Saffery Trust Director
As we delve into the unpredictable, yet dynamic, realm of crypto, the landscape of 2024 promises to be marked by intriguing trends that will undoubtedly shape the future the market.
The metamorphosis of blockchain technology and decentralised finance (DeFi) continues to captivate the attention of investors, enthusiasts, and industry players alike. Amidst the evolution of regulatory frameworks and the rise of innovative blockchain projects 2024 stands poised to present both challenges and opportunities for participants across the globe.
When considering that the crypto market was built in direct opposition to traditional finance (TradFi), it might be surprising to learn that we are seeing an upward trend of clients with digital wealth and assets looking to us to facilitate their integration into more conventional financial services.
An interesting, and growing, trend that we are seeing, is decentralised autonomous organisations (DAOs) seeking our assistance to showcase their commitment to robust governance within their communities.
The irony of appointing a traditional service provider to instil trust in a system founded on scepticism towards such entities might seem like a verse from an Alanis Morissette song at first glance. However, it reflects a natural evolution for the market as it navigates the intricate balance between its decentralised roots and the pragmatic needs of TradFi transactions.
Working in partnership with DAOs is, relatively, new terrain, and getting it right requires drawing on decades of experience of traditional wealth structuring. After first being approached by a digital asset client in 2017, we invested significant time and resources in identifying where we, as a traditional service provider, could add value, while respecting the desire from many of these clients to see their assets remain decentralised.
For DAOs, we recognised that our role is, usually, a temporary one. A means to an end, where the trustee provides credibility and security, without exerting control.
One of the most important, and appealing, benefits of a DAO is that the members of a DAO each hold tokens, which gives them voting power in a system where decision-making relies on consensus. While there are many benefits to members investing in a decentralised system, the current lack of regulation for DAOs poses substantial risks.
If I were to create a token today, I can market it in any way I want. There would be nothing to stop me from setting up thousands of fake accounts to flood the market with false testimonials, build the value of the token and then divest my assets and walk away, leaving investors with a token that has become worthless. In a regulated market, that would be a criminal offence, but there is nothing to stop these schemes in the crypto realm.
When it comes to DAOs, investors are not just acquiring tokens; they are investing in a visionary concept. These investors are often a community of like-minded individuals who share a common goal and a collective aspiration to influence the trajectory toward achieving that goal.
Far from being merely an ideological pursuit, blockchain technology is actively shaping and facilitating these endeavours. The popularity and value of DAOs are on the rise, presenting founders with a heightened responsibility to demonstrate to their members a commitment to ethical practices. This dynamic creates a compelling challenge: how do you prove the validity of your intentions before they materialise?
For DAOs, the answer lies in the strategic engagement of reputable trustees who can actively enforce good corporate governance, providing tangible proof of the DAOs’ dedication to doing the "right thing" in the "right way." Trustees can act as a control mechanism with a specific purpose, for example to regulate the frequency at which founders divest their tokens to demonstrate that this will be done in a fair, and reasonable, manner.
Trustees can also be a practical tool for DAOs when it comes to TradFi transactions. For example, in a case where a DAO has been established to purchase property, the DAO would not be recognised as a legal entity itself and so could not enter contracts. A trustee can fulfil this role as a legal entity to engage with lawyers, purchase property and then hold the asset(s) on behalf of the members of the DAO.
Within the sphere of traditional corporate responsibilities for trustees, these use cases align seamlessly. Our experience extends to managing various structures, such as employee benefit trusts and funds, where assets are held for distribution to a collective. While DAOs introduce a novel twist to this landscape, the underlying concept remains fundamentally similar.
The potential for DAOs is, seemingly, infinite and it is interesting to see novel ideas within the market, which we expect to see more of through 2024.
For example, we have recently onboarded a DAO established to compete with the traditional video game market. Members purchase tokens which allows them to pitch video game ideas, and the community then votes on the best idea and the winning concept is put out to tender to developers and programmers to create the game via the DAO.
Not only do the collective resources of the DAO remove barriers that may have otherwise existed between concept and marketable game for an individual, the voting process also acts as a beta test for the potential popularity of the game.
This showcases how DAOs have innovatively embraced a conventional concept, refining it to enhance its efficacy and align with their unique objectives. The parallel holds true for DAOs collaborating with trustees, a strategic fusion of the strengths of TradFi (experience and expertise) and the mitigation of the drawbacks inherent in crypto (such as security concerns and risks), resulting in the creation of an effective hybrid approach.
Looking ahead to 2024, I would expect to see a continued interest in services from DAOs. While DAOs spearhead innovation, trustees need not reinvent the wheel; instead, they should identify where there is opportunity to adapt existing services to complement and support the distinctive needs of these decentralised entities.