As VC funding dries up, can Pakistan create a DAO for fractional startup investment?

Some of the challenges that hamper crowdfunding are being alleviated by decentralized autonomous enterprises. This revolution was waiting for all and had time for all. In the year 2021, the cryptocurrency market grew by leaps and bounds.

Non-fungible tokens (NFTs), de-centralized finance (DeFi), and the game space became household terms, with the marketplace rising steadily to over $3 trillion in November 2021. NFTs changed the way people think about art and how they acquire it.

DeFi changed the way we borrow and lend money. The Metaverse created a parallel realm in which we might all virtually live and work. Play-to-earn (P2E) games compensate players for doing what they enjoy.

DAOs, or decentralized autonomous organizations such as DAO PropTech, had their time in the spotlight as well. According to data from DeepDAO, DAOs reportedly have over $10.5 billion in several repositories with over 1.7 million unitholders. But what are they, exactly?

But where the idea and concept floated into the mainstream is important to look. ConstitutionDAO is perhaps one of the most unexpected crypto headlines of 2021. A hastily organized gang of crypto believers who believe in the US constitution. The group used Ether (ETH) to fund more than $47 million to buy an original copy of the United States constitution at auction.

Although the group’s bid was eventually unsuccessful, the chutzpah of the effort brought DAO’s ability to crowdfund to the attention of the general public. The brilliance of that action, as well as what it almost achieved, serves as a model for how traditional crowdfunding should be properly managed. Without a marketing team or a dedicated growth director, ConstitutionDAO was able to collect tens of thousands of addresses and raise $47 million. 

DAOs behind the curtains of Crowdfunding

This is the idea behind fractional ownership but how it works is the real gameplay. DAO’s goal is to establish a forum for blockchain entrepreneurs to solicit investment for their initial ventures, which are decided on by DAO members. The performance of enterprises that get financing is evaluated at each step, and money are only issued once the program committee approves them. A decentralized organization’s actions are defined by a set of hard-coded rules. 

They are member-owned communities with no leaders. A DAO is a self-governing cooperative that controls itself through the use of blockchain technology. The group is managed through blockchain networks. For a DAO, a native token is usually created and utilized by electors to vote on propositions. DAOs, a type of digitized crowdfunding, have removed some of the fundraising form’s confines. Its ease of use makes it a threat to existing crowdfunding approaches.

Flexibility, low-slung protocols, and greater reach

The structure of crowdfunding, which is set up with low exposure, is primarily responsible for the massive upward growth trends of digital crowdfunding platforms. The primary reason behind it is the fact that the risk is shared by all members of a team working on a project or company. Prominent of all, platforms like GoFundMe, Patreon, and Kickstarter have enjoyed humongous upward mobility in past years. 

The fact that blockchain technology is censorship-proof is one of its many advantages. As a result, all blockchain-based apps are censorship-resistant. Traditional crowdfunding sites may impose restrictions on individuals or businesses as a result of this. Corporations in the United States are prohibited from soliciting upwards of $5 million from crowdfunding platforms in a single year. 

GoFoundMe; one of the largest crowdfunding platforms doesn’t accept and process payments from countries like China, Nigeria, Russia, Lebanon, Iran, Pakistan, and a number of other countries. Despite the fact that Nigeria is Africa’s largest economy and China is the world’s second-largest economy, residents of both countries are unable to access the world’s largest crowdfunding platform. These countries can readily invest in a DAO using blockchain technology. This is where the blockchain technology USP is.

Whether Pakistan’s retail investors participate in crowdfunding platforms? 

Given Pakistan saw a boom in VC funding and the peak was touched in 2021. Globally, the funding is drying up with an aim of scaling up the profits. In the context of Pakistan, Airlift Technologies’ reverse sailing is a perfect example of drying up VC funding. But that is different from DAO. Set aside DAO and crowdfunding platforms, there is no regulatory framework regarding crypto in Pakistan. 

“We have to separate the DAO from the fractional investment theme,” said Habibullah Khan, founder of Penumbra digital and an eSports ecosystem evangelist. “Crowdfunding platforms are going to be critical for raising money regardless. They have a part to play in the innovation ecosystem. A lot of clever products, services, and startups in the West take off from crowdfunding. In Pakistan, this is only allowed for Real Estate using REITs. We need to use regulation to broaden that for the entire economy. This can be done through various channels and models like DAO, but it should be done. We need regulations to make this happen.”

It can be hoped that this concept is accepted as cryptocurrency acceptance rises in Pakistan. Both are directly proportional to each other in terms of accepting a digital platform. And the investors will seek previously uncharted territory in the business. Many people are wondering when/if the DAO bubble will burst, with thousands of DAOs already in existence and more starting every day. The so-called 80-20 rule can come into play. But for Pakistan, it is a moonshot, too good to be true. 

 “The startup ecosystem in Pakistan should not create a digital asset organization (DAO) for fractional startup investment, ” said Ammar Habib Khan, chief risk officer at Karandaaz Pakistan. “There is literally no point and why bother converting cash into crypto and then creating a DAO, when you can just give cash and invest in a startup, etc. Literally no point in adding another layer which doesn’t add any value.”

DAOs are a new concept that has finally found its place in the world. DAOs have grown in popularity over time as a result of the decentralized nature of crowdfunding. There were approximately 6,000 DAOs with $10 billion in liquidity as of April 2022.

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