Investment Sorcery: MetaCartel Launches DAO Venture Fund
Will cypherpunks disrupt venture capital?
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Venture capital is the latest industry to get a taste of decentralized governance. Peter Yuan Pan announced the launch of MetaCartel Ventures, a decentralized autonomous organization that will invest in the Ethereum ecosystem.
DAO as a Community of Investors
In true crypto spirit, the MetaCartel community is difficult to trace. What began as a project focused on meta transaction technologies within the blockchain space has now evolved into a funding engine for Ethereum-based dApps. These first steps manifested in the first fork of another DAO experiment called Moloch DAO.
Both Moloch and MetaCartel are experiments in using crypto-native business models to provide grants for projects in the ecosystem.
Since February 2019, Moloch has granted over $120,000 in resources to 17 different projects. MetaCartel has done much of the same since launching in July 2019. Grants have supported blockchain-based conference ticketing, coordinating meetups, DeFi business models for dApps, and several other initiatives.
In the latest experiment, MetaCartel has launched MetaCartelVentures (MCV), “a for-profit investment DAO coupled with a legal entity.”
— 👹 Moloch (@MolochDAO) December 15, 2019
MCV combines an instance based on Moloch’s v2 smart contract standard with a Delaware-based LLC. This LLC is governed by both the Limited Liability Company Agreement and the Delaware Liability Company Act. The reasons Delaware was chosen is three-fold:
- As many members of the DAO are U.S.-based, the project must abide by my American regulations.
- The state has some of the most amenable corporate laws and hosts a majority of Fortune 500 companies.
- The flexibility the Delaware courts have offered LLCs matches closely with the DAOs driving ideology.
It is easier to understand the legal aspects of the venture by looking at traditional partnership agreements found in multi-member LLCs. Given that DAOs are instantiated through their communities, the organization is operated like a multi-member LLC, whose members are voting stakeholders. However, DAOs enforce these agreements through code supplemented with contracts.
In an interview with one of MCVs whitepaper contributors, lex_node told Crypto Briefing in a Telegram message that:
“The Grimoire–our LLC Agreement–ties legal events to precise data structures in the MolochDAO smart contracts so that a given on-chain smart contract event automatically gives rise to certain legal effects. This is critical, because otherwise you could have people who are functionally DAO members on-chain but do not have the legal rights and obligations of a member of the company.”
Lex_node works closely on how decentralized technologies like blockchain and current legal statutes interact with one another. The intersection of law and blockchain technology used in MCV is further outlined in a paper titled “ZeroLaw org-Augmentation Protocol” (ZAP). Lex_node is part of the legal team behind ZAP as well.
This is exactly what we're building at @ZeroLawTech. On-chain preferred stock waterfalls honoring liquidation preferences, etc. Stay tuned. Hoping to open-source everything w/ explanatory articles and model legal forms by Devcon. https://t.co/21nThBT17f
— _gabrielShapir0 (@lex_node) September 9, 2019
According to the ZAP whitepaper, ZAP “is a general-purpose tech/law stack for augmenting any business entity or organization through the use of smart contracts and shares deployed to Ethereum or any other EVM-based blockchain.”
Establishing such clear legal ground is critical, especially if an organization is hoping to enter the investment space. Previously, DAOs usually doled out grants without an expectation of returns. Unfortunately, there are limits to charity. By having a healthy venture capital ecosystem, projects can access funding and have a better chance to succeed.
MetaCartel Making the Magic Happen?
MVC fund leverages its more than 800-member community of founders, investors, and developers to position themselves higher upstream, pool funds, and deploy capital within a series of Ethereum dApps. In an interview with Crypto Briefing, Peter Yuan Pan said “online run communities have never been able to direct and make investments into securities before. This will be likely the first instance of such an example.”
These dApps are spread throughout NFTs, gaming, tokenized marketplaces, and several other areas of the Ethereum ecosystem. Within this community, there are three significant roles: “Mages,” “Goblins,” and “Summoners.”
Mages oversee how the community pursues and manages assets, and can be booted from the group for not performing this duty. For legal purposes, non-accredited investors who join MCV must operate as Mages.
Goblins are accredited investors within the community and don’t need to have such an active role in the DAO to remain. Goblins can, however, flip between passive bystander and Mage-like activity. Summoners are responsible for fundamental operations of the DAO itself (e.g. communications, recruiting, registering off-chain property, etc.) and aid Mages in pursuing their ends.
In short, MCV possesses all the features of a traditional VC fund but lowers the barrier to entry for those hoping to participate. It offers experts working with cutting edge technologies an opportunity to invest in these same advancements. The MCV paper adds:
“If paired with relevant investing experience, we will be able to identify high-value early opportunities that other investors are oblivious to.”
Nonetheless, the whole concept of a “decentralized” venture fund is still experimental at best. Pan added that “we have a hunch for how things will turn out and what measures will be required to coordinate it. Despite this, we’ll be doing a lot of learning as we progress with the project and flexibility and the ability to adapt will be key.”
Whether the DAO can summon long-term gains — especially in a bear market — is questionable.