‘Gaming DAO’ – not a Greek word at all if you have been constantly following the Web3 gaming industry for quite a while. The gaming DAOs started making waves in 2021, but their impact in gaming has thus far been overshadowed by the rise of NFTs and the advent of “play-to-earn” business models. In 2022 and beyond, DAOs are expected to have a meaningful impact on the way gaming organizations operate, fundraise, build communities, and even develop new games.
Going forward, we will explore the fundamentals of DAOs, their relevance as an organizational structure, their current utility in the Web3 gaming industry, and their future outlook.
As a matter of fact, DAOs are not an entirely new phenomenon. In 2021, DAOs garnered immense cultural and commercial relevance, as prominent DAOs quickly created communities around a variety of interesting and non-traditional causes, such as:
- Reviving the Blockbuster brand
- Buying a copy of the U.S. Constitution
- Purchasing an ownership stake in an NBA team
- Sequencing our genomes
Despite these ambitious cases, DAOs are yet to command increased attention and still seem to be in a cliffhanger state at times.
However, what’s with the eyeballs is that the top 5 largest DAOs today hold a combined total treasury north of $15B
What is a DAO?
DAO stands for ‘Decentralized Autonomous Organization’. Simply put, it is an organization with no centralized leadership and the decisions get made from the bottom-up. The direction of the organization is decided by the community limited by a specific set of rules enforced on a blockchain.
These organizations are owned and managed by their members collectively, usually with treasuries that are accessible only with the approval of the members. Proposals are used to make major or minor decisions and then the community votes on a specific period of time.
DAOs operate using smart contracts – pieces of code that are automatically executed when the criterias under the contract are met. Smart contracts are used to establish the DAO rules. Although the brainchild of Ethereum, multiple blockchains are now deploying smart contracts.
Those who have a stake in the DAO have voting rights and the power to influence the direction of the organization by deciding on governance proposals. Since DAOs are open-source blockchains, transparent and autonomous, anyone can view the code or audit the treasuries because the blockchain records all financial transactions.
What does DAO mean for the Future of Gaming?
In a usual scenario, games are developed and managed by the company that made it. The gaming community simply just has to accept the whims and fancies and whatever direction the company takes for the game. Very selected chunk of individuals have the power to make decisions.
But if a game is a DAO, it confirms that the power lies within the community, wherein the community members can influence the major decisions of the organization, including the direction of the game.
Axie Infinity allows players to stake their $AXS tokens in the organization. (SLP which is the digital currency earned through the game is exchanged for $AXS; $AXS can be bought and sold in any cryptocurrency platform such as Binance.). Read about staking in Axie Infinity here.
But why Gaming DAOs?
Many web3 skeptics point to blockchain as an “ ultimate solution in search of a problem”. Just because something can be decentralized doesn’t mean that it must be – especially if it’s already working exceptionally well. In the Web3 gaming domain, where venture capital dollars are flowing freely and the industry is growing at a healthy clip, many would argue that things are going just fine.
Let’s understand it this way – if a community of like-minded people forms around a shared love of games, why would they – whether player or creator – go ahead to form a DAO instead of an LLC, fan club, or subreddit?
Check out 5 reasons why DAOs are a suitable fit when compared to traditional organizational structures:
- Tokenized Ownership
- Decentralization by Design
- Automation via Smart Contracts
- Increased Transparency
- Ease of Capital Formation
- Tokenized Ownership
We are all aware that decentralization is core to web3, but it is ownership that truly differentiates this movement from web2. It takes center stage when talking about the transformative power of DAOs.
DAO investors and contributors take equity in the form of governance tokens, instead of taking equity in the form of company stock in a traditional corporate structure.
These tokens also provide additional benefits such as voting rights, access to special groups, airdrops, and can be freely bought and sold on secondary markets. Therefore, it gives investors a greater access to liquidity than might otherwise be available with equity grants or RSUs.
Furthermore, many DAOs have built-in “rage quit” functions, enabling members to leave with their tokens whenever they want, without any approval of other members.
This does sound like a risky proposition from an organizational standpoint (what if the biggest holders all decide to dump their tokens on the open market at once?). But, the brighter side is that it allows freedom to “vote with dollars” and ensures that the DAO keeps its incentives aligned with those of the token holders.
DAOs provide a structural framework for communities to form and further develop. This concept has even taken hold among incumbent social platforms like Reddit, which allows any subreddit to create its own token and distribute it to its community contributors.
- Decentralized by Design
The decentralized aspect of DAOs can take many forms. For example, DAOs rely heavily on remote work, enabling contributors worldwide to participate. Wondering what’s the big deal? Well, DAOs take remote work a notch higher by enabling not just a distributed workforce, but also a potentially pseudonymous workforce. DAO contributors need not be “doxxed” to be a part of the group’s activities. Several people in today’s successful DAOs operate exclusively under online pseudonyms.
This decentralization is an important and underrated aspect of DAOs as it relates to their potential impact on the games industry. Since ages, gaming has been centralized and gate-kept by in-groups. Even In the case of industry jobs, that centralization has been restricted to tech hubs like San Francisco, Seattle, and Los Angeles. This led to the industry being less accessible to underrepresented groups, and also outright hostility on far too many occasions.
‘Decentralization paves the path for all contributors from all locations, identity groups, and backgrounds to participate in an industry that they have historically not had access to. This has the potential to radically transform both games development and games fandom.’
An important point to note here is that ‘the level of decentralization varies from one DAO to the next’. DAOs can be decentralized in the following ways:
- architecturally decentralized,
- geographically decentralized,
- financially decentralized etc.
The level of decentralization is subject to change with time. Some leaders have also suggested a “progressive decentralization” approach to DAOs – decentralizing parts of the organization when founders are prepared to renounce control to the community.
Allowing token holders to vote on questions of governance democratizes organizational decision making across the entire community. Well, not only this, DAO token holders have access to a much wider breadth of choices than corporate stockholders, and at much greater frequency.
The token holders also have the ability to draft their own proposals for the community to vote on i.e anyone in the organization has the right to suggest, and the best ideas are put to use regardless of where they might come from.
- Automation via Smart Contracts
The global Smart Contracts market size is projected to reach US$ 1460.3 million by 2028, from US$ 315.1 million in 2021, at a CAGR of 24.2% during 2022-2028. Smart contracts have a long list of benefits for DAOs:
- Efficient operation
- Automation of business processes
- Reduction in operating costs (by eliminating administrative expenses, reducing turnaround times, and limiting the potential for human error, among other things),
- Open and fair business operations
As agreed by DAO members, the rules of the organization are encoded on the blockchain and administered automatically, removing the need for management, hierarchy, or bureaucracy.
Furthermore, by removing these additional layers, DAOs can operate with greater speed and on smaller margins than they might have been able to otherwise.
Within the Web3 gaming community, smart contracts are also referred to as “money LEGOs”, because of the composability and interoperability of the many decentralized apps created on the blockchain.
Transparency has been a major question since ages in not just the gaming industry but every nook and corner of life. But, the transparency that DAOs bring along is worth applause.
Transparent operations on a blockchain means that all financial inflows and outflows are recorded publicly in real time.
You can check an organization’s financial health up to the minute, rather than relying on quarterly financial disclosures or not receiving any information whatsoever.
The customers, employees, and other stakeholders of a DAO can track the allocation of revenue and judge for themselves whether the funds are being spent in a responsible manner. This further strengthens stakeholder alignment, as any sort of impropriety in spending could lead token holders to divest their shares, vote to oust the set of decision makers, or formulate new proposals that might change organizational strategy.
- Ease of Capital Formation
The last – and perhaps most widely publicized – aspect for DAOs is the ability for organizers to quickly raise capital from all over the world to support their causes.
Fundraising for a new venture isn’t a cakewalk as it depends on a variety of factors, such as location, government regulations, industry, and more. Further, history is a testimony of the fact that underrepresented groups, such as women and people of color, have had much greater difficulty accessing startup financing.
Enter DAOs – democratizing access to capital, both for founders seeking funding and for investors searching for promising new ventures. They allow potential investors to contribute capital irrespective of their location, native currency, or accreditation status.
Seems too good to be true? Well, the aforementioned ConstitutionDAO, had an average contribution size of $206.26 and on comparison, these investors would have required a $1M minimum individual net worth (or two consecutive years of gross income above $200K) in order to become SEC-accredited in the United States.
The Current State of Gaming DAOs
Now that we’ve elucidated why gaming entrepreneurs, fans, and investors might choose to form a DAO over some other type of non-web3 structure, we can examine how this early wave of adoption is taking shape.
Lets have broad overview of some of the most well-known DAOs in gaming today.which are put into three major buckets, below:
- Gaming Guilds
- Incubators & Accelerators
- Gaming Guilds
The list of gaming guilds is quite wide, with Yield Guild Games (YGG) being by far the largest. The advent of play-to-earn games, have made the guilds become more financialized. Similar to investment clubs, many guilds have shared funds that are used to purchase and accumulate digital assets in games like Axie Infinity.
These assets could then be lent out to members and non-members to be used in yield-generation, sale for profits, or simply held as speculative growth investments.
Others guilds like MMA Gaming, GuildFi, Astra Guild Ventures, UniX Gaming, and Good Games Guild have also made it big where some are focused on specific blockchains (e.g. MMA Gaming focuses on games built on Solana), while others differ via their management strategies (i.e. what’s done with the P2E revenue from gaming).
Incubators & Accelerators
This is another type of DAO that is getting increased traction in gaming. Incubators and Accelerators are focused towards growing the web3 gaming ecosystem by sharing their expertise with founders, funding promising new ventures, and supporting tools and tech solutions that can potentially benefit all web3 games. One of the biggest examples is that of Game7 which is boasting major supporters including BitDAO, Forte, Warner Music, Solana Ventures, and others. Its aim is “to accelerate the blockchain gaming industry through grants, education, and strategic initiatives.”
These DAOs play an important role in supporting web3 game development as they bring together decentralized groups of stakeholders, enabling community input and ownership, and aligning around a shared vision. They also adopt an open source approach to deal with some of the largest obstacles facing web3 gaming: onboarding new players, reinforcing open standards, and interoperability, among others. DAO structures enable them to do all of the above seamlessly, transparently, and immutably on the blockchain.
Developers are the most ambitious type of gaming DAOs as they have ventured into actual game development. Here is where industry veterans start popping questions like – do players actually know what’s best for a project in development?
Another example worth exploring further is Decentraland’s DAO, which isn’t so much of a game but a virtual world. Decentraland DAO governs the policies that determine how the world behaves: for example, what kinds of wearable items are allowed after the launch of the DAO, content moderation, LAND policy etc.
Undoubtedly, the Decentraland DAO provides an interesting example for aspiring Web3 developers to look forward to. But the platform still has a long way to go to compete with its less decentralized “metaverse” rivals like Roblox or Rec Room.
The Bleak Side of DAOs
Many industry professionals are skeptical of DAOs until they develop and release a competitive game (or games platform) because of the following reasons:
- Games are difficult to make despite favorable circumstances, and trusting core bits of decision-making (e.g. feature design, live operations, roadmap prioritization, etc.) to the fans could lead to potentially disastrous results.
- It could also arise to the situation of ‘pay-for-power’ scenarios – where investors with enough money could simply purchase enough tokens to have their own personal priorities highlighted in the game’s journey..
Simply put, players that have invested just 1,000 hours into an existing game do not have the same goals, interest and incentives as compared those with an investment of $1,000 into a game concept.
- To manage some of these concerns, DAOs can opt for a form of representative or liquid democracy, allowing trustworthy decision-makers within the community to take action. This might lead to centralisation for some to stomach, but these sort of trade-offs may become necessary.
- Needless to say, a variety of different approaches could be undertaken by game developer DAOs in this area before any sort of best practice emerges.
- If coordinating game development within a DAO structure were a no-brainer decision, there would be a long list of examples than the ones given below, particularly among the current leaders in web3 gaming.
However, a skim through at a few of the web3 gaming market leaders in show very few DAOs:
- Top leaders like Sorare or Mythical Games – both valued north of $1B – are not structured as DAOs.
- Gala Games, a renowned web3 games company that recently raised its own investment fund has a $GALA token, but does not offer any ownership in the company.
There are no two ways about the fact that DAOs have many unique advantages over more traditional organizational structures,
However, before moving on, it’s important to ponder one of the most used refrains in the web3 community: we’re still early.
With so many kinks left to work out, tooling must be further worked on, contributor onboarding remains an impediment for many DAOs, and not to miss there is a lack of regulatory clarity.
While it is a work in progress in these areas – there are still plenty of gray areas worth noticing as the space evolves. And with the passage of time and technology improvement, the concept of progressive decentralization could be more widely adopted.