The Y Combinator of Web3 Attracts Record Number of DAO Startups

As the number of DAOs has exploded this year to 4,832 — just the first 216 in assets under management (AUM) are responsible for $9.1 billion in Web3 assets — so has their pursuit of funding and exposure.

The uptick has been good news for one Web3 accelerator: DeFi Alliance. A record number of decentralized autonomous organizations (DAOs) and related startups will pitch to investors during DeFi Alliance’s Demo Day on Wednesday, Qiao Wang, a contributor, told Blockworks.

Last April, total DAO AUM was just $932 million, according to data dashboard DeepDAO.io. Specifically, 10.3% of those presenting at the Demo Day will be related to the nascent space.

“On the DAO side of things, we’re seeing an overwhelming number of [them],” Wang said. “It looks like [the vast majority of] FAANG engineers or Web3 founders [want] to build in DAO tooling.”

The startup accelerator — which bills itself as the Y Combinator of DeFi (decentralized finance) — accepted less than 5% of applicants this year. The “main goal” for roughly half the startups is to raise money, according to Wang.

Prospective applicants are considered based on the “caliber of the founders,” and “if they’re building something truly unique,” Wang said, adding that the criteria are not “absolute requirements” for acceptance.

“I don’t just look at credentials [of founders],” Wang said. ”It’s also based on an interview with myself and other partners of [DeFi] Alliance. [The] second thing is whether or not they’re building something novel.”

DeFi Alliance Presenters

• Azuro is a blockchain-betting protocol governed by a DAO. The startup bills itself as a way to replace traditional bookmakers with independent data providers, front-end operators and liquidity providers.
• Rain is advertised as the “credit card for DAOs,” aiming to make cryptocurrency spendable without a centralized exchange. 
• Ink Finance facilitates mergers and acquisitions for DAOs in need of financing — comparable to a Web3 investment bank. 

Yury Lifshits, chief executive of DAO infrastructure company Superdao, told Blockworks the startup will be presenting Wednesday to “encourage people to use [their] services.” Superdao raised $10.5 million in January, raising its valuation to $160 million. 

The number of DAOs in DeFi Alliance’s cohort, Lifshits said, will continue to grow, because the number of DAOs in Web3 will do the same. 

“We estimate that up to one million DAOs will be created by the end of this calendar year,” he said.

Investing in new structures like DAOs with less lengthy track records always has some risk, General Partner at VC firm Initialized Capital Brett Gibson told Blockworks. 

“DAOs are new…but there are a lot of different types of DAOs, DAO governance structures, and relationships to the legal system,” Gibson said. “So if you believe in the ability of token economics to align incentives and believe the DAO is well structured and governed, a lot of risk is mitigated.”

One DAO in particular was plastered over mainstream headlines last year when a group of crypto investors raised $49 million in a bid to buy a copy of the US Constitution at Sotheby’s auction house. 

The group — dubbed ConstitutionDAO — later lost the bid to hedge fund billionaire Kenneth Griffin and dissolved.

DAOs, however, have had their own pitfalls as well — despite the surge in popularity.

“There have been DAOs that I’ve been a part of that have accidentally sent millions of dollars’ worth of tokens to the wrong address and then they were just lost forever,” Will Papper, co-founder of Web3 investing DAO Syndicate, told TechCrunch. “We have a lot of protections in place to help users, but there’s always a tradeoff between the protection we give them and the flexibility.

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