an eye-watering number by any measure.
4000% is basically chump change.
In the last week, I've spent a lot of
time researching these projects
and seeing returns of 500,000%
to 4 million%
feels like I'm looking at Internet pop-up ads
from 1998.
and these organizations have
become the newest way to lure
eager investors into rug pulls.
But I don't want to ignore the space completely
because the tech at play here
could go so far as redefining not just finance,
but the way we organize communities in general.
So we're going to look at some of the most
popular DAOs and analyze risk factors
that you must consider.
And note: Just because I mentioned a
DAO project in this video,
does not mean I'm recommending you invest.
They are simply real-world examples.
Okay, now to define what a DAO actually is.
I'm not talking about Dragon Age Origins.
This is a Decentralized Autonomous Organization.
You can think of this kind of as the
blockchain equivalent of a horizontally
structured community - a blockchain commune, if you will,
or, as Forbes describes it, an Internet community
with a shared bank account.
The idea is a community where
no one member influences what the organization does
without the consent of the majority.
Most DAOs have their own governance tokens,
which acts as a sort of voter's ID in currency form.
And this might sound fairly familiar
because many kinds of crypto, including Bitcoin,
are effectively ran by the community
who contribute to the blockchain without
any central authority.
But a DAO takes this a few steps further.
Here, developers can propose changes
to the protocol itself,
and members of the community can vote
to to accept or to reject these changes.
This use of blockchain tech
leveraging the power of smart contracts
has attracted many entrepreneurs in this space.
Even Mark Cuban wants in on this,
he says DAOs are what all corporations
will eventually become.
In a traditional business, there's usually a
very clear line between decision makers
and contributors; managers and employees.
The idea is you potentially get rid of a lot of the
inefficiencies and politics that come with
this organizational hierarchy.
- Do it
five, four, three, two
Do it, give me control Michael.
However, I do foresee issues here as well.
As someone who's owned my own businesses
my entire life and employed hundreds of people
over the last eight years, I have to say that
I'd be willing to say that 90% of decisions
make sense to just about everyone, but
You can see this in products of large corporations.
You know, they often feel uninspired and just boring,
like how nearly every single SUV looks the exact same.
There are just too many decision makers and
too large of focus groups at these huge
corporations and due to sheer numbers,
anything especially lovable or different
gets voted out and you're left with the least
offensive product possible,
and this will be a feature that DAOs
will eventually have to overcome.
Now, generally, there are two kinds of DAOs.
First, the investment firm model
where major decisions involve
deciding on which assets to buy.
An example of this is PleasrDAO,
who paid $4 million
for the sole copy of a Wu-Tang Clan album.
And the other kind manage
blockchain projects together,
Many of these kinds of projects
use stablecoins and earn revenue by
issuing bonds, or allowing users
to stake their holdings.
Using stablecoins allows the market
in general, to focus on the performance of the
protocol rather than worry about whether the
token that they're using is going to just tank.
Now on to the top projects.
OlympusDAO was a project that
piqued my curiosity, sending me down
a rabbit hole of Reddit threads.
They've been one of the few successful projects
putting some credibility into the DAO market.
Prior to Olympus, DAOs were mostly
seen as Ponzi schemes.
Now they're arguably better Ponzi schemes.
[Laughs] Olympus implemented a few
tweaks to their protocol that kind of changed the game.
The most important change is the OHM token.
This is the token native to Olympus DAO
and it doesn't use a dollar peg.
This decision was in part due to the
depreciation of US dollar peg stablecoins.
OlympusDAO uses a model of bonds, liquidity pools,
and staking to incentivize adoption
of their protocol.
Stakers in Olympus are given a
portion of newly minted OHM tokens
every 8 hours, and this drives the
promise of their 4000%+ APY.
According to their FAQ page,
each OHM is backed by at least
one Dai stablecoin at all times.
And it's important to note that
Now, part of the magic here
is something called rebases.
This is a DAO-initiated injection or contraction
of the token supply within the market.
This helps to defend a price point
or to manage inflation in this ecosystem.
Now, even though the rebases often
put new token supply directly into
holder's wallets, they aren't the same
thing as staking rewards, which are more consistent.
And the thing is, this isn't perfectly trustless right now.
Only about 20 people,
which I decided to call "The Knights of the DAO table",
are involved in these strategic
price manipulations for Olympus.
They intend to make this process
decentralized in the future.
However, this is what I mentioned earlier.
Some decisions will be tough
to have a majority vote on.
and it's kind of ironic that something touted as
decentralized and algorithmic became successful
through human intervention, but this
might be necessary, at least in the beginning,
to get to a point of stable growth.
A number of projects have forked from
OlympusDAO, making use of its staking mechanism
and even the OHM token itself.
And this has led some experts to think that
OHM could become
a standard for DeFi in the future.
But of course, only time will tell,
And a note of caution here:
Several other projects like Spartacus Finance
have forked from the Olympus protocol,
but that doesn't mean that they're the same project
or that the teams are the same
and your earnings could be wildly different
if you invest in a fork.
Now, something you may be interested
in investing in, is a membership to my Patreon community.
There you'll find all my buy and sell alerts,
live streams and additional content
that is not posted on YouTube.
It really is the best darn deal on the Internet.
That'll be linked in the description below.
Now, the main competitor to Olympus
at the time of this video is called Wonderland.
They use a token called TIME.
Both Olympus and Wonderland
have staking as their core functionality
and go through supply rebases to bring the
price of the token up or down.
However, there are a few key differences.
First, Wonderland's TIME token
is based on the Avalanche blockchain,
while Olympus is based on Ethereum.
The benefit of going with Avalanche
is that the fees are substantially lower
and it can handle more transactions at a time.
This is very useful, considering
how many transactions can happen
in a single day on DAO protocols.
Where Olympus DAO was offering 4,400% APY,
Wonderland is currently around 80,000%.
The first is whether the price of the token will
hold its value for the course of the year.
If the price of the TIME token falls
by the time you reach that 80,000% gain of tokens,
your total gains will be less than 80,000%,
potentially a lot less if it falls
all the way down to its backed price.
So let's say you bought two TIME tokens
and paid $7,000 for the trouble.
If they remained at $3,500
per token over the course of the year
and you were given staking rewards
of an additional 1600 TIME tokens,
(an 80,000% return)
well, then you'd be rolling in it.
You'd have five and a half million dollars
before you hit your next birthday.
This is insane, I know.
It's also important to note that APYs
will decrease over time as these
projects get larger.
Now, on the other hand, worst case scenario,
if the DAO absolutely plummets
to its backed value of $1,
then you would have net earnings after staking rewards
rewards of negative $5,400
on your $7,000 investment.
Now, something this dramatic
usually only happens in a scam,
but it's important to consider both
best and worst case scenario
in any investment.
Now, looking at the price trends
and considering the amount of tokens
getting minted every 8 hours,
I can feel the spirit of Jerome Powell
telling me to watch out for inflation.
And an important question to ask yourself
with these DAOs is: are they Ponzi schemes?
The answer is yes,
but depending on your definition of Ponzi scheme.
Even the founder says that it could be,
- Is it a Ponzi?
- Well, I guess.
- Depends on your perspective.
- [Laughs] we all love the Ponzi right?
If you look at it as an investment where you
make money as a result of other people joining,
then absolutely yes, it's a Ponzi.
But if you look at it as a new way
to distribute tokens to holders
similar to an Airdrop or an ICO,
then it may not be a Ponzi.
The line here is extremely blurred.
But either way, this is high risk,
high reward potential territory.
And I recommend researching this even further
before making any crazy decisions.
And this brings me to the next section.
How to lose money with DAOs?
I could go on and on
talking about interesting DAO projects
but with information on these projects being
pretty limited to forums and Reddit threads,
it's pretty hard to decipher whether a project
has real value or if the shills are
simply screaming louder than the truth.
And because of this, I've created a checklist
that you can use to help determine if a DAO is a scam.
This will be free in the description,
all I ask for is a subscribe
on the channel for the hassle.
I made this checklist because
DAOs are a bit different from tokens,
you have to get creative here.
Usually you can see whether a
coin or a token is worth holding long term.
based on the founder's credibility or a
white paper, or just other information available.
DAOs don't always have this information.
For the most part, you're taking an anonymous
team's word for whatever they say they are going to do
and you read million percent APY
figures or tech breakdowns or
light papers or just lack of information.
In fact, if you check isthiscoinascam.com
for Olympus and Wonderland, both get
poor ratings because of how limited the information is
and those are the biggest DAOs right now.
So here are a few red flags to look out for.
First, the team has not released a
growth strategy or the strategy seems too simple.
Second, anonymous founders or influencers
might say that there is a fortune waiting
if you just go ahead and buy their token.
And we've found in this channel before that
many influencers will say
just about anything for the right price.
*Lindsay Lohan*
third, is there little information on how the
protocol decisions are made?
4) The code is not audited.
5) The crypto isn't backed by any asset.
6) The team has not created
other crypto projects before.
This one's kind of up to you, but the risk
that you're taking on is huge if
the anonymous developers have no provable experience.
7) There's a decline in social activity,
and this is one of my lookouts for crypto in general,
but it's especially important for DAOs who
rely on new investors to expand the treasury,
enabling those really high staking rewards that
DAOs are now famous for.
At this point there are already many DAOs
which have ended up as flat out rug pulls.
So high caution is necessary
if you're trying to go full on Degen investor.
I think this is a space that will evolve with
much more credibility and transparency over time,
but for now it's the Wild West.
Can investor demand keep up with staking rewards?
The only answer is yes, until it can't.
And from here I recommend you check out my
channel sponsor BlockFi.
BlockFi allows you to earn interest,
not 4 million % interest,
pretty good interest on your crypto
and you'll get up to $250 in free Bitcoin
by using the link below to sign up.
I also recommend checking out this video of mine
on the highest stable coin returns possible.
I would like to thank you so much for watching
and I hope you have a profitable day!