DAOs, DEXs and whales? How Web3 organizations became the new crypto beasts
Web3 has brought a lot of excitement to the industry, as evidenced by the nearly $50 billion market cap that Web3 tokens have grown over the past few years. Web3’s ethos is one of its most attractive features. It is an ecosystem free of barriers or intermediaries, welcoming anyone from anywhere and always open.
However, there is a massive problem: there is no infrastructure within decentralized finance (DeFi) that would be robust enough to execute these large orders in a fully decentralized manner, as using centralized exchanges contradicts the decentralized nature of the decentralized autonomous organization (DAO). Let’s explore the relationship between DAOs and decentralized exchanges (DEXs) and how a specialized DEX could benefit DAOs now and in the future.
Benefit the pod
While the promise of Web3 has lured traders of all income levels into space, big traders or whales have emerged as one of the most influential types of crypto traders.
Traditionally, whales fall into one of two categories: large retailers or corporations. Recently, DAOs have emerged as a new form of whale trading. These organizations operate in a fully democratic manner and have run large commissioned businesses to generate forms of passive income for DAO members.
But there is a massive problem: there is no infrastructure within DeFi that is robust enough to execute these large orders in a fully decentralized manner. Sure, they can use centralized exchanges and pay exorbitant fees, but using such centralized platforms contradicts the decentralized nature of the DAO.
DAOs need bespoke decentralized exchanges that can execute trading of large orders in a secure, cost-effective, and decentralized manner. Let’s unpack the relationship between DAOs and DEXs and how a specialized DEX could benefit DAOs now and in the future.
Related: How do you do DAO? Can DAOs scale and other burning questions
The walking DAO
The decentralized autonomous organization is no longer just a theoretical concept – it is becoming commonplace. And like everything in the blockchain space, they are evolving. DAOs and their use cases have continued to achieve new iterations since their inception. The first DAO, confusingly named The DAO, came to light as a crowdfunding campaign in April 2016 and became one of the largest in history, raising more than $150 million in Ether (ETH).
Since then, the organizations have evolved in everything from membership requirements and governance structures to the way they generate value for their members. While early DAOs were simple crowdfunding sources, some have since launched Nonfungible Token (NFT) projects or made major mainstream strides, such as attempting to buy the first edition of the Constitution, or sports teams utilizing NFTs in various ways. Others have adopted a more traditional business model, offering members revenue shares in exchange for DAO tokens.
Whale trading is increasingly one of the lesser known ways of working for DAOs. These whales are defined as large traders who can move the market in a single trade. They are often organizations or funds that own large amounts of crypto, making them extremely influential in this space. And as we’ve seen with traditional whales, they often trade with other major dealers or counterparties to generate revenue.
DEXs can be critical when it comes to providing the infrastructure DAOs need to thrive amidst their newly acquired traffic and asset streams. Assets need to be kept safe and away from centralized entities, and only DEXs can make the connection.
As DAOs continue to emerge for the new breed of whale traders, they will depend on DEXs, which can facilitate large trades in a safe and cost-effective manner. While most large order DeFi traders put up with negative factors like fickle losses and exorbitant fees, DAOs and their whale trading counterparts would benefit massively from customized DEXs implementing tools like time-weighted average price (TWAP) to execute large orders with zero price impact – fully on-chain.
DAOs operating as whaling traders can significantly influence the further development of DeFi. However, without a DEX to meet their needs, DAOs may never reach their full potential and continue to suffer from the current DeFi restrictions that plague all whale traders.
Warning: whales are more common than they seem
Whales have become a class of traders that can include individuals, organizations, or even DAOs. In fact, DAOs have quickly become major players in the whale trading game. It is now clear that the whales have evolved from lone traders into vast herds of industry changers.
Why are DAOs so good at whale trading? For one, they are very mission-driven. Unlike traditional traders who are motivated by quick profits, DAOs are driven by their business goals. This gives them a longer-term perspective and makes them more willing to take risky trades that could turn out to be very profitable.
Additionally, DAOs are often better funded than individual traders. They can pool resources and use them to buy large amounts of tokens when they think the price is low. This allows them to make significant profits when the price eventually rises.
DAOs are also generally more transparent than traditional merchant organizations. They often publicize their trading strategies and results openly, building trust among their members and allowing others to learn from their successes and failures.
All of these factors have made DAOs extremely successful in the whale trade – this is just the beginning for whale DAOs. The question is: how will they do it? The solution is simple: a decentralized exchange built specifically for DAOs to execute their large trades in a safe, low-cost, and decentralized manner.
Related: What role does a decentralized autonomous organization play in Web3?
As crypto trading becomes mainstream, more and more retail investors are getting involved in the space, and whales’ transition from traditional traders to DAOs is becoming inevitable. Instead of taking on big traders alone, they turn to DAOs to trade on their behalf through governance votes. This migration is not without its challenges, however, as current infrastructures are not conducive to DAOs. For DAOs to thrive, DeFi platforms need to start catering to their unique needs.
DAOs offer a number of advantages for investors such as retail crypto traders that have an inherent incompatibility with traditional centralized financial systems. This distrust only increases when dealing with large institutions. DAOs level the playing field by stitching together great institutional advantages without the centralized aspect, by pooling members’ resources and coming together as a community.
The biggest challenge DAOs are currently facing is the lack of infrastructure to support their growth. The most glaring example of this is the fact that ConstitutionDAO has to transfer all the money into someone’s bank account in order to make the payment to Sotheby’s.
Such limitations make it difficult for DAOs to scale, and platforms need to be developed to meet the growing demands of the DeFi space and DAO infrastructure. There is a glimmering chance that if DAOs find their niche, they will become a major player in the world of Web3. This in turn will help bring more liquidity and capital into the space. Let’s start with this awesome migration to Web3.
This article does not contain any investment advice or recommendation. Every investment and trading move involves risk and readers should do their own research when making a decision.
The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
0xdorsal is the pseudonymous co-founder of Integral, the world’s first bulk order DeFi primitive. Dorsal’s background as a hedge fund manager positioned him well to drive the migration from TradFi to DeFi. Dorsal has extensive experience leading business development at DeFi. In addition to his work at Integral, Dorsal has a particular interest in market design, liquidity, DAOs and coordination.
https://cointelegraph.com/news/daos-dexs-and-whales-how-web3-organizations-became-the-new-crypto-beasts DAOs, DEXs and whales? How Web3 organizations became the new crypto beasts