Yield DAOs: Leveraging Web3 for Better Offline Living
Free meat and coffee from your university endaoment
We have yet to scratch the surface of what’s possible with DeFi, DAOs, and real world living.
The amount of excitement and wealth creation in Web3 right now means DAOs can raise large amounts of money for projects that might traditionally be hard to raise money for. CabinDAO is a good example of this.
And the unusually high yields available in DeFi mean that DAOs could put their money to work enhancing the lives of their members significantly more effectively than a normal business stuck in traditional finance. And in a way that makes membership better and better over time.
So what if DAOs used DeFi to enhance the lives of their members? And what if “real world” businesses tapped into the DAO movement to build new kinds of businesses that leverage the new Web3 world.
I’d like to introduce the concept of a Yield DAO: a DAO committed to enhancing the lives of its members by intelligently harnessing the financial tools at its disposal through DeFi.
Here are some ways it might work.
I’m passionate about food and health, and one of the big challenges with food is meat quality.
The anti-meat crowd is partially right that meat is bad for you: but that’s because most meat comes from sick animals fed unnatural diets and loaded up on various drugs. You shouldn’t eat that meat. But meat but healthy animals fed an ancestral diet is one of the most nutrient dense foods we have available.
The problem is that healthy meat is cost prohibitive for most consumers. Going to a high-end butcher and buying your meat piecemeal might run you anywhere from $10/lb for ground to $30-40/lb for top cuts.
It’s much more financially manageable to buy a fraction of a cow from a ranch directly. That might cut your costs by 50-75%. But most people can’t eat a whole cow. So you team up with some friends and buy one together.
Let’s say you can buy a cow for $3,000. That’ll yield you around 450lbs of meat, so you’re paying an average $6.66 per pound for everything from ground to filet.
You probably don’t need a whole cow at once though, so let’s say you buy ⅓ of one. So your cost is $1,000.
But instead of buying one directly, you buy a membership to the new CowDAO. CowDAO is a DAO focused on making high quality meat more accessible to all its members. Membership comes in the form of an NFT, which is initially priced at 0.07 ETH with a supply of 1,000. Pretty typical for a new NFT drop.
Your membership entitles you to lifetime discounts on the finest quality meat sourced from around the country, and eventually, free meat. Here’s how CowDAO does it.
With the launch of the NFTs, CowDAO now has $332,500 in the bank (assuming an Ethereum price of $4750).
Since CowDAO is lead, in part, by a smart DeFi investor, they allocate the new CowDAO treasury (Moooney?) to a few stablecoin pools targeting 10% APR.
CowDAO now has $33,250, or $2,770, per month to put towards getting better meat for its members. Not much! But it’s just the beginning.
Each month, CowDAO finds a new ranch to source butcher's boxes from. It shares the details in the Discord, lets everyone learn a bit about the ranch, and negotiates a bulk discount for its members.
Members can choose if they want to order a butcher's box, and if they do, their monthly yield dividend will be applied to the box. So for the first month they’ll save $2.77 plus whatever discount the DAO is able to negotiate for placing a bulk order.
Let’s assume that in the first month, 50% of the members buy their box and use their discount. So $1,385 goes back into the yield pool.
In addition, 10% of the members re-sell their CowDAO NFTs. The DAO charges 10% on secondary sales, and assuming they sell at the same market rate, the DAO earns $3,325. So now the yield pool is $337,210.
After a year if this behavior continued, the treasury would be at $393,644, with a monthly yield for members of $3,235. Still the numbers still aren’t that crazy since you’re only getting an additional discount of $3.23, but there might be some ways to make it more interesting.
The central question is: how do you maximize the yielding treasury per member? One strategy might be for the CowDAO to open up sales to non-DAO members, without the discount.
Let’s say the monthly butcher's box cost CowDAO $150 so it sold it to members for $147. It could then offer any unclaimed butcher's boxes publicly for $200, assuming it’s getting members a 25% discount.
If it sold 100 additional butcher's boxes to non-members at $200, for a profit of $50 each, that’s an additional $5,000 added to the treasury each month.
With the additional sales, it now ends the year with $458,547 in the treasury for a monthly discount of $3.82. Still small, but we’re getting more interesting. Especially since your membership is re-sellable anytime and you’re getting discounted well-sourced meat as a member.
What’s neat with this model is that members are incentivized to promote the additional sales to non-members since it enhances the value of the membership. It’s kind of like a coop business model. Everyone is an owner in the business, and so everyone benefits from additional sales being made.
And as the business and treasury grow, membership gets better and better, and the meat gets cheaper and cheaper.
Let’s consider another model, further blending the physical and digital world.
Cafes are tough businesses. I tried to start one which opened in January 2020 (RIP). And one of my best friends in Austin ran one for two years before recently closing it as well.
There are many challenges, but a big one is that irregular revenues make it tough to sustain certain fixed costs with a decent margin. Making sure fixed costs are covered can help alleviate some of the pressure of running a successful shop.
So let’s imagine that you want to sustain a boutique 3rd wave coffee shop in an up and coming city like Austin. And let’s say the main cost you’re concerned about, at least initially, is the rent.
If the monthly rent is $4,000, that’s $48,000 a year. If we take a target yield of 15%, that means you need a $320,000 treasury to passively sustain the rent on the cafe.
That’s a lot of money for a coffee shop, but it’s not a lot of money for an NFT project. Using similar parameters as the CowDAO, you could launch an NFT representing membership in the coffee shop’s co-op. But this membership NFT would offer different benefits:
- Unlimited free coffee in the cafe for you and a friend.
- Deals on beans, gear, and anything else the cafe can source.
- A share in future profits, split among NFT holders in the co-op.
This is not dissimilar to a bar or restaurant doing a Kickstarter, the difference is that your membership is now tokenized and can be resold anytime. It would be appealing to residents in the city where the cafe is located, but it could also be appealing to outside investors speculating on future growth and dividends.
One last potential version of this I find pretty compelling is an educational DAO.
The idea here would be members get unlimited access to educational material, either broadly or within a certain niche, so long as they’re members. Then they can resell or cash out their membership at any time.
And for the DAO, the goal is to build a large “endowment” which is used towards enhancing the educational experience of DAO members. Imagine if Harvard or Yale actually used their endowment to enhance the lives of students. Those tens of billions could go a long way!
I think there would be two interesting ways of doing this: through NFTs, and through high-cost but refundable commitments.
NFTs for Membership
This would work similarly to the CowDAO or CoffeeDAO where you have a token representing your membership in the DAO. Funds spent on these membership NFTs, as well as from any secondary revenue, would go towards building the enDAOment (heh) which could then be used to procure better and better educational material for the members.
Another funding method I find particularly interesting is refundable commitments. You pay some large up-front cost, say, $10,000, and then you get it back after a year assuming you complete some basic amount of material. Or if you just want to quit, you can claim back half of it (or some other percentage). I got the idea from this discussion in the Yearn forums.
What’s neat with this is if the DAO just custodies your $10,000 for one year, they could potentially generate $1,000 in yield off it. At the end of the year you get back your $10,000, you got access to all of the educational material, and the DAO still made $1,000 from you being involved.
You could even let people have a lifetime membership after completing their one year “tuition.” Imagine if instead of paying $200,000 to attend university for four years, you make a $25,000 deposit for one year, and you have lifetime access to that university's lectures and courses.
Use of Funds
So how would this Web3 university use its endaoment? Depending on what areas it intends to focus on, it could solicit in-depth lectures on various materials from top instructors around the world.
It would probably make the most sense to specialize in certain niches, so it can build a larger and larger repository of materials over time. And so natural study groups, knowledge sharing, and other network effects can quickly develop.
Why not just make all of this free? Because people tend to follow through and commit much better to learning when there’s something on the line. The temporary financial commitment, either via a lump sum or the purchase or a resellable NFT, gives someone the initial forcing function they need to start learning and become members of the community. But unlike a normal university, if they decide it’s not for them, they can get their money back and move on any time.
Other Potential for Yield DAOs?
This is mostly a riff, and there are certainly ways we can improve on many of these models.
But as the tools for decentralized collaboration improve, and as we get more familiar with moving funds between on-chain and off-chain life, it seems there are some very interesting opportunities to work together to create better financial support for our interests and communities.
We just need to start exploring what they might be.
Become a subscriber.
Or, learn more.
Don't have an account? Sign up!
Great article, I love these kind of real-world concepts
I'm still not entirely convinced. Why does this have to be done in a decentralized manner? Can't all of this be replicated much more efficiently on Web 2.0 (e.g. create a version Kickstarter where you can sell your stake in a project to someone else)? I don't see the 10x improvement here (other than maybe the free marketing you get from saying you run a DAO).