is over 90% (including all vesting) and the float for Solana’s SOL token is 85% (including all vesting). This means that most of the tokens from ecosystem funds of major infrastructure projects have already been spent on the market.

This type of growth strategy, where an infrastructure company has to solve two different problems simultaneously, is not sustainable. This will ultimately put a strain on the coffers of these projects and stifle the development and adoption of Web3 technology as a whole.

Specialty Layers – A different approach to building Web3

(Arjun Krishan Kalsi)

The optimal solution is to convert one treasury problem into two treasury solutions, each focusing on either infrastructure or environmental architecture. By separating responsibilities for building best-in-class infrastructure and supporting ecosystem development, each treasury can focus on its specific goals and allocate resources accordingly. This will lead to more efficient and effective use of resources and lead to a more robust and dynamic ecosystem.

Using a two-treasury system, the base layer will focus on building the necessary technical infrastructure such as blockchain, bridging tools and other tools. Meanwhile, the ecosystem layer will focus on supporting builders and entrepreneurs who create Web3 businesses, applications, and protocols.

By using dual stacking, value can be created for both the infrastructure and business layers. The infra token will gain value by staking and providing crypto-economic security, while the eco-layer will gain value by driving the economy of the token ecosystem. Additionally, the ecosystem layer will generate gas fees, which will transfer value to the infrastructure layer.

read more: 2023: The Year DAOs Follow the Law?

This is similar to how Web2 infrastructure companies like Amazon Web Services act as a foundational layer when businesses build on top of their infrastructure to create value for the end user. Overall, this approach offers the potential to create tremendous value for both parties involved.

Decentralized organizations

DAOs (Distributed Autonomous Organizations) have several distinct advantages when it comes to ecosystem architecture. A DAO is a decentralized network of participants governed by a set of rules encoded in a smart contract. This system allows for a more open and inclusive decision-making process, as each token holder has a say in the direction of the DAO and can actively contribute to growing the ecosystem.

However, the decentralized nature of DAOs is not always the best fit for making complex technical decisions. These decisions often require a great deal of expertise and can benefit from the focused efforts of a small, centralized team. Additionally, information asymmetry may prevent the public from making optimal decisions in these cases.

read more: How Bad Tax Policy Is Driving DAOs Out of the US

By combining the horizontal structure of the DAO with the vertical structure of the infrastructure provider to create a larger ecosystem, more value is created for the community. This hybrid approach allows us to take advantage of both horizontal and vertical structures for ecosystem creation and technology decision-making.

In the past couple of years, the Web3 space has grown in leaps and bounds, but we still lag behind in terms of mass adoption. The total number of on-chain Web3 participants worldwide is still in the single-digit millions.

If we are to achieve mass adoption of Web3 technology, we need to find new ways to optimize resource allocation for building both the technology and the ecosystem.

The views and opinions expressed herein are those of the author and those of Nasdaq, Inc.


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