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---
dip: 6
title: DAO Coins: The Future of Fundraising on the Internet
author: @diamondhands
discussions-url: N/A
created: 2022-12-06
---

One-Line Description

This proposal introduces a new paradigm called DAO Coins to the DeSo ecosystem

Explanation and Motivation

What if raising money for a startup could be as easy as creating an Instagram account? Pick a username, set a description, maybe add a profile picture, and boom-- thousands of people from countries all over the world have given you millions of dollars to pursue your dreams.

Today, after talking to over a hundred founders, after studying every fundraising product we could get our hands on, and after personally having raised over $400 million myself as an entrepreneur, I am excited to announce a new product that we believe will define the future of fundraising for entrepreneurial ventures and audacious ideas. A product we think will mix investing and social better than ever before, and make it easier than ever for founders to raise money to build the next big thing.

We call this new product: DAO Coins.

Less than a year ago, we introduced a breakthrough social investing product to the world called Creator Coins. They made it so easy to invest in someone that a frenzy of speculation ensued, and the investing continues today with volume of about $100k-$2M per day. Creator Coins also allowed many creators to earn hundreds of thousands of dollars off their content, where traditional social platforms had never paid them a penny.

But Creator Coins were meant for people-- they were never meant to support organizations.

After the launch of Creator Coins, over two hundred entrepreneurial projects sprung up, using Creator Coins to finance everything from NFT platforms (1, 2) to search engines (1, 2). We noticed founders were missing key things they needed, like social governance features, access to alternative fundraising models, flexibility in the coin supply, the ability to set who's on their cap table, the ability to withhold coins for themselves, and many other related things.

Taking in all of this feedback, and studying all existing solutions on the market today, DAO Coins are a re-imagination of the Creator Coin concept to give projects what they need to not only raise money, but also to run their organizations in the long-term.

What's more, we believe DAO Coins will challenge traditional corporate structures by offering founders better access to capital, more liquidity, and more direct governance over their organizations.

How DAO Coins Work

There are two components to DAO Coins: A part that's on the blockchain, and an “application layer” component that will be powered by smart services. Here, we will mainly concern ourselves with the on-chain component.

In terms of what's actually needed on the DeSo blockchain to support DAO Coins, that part is relatively simple:

  • First, we are making it so that ordinary DeSo profiles can have DAO Coins. This means founders can start by simply creating a DeSo profile for their project on an app like diamondapp.com. The profile should contain a description of what the project aims to achieve, and this description can be as complex as it needs to be.
    • For more complex projects that want to implement governance protocols, the profile description can include a link to a terms of service or prospectus that states how funds raised by the DAO will be managed, among other things.
  • Once a profile is created, the following very simple on-chain functions become available on the profile:
    • Minting and Burning Coins
      • Mint new DAO coins: This function can only be executed by the profile owner. Note that DAO coins are distinct from Creator Coins mentioned earlier.
      • Burn DAO coins: This function can be executed by anyone to take coins they own out of circulation.
      • Disable minting of DAO coins: This prevents any new coins from ever being minted in the future (only the profile owner can execute this one). Triggering this function can give coin-holders confidence in the max supply of the DAO Coin.
    • Enabling and Disabling Coin Transfer Restrictions
      • Require approval on all transfers. By default, DAO Coins can be freely transferred. However, the owner of the profile can make it so that all transfers require their approval.
      • Require approval on transfers to new members. The owner of the profile can alternatively make it so that transfers of DAO coins are unrestricted among existing holders of the DAO coin, but require approval by the owner of the profile outside of this group.
      • Turn off all transfer restrictions. This allows the owner of the profile to turn off all transfer restrictions. Transfer restrictions can be turned on later after this function has been executed.
      • Permanently disable all transfer restrictions. This allows the owner of the profile to permanently disable all transfer restrictions. Doing this can give coin-holders confidence that their coins will always be freely-transferrable, similar to how disabling minting can give coin-holders confidence in the max supply.
  • These functions can then be called or delegated via derived keys to smart services that implement crowdsale mechanics, cap table management tools, voting tools, etc... We will go into the possibilities for smart services built on DAO Coins concretely in a follow-up post.
  • Once a profile is created, the DAO also gets access to all of the social features native to the DeSo blockchain, including posting, following, engaging with other users/DAOs, issuing NFTs, etc...
  • It will also be possible to configure a profile with an "m of n" multisignature. This will allow DAOs to have a board of directors in much the same way a traditional company would. But this will be discussed in a follow-up post.
  • Users of smart services will be able to set spending limits on derived keys in order to enable smart services to manage their balances in a more trustless fashion. This will enable developers to build smart services that implement DeFi products on DAO Coins, such as staking, yield farming, and lending protocols. But this will be discussed in a follow-up post.

Those familiar with Ethereum may recognize that DAO coins are similar in spirit to the ERC-20 standard, and that's correct! However, unlike ERC-20 coins, DAO coins come with a social identity baked in via the DeSo profile. This not only makes it very easy to search for and find a particular DAO, but it also gives the DAO's operators a built-in platform on which to make announcements, accumulate followers, engage with other accounts, e.g. on diamondapp.com, issue NFTs, e.g. on polygram.cc, run governance votes, and much, much more, as we'll get into later.

Simply put, associating DAO coins with a native social identity sets the DeSo community up to build products with much better UX than what's traditionally been possible in the past.

The App Layer

Once the very simple on-chain primitive has been defined as above, there are virtually limitless possibilities for the "app layer" to define different schemes for DAO formation, governance, fundraising, etc... We will start to propose many of these in concrete terms in a follow-up series we call "Request for Developers." For now, though, we can't resist teasing one product suggestion (with many more to come later):

  • Subreddit DAOs: Imagine a Reddit competitor where each subreddit has its own DAO Coin that community members can invest in. Funds raised could be allocated to support moderators or they could be allocated toward causes that the subreddit's community is excited about, like investing in historical artifacts. DAO Coins could also be rewarded to users based on activity and engagement. This can be easily implemented as a Smart Service, with all assets and content stored on the DeSo blockchain to enable portability across frontends.

Code Changes

Broadly, there are two approaches to making these changes in the code. We can either introduce a new bookkeeping structure for DAO Coins that is distinct from Creator Coins, or we can re-use the bookkeeping that currently powers Creator Coins to make it work for DAO Coins. After some discussion, we propose the former because it allows a profile to have both a DAO Coin and a Creator Coin simultaneously, which can be useful.

Below is the technical proposal for implementing DAO Coins into the DeSo blockchain:

  • New TxnTypes
    • TxnTypeDAOCoin, similar to TxnTypeCreatorCoin
    • TxnTypeDAOCoinTransfer, similar to TxnTypeCreatorCoinTransfer
  • Add new CoinEntry to profile:
    • Call it DAOCoinEntry and add it here
    • This will be a second instance of CoinEntry with the exact same fields
  • Add a new field to the CoinEntry:
    • Define a type TransferRestrictionStatus with the following values:
      • Unrestricted = 0 // default
      • ProfileOwnerOnly = 1 // Transfers to/from the profile owner are the only transfers allowed when this is set
      • ExistingDAOMembersOnly = 2 // Same as ProfileOwnerOnly, except that transfers among existing DAO coin holders are unrestricted
      • PermanentlyUnrestricted = 3
    • Set a field in the CoinEntry with the type of TransferRestrictionStatus
  • Changes to db_utils.go are required:
    • Need two new indexes for DAO coins that are identical to what we currently have for CreatorCoins:
      • _PrefixHODLerPKIDCreatorPKIDToBalanceEntry = []byte{33}
      • _PrefixCreatorPKIDHODLerPKIDToBalanceEntry = []byte{34}
  • _connectDAOCoin
    • This will be similar to _connectCreatorCoin, only it supports different OperationTypes. Recall that CreatorCoin supports "buy" and "sell."
    • The operations that _connectDAOCoin will support are as follows:
      • Mint: Creates DAO coins for the caller only if they are the own the profile associated with the DAO coin being called
      • Burn: Destroys DAO coins held by the caller
      • DisableMinting: Prevents new coins from ever being minted. Must be called by the owner of the profile associated with the DAO coin.
      • ModifyTransferRestriction: With this operation, the user can change the TransferRestrictionStatus of the DAO Coin. Below are the options:
        • Set TransferRestrictionStatus = 0
          • Can only be triggered if TransferRestrictionStatus != 3
        • Set TransferRestrictionStatus = 1
          • Can only be triggered if TransferRestrictionStatus != 3
        • Set TransferRestrictionStatus = 2
          • Can only be triggered if TransferRestrictionStatus != 3
        • Set TransferRestrictionStatus = 3
          • Can be triggered at any time. Irreversible once triggered.
  • _connectDAOCoinTransfer
    • This will be virtually identical to _connectCreatorCoinTransfer, only it will act on the DAOCoin balances in the db, rather than on the CreatorCoin balances
    • Additionally, when transfer restriction is turned on, we only allow transfers to/from the profile owner. This is a bit of a hack, but it fully solves for the use-case of wanting a profile owner to approve transfers between other parties. To implement an approval UI, a smart service would simply need a derived key from the transferrer with permission to execute a transfer once the owner approves. The smart service can then execute the transfer from the transferrer to the owner to the transferee as an atomic unit only after the owner approves the transfer in the UI. To implement this constraint in consensus, the _connectDAOCoinTransfer function should error immediately unless the following condition is met:
      • profileOwnerIsInTransfer := (profile owner is recipient) || (profile owner is sender)
      • daoMemberIsRecipient := (recipient has a non-zero balance of the DAO coin being transferred)
      • if (TransferRestrictionStatus == TransferRestrictionStatusProfileOwnerOnly) && !profileOwnerIsInTransfer {
        • error
      • } else if (TransferRestrictionStatus == TransferRestrictionStatusDAOMembersOnly) && !profileOwnerIsInTransfer && !daoMemberIsRecipient {
        • error
      • }

Deployment

We will need to set a hard fork block height for _connectDAOCoin and _connectDAOCoinTransfer.

TxnTypeDAOCoin will be automatically rejected in the parsing phase if a node hasn't upgraded.

Other Considerations

Using Creator Coins to Bootstrap a DAO

Fundraising tools for DAO Coins can be easily implemented as Smart Services without relying on Creator Coins. Users are not limited to using Creator Coins to bootstrap their DAO, as we describe in this section, and none of this is prescriptive. However, because fundraising for a DAO using a Creator Coin is something that's possible and straightforward, we figured we would describe what it could look like.

  • Someone wants to raise money for a new DAO
  • They announce they're going to allow purchase of their Creator coin at a particular time by lowering their Founder Reward on their profile.
  • They announce that the ability to purchase will be open for X amount of time, after which point the FR will be increased back to 100%.
  • After the FR is increased to 100%, 100M DAO coins will be minted by the creator and 10% will be distributed to everyone who bought the Creator coin.
  • This can be an airdrop OR the creator can require that the creator coin be "redeemed" for the DAO coin by having the purchaser transfer the creator coin to him first. If he does this, then the creator can utilize the proceeds of the DAO coin by selling the creator coins he receives on the bonding curve.

Converting a Profile From a Creator Coin to a DAO Coin

Creator Coins work great for people. They allow anyone to instantly buy or sell one's coin against a bonding curve that rewards people who invest early in someone. That said, because Creator Coins were the only option initially, there are some organizations that raised money with a Creator Coin who now would benefit from converting to a DAO coin. This section is for these legacy projects.

Projects that feel a DAO Coin would be a better fit for their needs can convert their Creator Coin into a DAO Coin at any time by doing the following. Note that this is completely optional, however, and that none of this is prescriptive:

  • Pre-announce your intent to convert your Creator Coin holders into DAO Coin holders
  • Set Founder Reward to 100% to halt purchases of your Creator Coin
  • Mint however much DAO Coin you want to mint
  • Optionally disable future minting to fix the supply of the DAO Coin
  • Two options:
    • Airdrop the newly-minted DAO coins onto existing holders of the Creator Coin. This allows the Creator Coin holders to cash out their money from the bonding curve after receiving their airdrop.
    • Announce that Creator Coins can be redeemed for DAO Coins by sending them to the profile's public key. This allows the profile owner to cash out the funds by selling against the Creator Coin bonding curve.

Importantly, because DAO Coins have non-standard supply, converting to a DAO coin may result in a profile no longer ranking on certain apps. As such, we don't recommend this step unless one is sure that a DAO Coin is better for one's needs.

Secondary Liquidity

Because DAO Coins are not tied to a bonding curve like Creator Coins are, the DeSo blockchain will not support on-chain secondary trading of DAO Coins initially. This, however, leaves wide open a great opportunity for someone to implement a simple Smart Service that allows for the trading of DAO Coins.

If DAO Coins are successful, we imagine this Smart Service could get quite popular. Moreover, although the DeSo blockchain can fairly easily support an on-chain order-book exchange for DAO coins, we see no need to incorporate this functionality if smart services are capable of adequately serving the need.

Security Considerations

This upgrade should not impact the security of the chain. The implementation proposed has very little risk of corrupting existing transaction types like Creator Coin transactions.

Alternate designs considered

As mentioned, we considered a design that uses the same balance entry for DAO Coins and creator coins. However, we dismissed this approach because we think it's beneficial to allow a profile to have a DAO Coin and a Creator Coin simultaneously.

Acknowledgements

TODO