Business-to-DAO is growing to be a valuable business development strategy. This is reflected in the large number of forum posts and proposals looking to push B2D initiatives
Businesses, service providers, and other crypto startups are turning to protocol and DAO governance more often as a business development strategy, hoping to leverage underutilized treasuries to build solutions, provide consulting services, and become contributing stakeholders in these communities.
Many of them have built a reputation over the last few years by engaging in governance as core community contributors and facilitators. But now the trend is rapidly evolving with more traditional products start-ups and service providers throwing their hats in the ring. Brand recognition and legitimacy are important factors in helping a proposal pass, and we’re even starting to see early indications of lobbying and marketing playing a role.
The strategy is new, rapidly evolving, and still largely undervalued. However, we’re starting to see businesses take advantage of the opportunity to collaborate with decentralized organizations to help create positive sum deals and partnerships.
Today, we see this increase in B2D activity across DAOs and protocol governance. DAOs often sit on treasuries of idle capital ready to be deployed to help drive protocol growth and sustainability. Just like traditional businesses, DAOs, find themselves looking for ways to proliferate their mission and impact, and centralized businesses are starting to fill that gap effectively.
With a lot of infrastructure already built around crypto asset management and yield generation, centralized providers and custodians are eyeing massive protocol treasuries as untapped revenue opportunities. Protocols are increasingly looking to real-world asset exposure and institutional lending to help sustain themselves in this bear market.
On September 6th, Coinbase posted to the MakerDAO forums an offer that would have Coinbase Prime custody $1.6B USDC in exchange for a 1.5% annual yield. With this proposal, Maker's idle USDC reserves would generate approximately $24M in additional annual revenue. The DAO holds approximately $4.8B USDC in its Peg Stability Module where USDC is held to stabilize DAI's dollar peg. Proponents of working with Coinbase argue the deal provides an additional revenue-generating avenue to help sustain itself, opponents of the deal argue it considerably raises the risk of government sanctions and censorship: decentralization and censorship resistance is at the heart of this issue.
Another interesting example was Anchorage Digital looking to partner with dYdX, a decentralized margin trading exchange built on Ethereum. On September 6th, the centralized custodian posted to the dYdX forums a proposal to facilitate token lending to third-party providers on behalf of the protocol. They state the goals of the program include promoting protocol growth, increasing token liquidity, generating rewards for the community treasury, and diversifying holdings. The proposal would have the DAO form a separate legal entity that would be able to enter into a contract with Anchorage, after which the community treasury would transfer no less than $5M worth of dYdX tokens to be deployed as a proof of concept, with yield generated from the loans flowing back to the DAO. By working directly through the dYdX governance process, the San Francisco-based custodian allows the dYdX community to have immense input into the proposal and will now be responsible for lobbying and generating support for the change.
The outcome of these proposals is still unknown, what is clear, however, is that heavily regulated businesses are learning how to navigate and properly advocate their value proposition to skeptical and fragmented decentralized autonomous organizations. While legal and other hurdles may block DAOs from deploying their treasuries into traditional financial instruments, those providers are looking for creative ways to bridge the new world to the old through governance itself.
Service providers have also recognized an opportunity to offer up talent to protocols in a much more flexible manner than traditional employment contracts would permit. From startups to service DAOs, new methods of coordinating talent have enabled pockets of distributed builders to connect and fulfill these organizational needs. As an example, DeveloperDAO is a community of thousands of web3 builders helping develop infrastructure and content. WGMI was built to educate up-and-coming community professionals in the space and help projects build their own strategies. Flipside Crypto offers community-enabled crypto analytics and has become a leading delegate in some of the largest protocols, while Gauntlet, an on-chain risk assessment manager, has already won contracts worth millions with Aave, Balancer, SushiSwap, Compound, and more.
On September 7th, Llama, a community of DAO contributors, posted a proposal to the Aave DeFi Lending protocol forums outlining a 12-month working agreement with the DAO in exchange for $2.5M in compensation. Llama looks to build and focus on three key areas for Aave: Treasury Management & Analytics, Growth, and Risk Underwriting. Llama has a long history of collaborating successfully with different protocols across the ecosystem and has proven to be a valuable stakeholder. Most of their previous protocol work was funded through Aave Grants, which is an initiative created to fund projects and ideas that benefit Aave and its ecosystem. Aave benefits from a diverse set of service providers actively working on the development of the protocol, including BGD, GFX Labs, Gauntlet, Aave Companies, and more. This ‘outsourcing’ strengthens and decentralizes the core contributor base at Aave and helps create specialized pockets of highly focused builders.
Llama also partnered with Vector DAO to build Pronouns, a NounsDAO interface for power users. Vector DAO is a collective of designers and brand experts that offer protocols design, brand, and marketing services. On July 18th, the teams posted a proposal to the NounsDAO’s Prop House that looked to fund a custom bidding client. The new Pronouns interface aims to offer improved strategy and insights for Noun bidders. Llama would provide the engineering talent while Vector DAO would lead design efforts on the project - a division of labor that so perfectly showcases how modular and flexible these new kinds of projects can become. The proposal won the grant round and was funded 25 ETH to build out the custom client. NounsDAO voted to fund 4 different teams to build different Noun clients to help expand design space, remove single points of failure, and any reliance on centralized providers.
This type of engagement isn’t limited to distributed teams. On August 9th, Magic Eden, a centralized NFT marketplace, posted to the ApeCoin DAO forums a proposal to build out a customized NFT marketplace for the DAO. The proposal would have Magic Eden build a marketplace in exchange for a transaction fee of 0.75%. Magic Eden is a well-known and established name in the space and has grown to capture 90% market share in the Solana NFT ecosystem. The web3 startup sees value in creating custom marketplaces for large and growing brands and is well equipped with a large team working across different verticals. A dedicated marketplace offers an important piece for an NFT-focused organization as the DAO looks to explore methods of driving value back to tokenholders. During this AIP process other NFT marketplace teams have posted their own proposals as the bidding war heats up. At the time of writing the proposal is live for a snapshot vote and is facing an uphill battle.
Centralized startups will be some of the fiercest competitors in the DAO business development arena. Brand recognition and value alignment are core reasons why they’re engaging in this activity, outside of the obvious monetary upside. These specialized service providers are becoming vital to the growth of DAOs. The question remains, however, how do communities and voters keep them accountable?
This new B2D market is still a largely under-explored strategy, but the deals and activity are starting to pick up. The formation of larger specialized grant programs, improving governance processes, and the growth of treasury management initiatives all contribute to the acceleration of its growth. Businesses and service providers are waking up to the value proposition of working with these decentralized organizations and slowly learning how to get deals done.
We’ll be tracking this proposal activity closely at Boardroom, follow our newsletter to stay up to date. If you’re a voter in a protocol, make sure to get on the waitlist for the new Boardroom Manager.