Are DAOs the future of crowdfunding?

Ever since the first successful online crowdfunding campaign in 1997, when a British rock band used the Internet to fund their reunion tour through online fan donations, the concept of crowdsourcing ideas and funding has exploded.

The crowdfunding industry has grown rapidly over the last two decades, and it has proven to be a great way to raise money for a project or cause. There hasn’t been much innovation, though, and there are some inherent problems with it. That’s why many critics are asking if DAOs are the future of crowdfunding. 

For one, you often don’t get the money you need because people can be slow to donate. And if you don’t hit your fundraising goal, you get nothing at all.

DAOs may be the answer to these crowdfunding problems. With a DAO, donors are able to see how their money is being used and they have a say in how the organization is run. This makes them more likely to donate and less likely to back out if the fundraising goal isn’t met. Let’s take a closer look at crowdfunding, DAOs, and how the two compete and could possibly co-exist in the future.

Benefits of crowdfunding

Crowdfunding is a way to raise money for new companies, business projects, or personal ideas through the help of internet users. Crowdfunding can take place over many platforms, but typically involves an individual or company asking others to contribute towards their project.  Projects are usually funded when they reach their funding goal within the given time period.

Investors (aka “Backers”) in these crowdfunding projects receive rewards and perks. Some of them might be pretty cool, too, especially to a superfan.

For example, a company may offer investors free products or merch once the product is launched. These “rewards” usually are offered on a sliding scale, the more your fund, the more swag you get. In some cases, the project owner also offers previous investors the opportunity to stay ahead of company announcements with early access to new products or coupons for free or discounted goods. 

Advantages of DAOs

DAOs are similar to crowdfunding organizations because DAOs allow users to receive funds without an intermediary – sort of. 

Like crowdfunding, DAO tokens allow individuals to support projects they believe in with the promise of receiving something in return. They can actually give the little guy a lot of buying power. You may have read in the news about DAOs bidding on Sotheby’s auctions – liek the US Constitution – or trying to buy a sports team. Not all DAOs have to “go-big or go home” though, in order to be successful or worthwhile or profitable.

DAO investors actually receive dividends, unlike crowdfunding projects where funders may receive some sort of simple reward like a t-shirt, or even a discounted unit of the product they’re funding. In contrast, crowdfunding projects do not guarantee rewards will ever be remitted, nor do they guarantee that the use of funds as described will actually come to fruition.

DAOs are fairly new and face challenges, however, as the market adjusts to the concept of decentralization. The maturity of the crowdfunding market hasn’t been met with much innovation, which is also a problem.

With that said, DAO token sales may not be able to replace existing forms of crowdfunding like Kickstarter just yet, which is fine… because it’s possible the two could co-exist. 

Let’s look at a few more examples of how the two compare.

1. DAO tokens offer investors different benefits than traditional crowdfunding sites do.
   For example, DAO tokens allow token holders to receive dividends and vote. Also, the tokens themselves are tradeable.
2. DAOs provide more accountability and transparency to investors than traditional crowdfunding organizations.
   For example, DAOs are run by smart contracts, which strengthen trust between an organization or project’s leaders and its investors. Crowdfunding is full of issues – from copywriting to compliance.
3. DAOs also give users a direct connection to the DAO they are invested in, whereas Kickstarter projects are separate from their investors and may therefore lack accountability.
   For example, DAOs also provide more control over investments because DAO token holders can change project parameters like DAO funding limits, DAO contractor pay-out structures, etc.

To replace or coexist: that is the question

The ability to harness the power of the Internet and follow through with ideas has become more attainable over time with the advent of crowdfunding, which brings people together for a common cause. Innovations in technology have made it more possible for people to do things, or complete projects they’ve always wanted, but never thought they could, uniting communities and philanthropies.

Crowdfunding has some major advantages in lessons learned since it’s been around for so many years. It’s lack of growth and innovation are a serious impediment, though. As a new technology, there is some risk involved in using DAOs for crowdfunding, too. However, DAOs offer several advantages over traditional crowdfunding platforms, including lower fees, more transparency, and the ability to raise funds from a global audience. 

It seems like – in their current states of existence – traditional crowdfunding and DAOs have quite a bit they could learn from one another. They both have advantages that could make it easier for worthy causes to efficiently raise capital for their efforts, and that doesn’t seem like a bad thing for anyone.

What does the future hold for DAOs and crowdfunding? 

It’s hard to say. They may replace one another, or they may co-exist as complementary funding methods. It’s more likely that each will carve out their own use cases, which remains to be seen.

Both DAOs and crowdfunding organizations have the potential to change how businesses and organizations raise money and how people invest in projects, though. 

It will be interesting to see which platform – DAOs or traditional crowdfunding – becomes more dominant in the years to come. In the meantime, it’s a good idea to familiarize yourself with both platforms so you can take advantage of whatever fundraising method proves most successful.

If you’re curious about learning more about tokenization or getting involved in a DAO, there are a number of platforms out there where you can do so. And if you want to explore the world of crowdfunding, Kickstarter has a comprehensive how-to-guide for beginners. 

Whatever route you decide to take, we wish you luck in your fundraising endeavors!