DAOs arrive for fashion. What are they?

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Dirt, a newsletter that covers cultural criticism in tech and media, runs on NFTs.

The newsletter has no paywalls and does not accept donations. Instead, its founders, Kyle Chayka and Daisy Alioto, regularly release non-fungible tokens to pay the bills. The latest large-scale release in October featured the site’s mascot – a large brown speck aptly named “Dirty” – as various characters available for purchase on OpenSea, priced at 100 NFT at 0.1 ETH or so. $300.

“Think of it like a Kickstarter tote bag but much, much better,” the writers told followers when they announced their second NFT release in October.

This month they took it a step further by launching a DAO, which stands for Decentralized Autonomous Organization. Where an NFT gives the buyer ownership of a digital asset, purchasing Dirt’s DAO through their NFTs grants the right to vote on the future of the newsletter. The first vote last month gave token holders the option to choose banner artwork for newsletters, as well as two classified story ideas.

“We’re creating more value for subscribers by allowing them to also be consumers and investors and participate in the editorial direction of Dirt at the same time,” Alioto said, describing DAOs as a “digital Soho House” for the users.

Over the past few months, DAOs have become the latest Web3 buzzword.

For many in the industry, the concept first caught their attention as some of the biggest buyers in the first wave of fashion NFTs. Red DAO, which describes its goal as facilitating and funding the future of digital fashion, has spent around $2 million on Dolce & Gabbana’s digital couture NFTs. Others, including the DAO Constitution, which brought together thousands of people in an unsuccessful attempt to purchase an original copy of the Constitution, can be used for a one-time investment or acquisition.

Like NFTs and cryptocurrency before them, DAOs have proven divisive in the tech and fashion communities. Proponents say DAOs could offer a whole new model of ownership, investment and creative direction, allowing a wider range of consumers to participate in the fashion industry. But the concept has its detractors, who say many DAOs overpromise and underdeliver — or are outright ripoffs.

How it works

Sometimes described as a group chat with a shared bank account, DAOs are decentralized, meaning they’re supposed to operate like a business without a CEO or board. Their operations and rules are programmed through a series of smart contracts backed by a permissionless public blockchain like Ethereum, which means that once decisions are made, they cannot be changed or altered by third parties.

To join a DAO, members typically must apply by purchasing a certain amount of cryptocurrency, which grants them governance tokens, or a DAO-specific currency, in order to vote on decisions and investments.

These tokens provide a pool of capital and cash that the DAO can channel into projects, assets, or other endeavors. Users are theoretically incentivized to work on their DAO’s project in order to increase the value of their tokens. They can leave the DAO by selling their shares.

Red DAO, for example, requires 50 ether – the native currency of the Ethereum blockchain – or around $160,000, in exchange for 100,000 units. Members can purchase up to 300,000 units in total. Voting rights are based on the total number of units each member holds for any relevant vote offered to members. They can also recommend and vote for new candidates, usually those with expertise or skills valuable to the DAO.

At best, DAOs can act as think tanks, combining the knowledge of their members to identify talent and investment opportunities.

“A big part of what DAOs do is filter out the noise of what’s out there online,” said Priyanka Desai, operations manager at Tribute Labs, a company that creates and supports more user-focused DAOs. investment.

Since its launch in November 2021, Red DAO has made several high-profile NFT acquisitions and stakes in digital fashion companies such as The Manufacturer and UNXD, the platform that facilitated the exit with Dolce & Gabbana. Next, they plan to expand their NFT collection, consult and collaborate with other digital fashion brands, and launch an editorial vertical.

“It’s just a really cool lab for everyone to operate in the digital fashion space under one account,” said Megan Kaspar, Red DAO Fellow and Managing Director of Magnetic Capital. “There’s not much a single person can do in this space on their own. But when you have a multiplier of more than 50 people, it’s more powerful.

Beyond traditional investments, DAOs could also enable a new type of ownership model. Kaspar adds that Red DAO’s primary goal is not to extract returns for sponsors, but to act as a “community builder” that supports virtual fashion.

“Once things get so big or platforms get so algorithmically driven, it’s hard to reinject that sense of intimacy and community, [and] everyone feels they have a stake in the outcome of brands,” Alioto said.

Yet, Dirt does not give free rein to holders on all content. While Alioto and Chayka will release member-chosen content, they will still select a few writer pitches themselves.

DAO enthusiasts also believe they can bring more transparency to fashion manufacturing and sourcing. A design and manufacturing DAO that counts designers Jeremy Karl and Eugene Angelo among its members, seeks to enable more democratized processes for designers, pattern makers and workers throughout the supply chain through smart contracts . The idea is that with such processes, creators could have more control over manufacturing and retain the value they create from projects and designs through community-owned workshops and technology-backed royalties. blockchain.

“In a world where everyone copies everything we want to implement this idea of [a] more collective creative process,” Karl said.

What happens after

DAOs still face a number of hurdles before becoming a widespread force in the fashion industry.

“It is very difficult to produce truly unique and striking design results by consensus. And that’s one of the main challenges with DAOs is that it’s all sort of going committee-wise,” Angelo said. “Generally from a design point of view [it] can lead to very poor results.

Users are also opening themselves up to risky investments with little legal or regulatory oversight.

“The law doesn’t really adjust to these things yet,” said David Yermack, chair of the finance department at NYU’s Stern School of Business. “Much of the hype and interest is understandable, but it will take time to build.”

There is also the risk that members will take information they have obtained through a DAO and use it for personal gain. Kaspar noted that DAO members could individually buy an NFT or make an investment after learning about it through the DAO and before it was voted on or bought by the DAO. And because DAO members are often allowed to remain anonymous, they can lobby on behalf of their own company or a brand in which they have capital or investments.

Also, because participation in a DAO is voluntary and not permanent, there is a certain fluidity and movement in space as members come and go, especially in a young organization.

“We have plenty of time to build that and see how our structure will evolve,” Kaspar said.

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