Investment DAOs are a unique type of decentralized autonomous organization in which users pool their funds to make investments as part of a syndicate.
That creates an obvious sticking point for potential members—how do you trust your funds to an organization made up of anonymous members, spread around the globe? With rugpulls and fraud rife in the crypto sector, investment DAOs need to go the extra mile to reassure investors that their funds are secure and that checks and balances are in place, Vanta DAO founder Josh Field told Decrypt.
“It’s something that continuously comes up; if you’re a syndicate investor there’s always the risk of tokens not being sent out or cash not being distributed,” Field said.
Reputation and guarantees
To counter that concern, first and foremost investment DAOs need to establish a reputation for reliability. “It’s similar to investing in a traditional fund; at the end of the day you’re giving someone money to invest on your behalf,” Field said. “There’s nothing stopping those fund managers from transferring that money to an offshore bank account and running away.”
The difference with crypto is its global scope, he said. “You might be investing in people with whom you don’t know—so it’s even more important in the world of crypto to have a good reputation.”
Vanta DAO has completed over 80 deals since it was first established in 2021, he added—and both of its founders are fully doxxed.
“This is where a lot of other DAOs or syndicates don’t do it well,” he argued, noting that crypto projects tend to adhere to the “old crypto mantra of anonymous, decentralized ecosystem and networks—so no one should KYC, and everyone should be pseudo-anonymous, and there’s no reason to create legal documents.”
To ensure that there are legal guarantees for Vanta DAO members, the pair established a DAO LLC structure, with series LLCs in the Marshall Islands. These, he explained, work “similarly to an Angel List SPV, where the new LLC signs documents on behalf of the DAO for specific investments.”
“If you invest 10% of the capital in one deal, you’ll get 10% of the shares in that series LLC,” he said. “So, if you’re an investor within Vanta DAO, you have some sort of legal recourse around if anything were to happen,” such as a bankruptcy in the company in which the DAO is investing.
Decentralized security
The other important factor for investors to consider is the security of the funds themselves, Field said. To that end, Vanta uses multi-signature wallets to secure its funds, which require multiple individuals to approve and sign transactions.
In Vanta’s case, that responsibility falls to a group of five individuals, the Vanta DAO Council, nominated by holders of the NFTs that confer membership of the DAO. “Only they get access to the multisig to sign transactions, allowing funds to be sent on to founders, and returned to investors,” Field explained.
In addition to the “security checks” introduced by multisig wallets, the DAO has set up “checks and balances,” that ensure that the DAO “votes in people that have a good reputation and have the DAOs best interest at heart,” Field added.
As Vanta DAO proceeds along its path to full decentralization, it aims to ensure that its members have well-established reputations as builders, KOLs, and prominent investors—providing the DAO with a level of decentralized due diligence through “the wisdom of the crowd,” that’s closed off to traditional organizational structures.
Thanks to the measures the DAO’s put in place already, those members can rest assured that their funds are safe and secure, Field said—and their investments are brought to the table and vetted by “high value members of the crypto space.”
