A new type of company: Meet one of Australia’s first DAOs

Company structures are generally unexciting, more or less set in stone by our Corporations Act and rarely meddled with or changed. But with the advent of cryptocurrencies and blockchain in the last decade, a new form of company structure has emerged with some lofty promises of revolutionising how we do business.

Called decentralised autonomous organisations – or DAOs – they are a new entity with no central structure, where rules are encoded in computer programs, every member is given a vote and, theoretically, the whole thing is entirely self-governing. Over the past few years, a number of DAOs have sprung up, including Australian investment syndicate Upside DAO, overseen by general manager Kyall Walker.

Over the past few years a number of DAOs have sprung up, including Australian investment syndicate Upside DAO, overseen by general manager Kyall Walker.Credit: Aresna Villanueva

Walker explains how groups within the DAO are given complete authority to make investment decisions and how votes are weighted in the syndicate. However, he notes there are some shortfalls with DAOs currently – namely their lack of true autonomy and regulatory troubles – which are holding the space back.

The Age and The Sydney Morning Herald spoke to Walker for our weekly series You, Me and Web3, which aims to examine, challenge and demystify the ideas behind the emerging industry by speaking to the people who live and breathe it.

What is Upside DAO, and how does it work?

Upside DAO is a group of crypto founders, industry experts and people with experience contributing to various protocols and projects. Australia has done very well over the past five years in Web3 and we over-index in terms of success in the space, so we approached those people we thought would make great mentors, advisors and investors and asked them if they want to be part of this.

Our DAO is essentially an investment syndicate, with a couple of differences. It operates on-chain and the governance mechanism allows us to operate in an egalitarian manner where everyone can have a say at different levels. So one is around the strategy and the core function of the DAO, and the others are around decision-making processes within those higher-level strategic decisions.

We are essentially a syndicate, we divide the responsibility for certain tasks and there’s no single person who is accountable for making decisions on behalf of the group. Instead, there are working groups that are created that are empowered to make decisions that are endorsed by everyone.

Does it run on a one-person, one vote model? Or is it based on the number of tokens you hold?

We do both – we have weighted voting, which scales your vote depending on how much of a share of the DAO you have. We do that for things that impact our constitution: who we are, our investment thesis, how we split our investment funds, things like that. But we capped our distribution to make sure no single person could influence the voting too greatly

We have an opportunity to start afresh and adopt the best parts of the incumbent structures with what new opportunities Web3 offers.

Kyall Walker

Then within the DAO, we have a bunch of different domains overseeing things like investments into protocols and treasury management, and they are sub-DAOs that are given parameters that they can just go and execute.

So when an investment opportunity comes in, we assess what group is the best to evaluate it, and then they’ll be empowered to go and meet with founders, do due diligence, and then vote, which is done on a per-person basis. They can invest up to $US100,000 on behalf of the DAO as long as 75 per cent of the group approves it.

Can anyone just go and buy tokens in your DAO?

No, we only offered units by private invitation to people we had a relationship with. But if we were to build rapport, have a relationship with someone and felt like they would really add to the DAO, if they had a relevant skill set and they were an experienced investor, they could be brought in.

Under Australian laws currently, you can’t actually structure a company as a ‘real DAO’. So how is Upside DAO structured at a corporate level?

We’re structured as a unit trust because that is the best fit for what we want to do currently. We hope to be an extension of a traditional angel investing syndicate, and we believe funding will look very different in technology, in particular Web3. But we recognise where we are today, and we work with the best structures available.

Is your treasury in fiat currency or crypto?

Kyall Walker, general manager of Upside DAO.Credit: Tash Sorensen.

We hold funds off-chain and on-chain. Off-chain funds are what we use to pay for DAO services and overheads that will generate deal flow. We will spend money off-chain to help find the best founders and then we invest on-chain. Our treasury currently is in USD Coin, which is pegged to the US dollar, as we believe that’s the most secure stablecoin asset.

Isn’t that a risk? We’ve seen some stablecoins completely fall apart, and other scenarios where DAOs invest their treasury in risky assets and lose all of it.

We feel like USD Coin is very stable given it is backed 1:1 with reserve assets (largely US dollars). There is always a risk, but it’s an acceptable risk, and we feel like it’s very low.

We do have a subgroup currently who are looking at putting the treasury to work, thinking about if we yield farm or diversify our assets and hold some other things like Ethereum. We’re privileged to have Apollo Capital and other people who are asset managers in the DAO to help create those strategies.

Crypto has had a pretty rough time over the past 12 months, is that a benefit to you as an investment syndicate or does it make things harder?

Timing wise it is good for us. Other options for funding have dried up a lot so being a group that invests capital strictly into Web3 projects is beneficial for those founders at the moment. And our expectation of a return is much longer, which means we can better align ourselves with founders and make our vesting terms much longer.

And then when these projects do launch, there are better prices and better expectations for the retail market, which is really positive for everyone, far more sustainable, and better for the space overall.

So do you think we’ll start to see more DAOs pop up in the future in Australia?

There’s a lot of optimism that they can be a really effective structure – particularly in investments they make sense and can work really well. We have an opportunity to start afresh and adopt the best parts of the incumbent structures with what new opportunities Web3 offers, so I do think we’ll see DAOs become more prolific. I think we’ll see plenty of other domains pop up where they work well too.

At the same time, we’re learning lessons about what is good and bad about DAOs. They certainly aren’t a solution for all business models.

My experience with DAOs in the past 12-18 months is that they aren’t very autonomous yet, and that is ineffective. So we are certainly trying to identify the right way to do a true decentralised autonomous organisation, and the people in the compliance space feel really optimistic that they understand what we’re trying to achieve and will work to make sure that the regulation is fit for purpose.

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