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Five months ago, I dove head first into the world of NFTs.
One month ago, I started Spicy Duck – a DAO among 14 other giga-brain friends.
Today, we’re learning and building –– seeing where this thing goes…
Okay. Sweet. Why do I care?
By writing this, my hope is to alleviate a bit of the cold-start problem and shed some light on some of the nuances of starting and running a DAO. This isn’t going to be a how-to article, but rather a knowledge drop of all the things I have learned and experienced over the past few months. As always, this is not financial advice, tax advice, or legal advice. Please consult appropriate council.
Where did it all begin?
I started trading crypto in 2017 –– lived through watching my portfolio take a nosedive and come back to life. After letting it ride and forgetting about it for a year or two, my interest really started to peak again during the pandemic. By mid-2020 I was back to trading, digesting new information, but for whatever reason, stayed away from NFTs.
That quickly changed.
By September 2021, I had built a rep amongst friends and family as the web3 nerd (for better or worse). I mean…I convinced our fantasy football league to put our pot into crypto for the season.
By February 2022, I felt like I had been in the space for a year but still had sooooo much to learn.
And then, there was an itch. I wanted to build something.
Fast forward to March 2022, it was safe to say our fantasy football pot did great. The market was looking on the up and up, and I was happy to offer advice about crypto and NFTs to my curious and brilliant friends who primarily worked in a web2 world.
But what to build?
I thought about and tried to reason through building an NFT community of my own; however, as some of you know, expectations were high, projects were underdelivering, and people were getting rugged left and right. The WGMInterface goodbye letter hit hard for me. I didn’t want the experience of creating a project to go from fun to anxiety filled.
What’s low-stakes and a good learning opportunity, but still impactful?
I already had friends coming to me with crypto, NFT, and web3 requests. They’re all successful in their own businesses and lives. What if we started a group among us to learn together, invest together, and eventually build things together? What if we started a DAO?
It’s not a novel idea, but the key was building something that I already do for myself – keeping it small and expanding out of our circle only when necessary (a minimal viable community).
I was already researching NFTs.
I was already explaining NFTs to friends and family.
I was already looking at web2 friends and their businesses and trying to understand if there’s a web3 application worth building.
Starting a DAO seemed like an obvious way to get friends more involved in web3, learn the ins and outs of managing a product in web3, make money along the way, and hopefully build great things with 14 other giga-brain friends.
And so it began…
How does the DAO operate? What are the rules?
Before building, every project/DAO needs to know what they want to achieve. For us, we wanted to be a web3 learning and investment community ready to act on our knowledge and seize opportunities when the time was right.
With this established, we were able to create basic DAO bylaws. We opted for done and simple over perfect. We had high trust amongst each other, so we used that to our advantage to avoid paralysis or over-complication in the setup process.
- Everyone had roughly a month to deposit
- Minimum = 1 ETH, Maximum = 10 ETH (to ensure nobody had massive control of the DAO off the bat)
- 1 ETH = 10,000 DUCK tokens
- After deposit deadline, no withdrawals for 6 months (ensure some DAO stability)
- Based on token ownership of the DAO, 1 token = 1 vote
- Majority vote to pass a proposal (<50% & =50% is a non passing vote)
- Proposals/polls last 24 hours
- If >50% is achieved, proposal can be executed (even within 24 hours to ensure we can act rapidly when needed)
- Votes are held for: new membership, investments, operational changes, and administrative changes
We choose to meet on a weekly cadence. The purpose is to have a medium where we could go over what’s happening in the NFT space, bring concerns to the table, talk about current and future investments, and relay any important information.
It’s hard to beat face-to-face interaction (video or IRL). It was important for us to create a safe space founded on trust.
A lot of new people were joining and were hesitant to deposit large sums of ETH. This was anticipated, so I allowed deposits 7 days after the first investment –– really trying to make sure we had a win under our belt (typically, depositing after raising a round is a big no-no, but again… experimentation, right?).
Even though this created dilution, I opted for the tradeoff initially as it would help us grow further down the road. Our first investment was a Moonbird mint of 2.5 ETH (now sitting at ~25 ETH floor). You can imagine how exciting that was for us and how enticing that made the DAO 🙃
Great. You have a very basic structure in place. What did you do to set everything up?
How did we go about it?
With a lot of folks coming from the web2 world, with little to no knowledge of the web3 space, we realized it needed to start with as minimal friction as possible. As much as I wanted everything to be on-chain and fully decentralized, I recognized that may be a high barrier to participation. It made the most sense to progressively decentralize.
Here were the baseline requirements for us:
- As close to a single touch-point as possible (one app)
- Needs to be mobile-friendly
- High signal, not competing with other communities
- Low cost to upgrade/switch apps
- Legally compliant
Keeping the above in mind, we started to explore DAO tools and ways to structure the DAO so that it scaled well going forward.
We focused on:
- DAO creation
- DAO governance
- Treasury management
- Contributor payouts & reimbursements
- Accounting & taxes
Moving on to the nitty-gritty…
We immediately ruled out iMessage & WhatsApp. The former is too limited and doesn’t bode well with our Android users. The latter has no good bot integrations.
The real debate was between Discord and Telegram for us. Both are great in their own right –– Discord being what the web3 world already has adopted with the most integrations. Telegram being a smoother experience and group chat friendly.
- Web3 community heavily uses Discord, no change in behavior for web3 friends joining Spicy Duck.
- Integrations are plentiful. The majority of communities are built here, so we should be able to use many out-of-the-box bots for most necessities and nice-to-haves of running a community.
- Scaling is easier. Channel segmentation is native to Discord.
- Competing for user attention amongst many other chats servers.
- At 15 members, Discord feels like overkill – do we really have enough chatter to utilize the full functionality of Discord?
- Discord goes down more often (albeit likely not frequent enough for us to care).
- No competition for user attention. You know it’s a Spicy Duck message + you’ll only open Telegram for DAO chatting.
- Native polling. More on this in DAO Governance, but a lightweight way to take DAO votes is important.
- It feels more active and group chat-esque with 15 members. It’s the right vibe, not overkill.
- Security seems to be anecdotally better. More web3 scams occur on Discord, simply because more people use Discord.
- Less web3 integrations/bot capability with Telegram than Discord.
- Scaling beyond 15 members could get difficult in the future. Channel segmentation is not native to Telegram.
- Switching cost to scale could be annoying/cumbersome if we were to build many things out for Telegram.
At the end of the day, we really valued low-friction + a more tight-knit community feel. Despite not having as many integration and scaling potentially being an issue in the future – Discord felt like overkill for 15 people. We all know how it felt to try and use Discord for the first time… it’s a lot.
Telegram gave us 80%-90% of the functionality with a much better small community/group chat feel that we wanted. For members that are active in web3 already + members that become more active, it was important that we weren’t competing for attention amongst hundreds of other communities. When we open to Telegram, we know what the messages are for and attention is high.
We figured if we needed to move off Telegram, the potential cost to move 15 people is annoying, but not unbearable.
The space is nascent and underdeveloped, so the regulations are constantly changing. The need to digest information quickly is of utmost importance. While we cared a lot about the DAO platform, it’s all relatively even-baked. We explored Upstream Collective, Colony, and Syndicate amongst many others. For the sake of brevity and where we spent most of our time, I’ll speak to these three.
While Upstream and Colony were certainly more robust/offered a larger set of features – we ended up launching our DAO with Syndicate for three major reasons:
- Customer service/responsiveness
- Help with general legal guardrails
- Ability for non-accredited investors to participate legally
In a space that is rapidly evolving where things get broken often and markets can be choppy – we wanted to rely on a service that was responsive. To be frank, Syndicate has gone above and beyond. Their Discord is well managed and multiple team members are always there to respond to questions, concerns, and squash bugs in a timely manner. This was a huge plus.
Additionally, Syndicate helps the average person set up a DAO legally. The expectation that other services put on people to have full legal counsel is deterring. We need more services like Syndicate that think about legal implications with the average person in mind in order to reach mass adoption. It’s silly to think everyone can fork out loads of cash to create legal structures for DAOs.
Syndicate helps you create a legal entity with just a few clicks with Doola. They give you a great template to create an operating agreement and prepare other documentation like a Subscription Agreement.
Once everyone is a part of the legal entity, the beautiful thing is that Syndicate is structured as an “investment club” under SEC guidelines. This is an important distinction if you’re thinking long-term and want to be able to legally continue running as more regulation comes into place.
Four major things to keep in mind as an investment club:
- You can’t invest in securities (as non-accredited investors), meaning only investments in crypto and NFTs (with few exceptions).
- You’re capped at 99 members.
- Every member has to participate in decision making in some capacity.
- You can’t publicly offer enrollment into your club (private link to join only).
This was great. It gave us guardrails to abide by and an avenue for our non-accredited investors to be able to participate legally. For DAOs to be mass adopted, either regulations need to change or services need to be built around clear legal guardrails knowing the average person doing loads of research is a huge barrier to entry. Additionally, similar to our DAO, the majority of the world consists of non-accredited investors. Syndicate handles this well.
Note – Colony came across our table a little late in the process, but looks to be a fantastic product. We didn’t do as heavy of a comparison as we did with Syndicate and Upstream Collective.
As badly as I wanted governance and voting to be on-chain, I wanted to optimize participation – making it as easy as possible. A lot of the voting options were horrible on mobile and impossible to get connected to a mobile wallet without a lot of finicky steps or multiple clicks/taps. I recognized the majority of our DAO’s members were going to be mobile-first since they are incredibly busy. I wanted them to be able to discuss quickly and vote with ease.
Unfortunately, we felt Snapshot to be too desktop heavy. We went with Telegram Polls for this reason. It was native to our messaging app and offered us a quick way to put up a proposal for vote with transparency.
But, Rahul – Telegram Polls are the most non-web3 thing you could do…
I know – again, we’re opting for ease of participation + learning other web3 concepts first. We’ll slowly move on-chain as members get more comfortable.
We needed a single location where we could access and store all of our documentation for research, proposals, data, meeting notes, and links.
Treasury, Vaults, and Hot Wallets
This was another straightforward decision we made. We needed a multi-sig wallet for trust and security of our assets/treasury and a hot wallet to be able to mint, buy, and sell assets as needed. This has been implemented many times over for other DAOs, and the common solution worked for us.
So, we implemented the following:
- Gnosis Safe for our treasury/vault
- MetaMask hot wallets for every user – only used for DAO purposes, not personal (more on this later)
Contributor Payouts and Reimbursements
Three players we found efficiently doing contributor payouts and reimbursements are:
We loved all three for different reasons. All three allow treasury/expense management in some sense, and the base functionality for all three were relatively similar. It boiled down again to customer service/responsiveness and the product direction in which they were headed.
We wanted something that could bookkeep across multiple wallets, handle contributor payouts, and have decent customer service, as handling financials can get messy and having someone to directly contact when things are confusing was important to us.
While we loved the UX of Parcel and Coinshift, they didn’t support multiple wallets for bookkeeping purposes. This was a deal-breaker for us – I didn’t want to manually monitor and add those transactions.
It started with a tweet, and eventually a demo scheduled with Pryce.
If it’s not already clear, we went with Utopia Labs, as the team has been super responsive, fits the bill for our future plans, and has some of the biggest DAOs experimenting with them (FWB, PleasrDAO, SquiggleDAO). Nothing but love for this team and excited to see what they continue to build.
Bookkeeping, Accounting, and Taxes
While there are plenty of personal accounting and bookkeeping tools now for web3, there aren’t any really good ones for business/DAOs yet. Most are at their early development stages and cost more than the functionality they can deliver.
With this being said, we don’t have a super complex system in place yet or have too many transactions, so we opted to use Koinly (making notes on transactions where necessary) while waiting on Utopia Lab’s bookkeeping solution to launch in June.
We evaluated Coinbooks and loved what they were doing, but ultimately, we wanted to keep all of our expenses, payments, and bookkeeping on one service to reduce headaches. The cost of Coinbooks (at this moment) didn’t make sense for us either. The short term pain of using Koinly and migrating to Utopia Labs later seemed like a decent tradeoff.
We also have an accountant helping us out, which helped put us at ease with our decision.
Where are we today?
Spicy Duck is now just over a month old. We’ve made a handful of investments and are starting to form a thesis around what we think makes sense for us going forward (more on this at a different time).
Some notable investments include:
Our total assets value has increased from 42.2 ETH —> 66.63 ETH (57.89 %). It’s largely due to Moonbirds, but we couldn’t be more stoked to continue learning in the space and grow our holdings.
What else have we run into?
As we continue to progressively decentralize and build out Spicy Duck, our questions and learnings keep growing. Here are some top-of-mind things we’ll likely need to tackle in the near future to scale and get fully on-chain.
Question at hand: How can we allow a rage quit that is liquid and doesn’t violate securities regulations for non-accredited investors?
Right now, there’s no great way to leave a DAO when you are investing in illiquid assets like NFTs. Having to sell assets on hand to make sure folks can come and go as they please makes the DAO unstable. Fractionalizing the asset creates issues for non-accredited investors. Syndicate is on top of this, and it’s on their roadmap (another reason we chose to go with them to create our DAO).
Increasing the DAO Treasury
Question at hand: How do we grow the DAO treasury without diluting current shareholders?
We have 15 members with a starting value of 42.2 ETH. That’s great and not a small amount to scoff at, but it’s minor in comparison to large DAOs. We’d love to get there, but we don’t necessarily think inviting more people is always the best way to do so.
Some ideas that come to mind:
- Creating art/a generative mint where we share profits with an artist (or amongst ourselves)
- Offer consulting in our areas of expertise (similar to CPG)
- Build tools that we monetize for the DAO
- Create the POP to CPG (though this involves having a clear value to deliver and an established brand)
Question at hand: How do we increase and incentivize participation?
While our participation is great at 15 members – encouraging more is never a bad thing. We’re looking to find ways where individuals can contribute in ways that matter most to them.
Learning Together as a DAO
Question at hand: How do we enable everyone to actually have access to the same tools/learn together?
We set out to start this DAO to learn together. It allows us to invest in assets, have access to different communities, and apply those learnings to future investments and things we build. Theoretically, this makes sense. Practically, we’ve run into issues.
Not everyone can access the same Discords/communities to learn and get a feel for what is going on. It results in one person accessing those communities and then relaying information (which isn’t the same as seeing/hearing/reading it for yourself). How can everyone have access when there’s a single asset?
Dilution of Early Believers
Question at hand: How do we make sure we don’t dilute early believers/investors? Or do we dilute them?
We’re exploring models for how to introduce more people and new members without diluting our current ones. What’s the best way? How do we do so and still be legally compliant? Or is the best thing to let dilution occur?
Business Wallets & Spend Management
Question at hand: How can we allow everyone to make purchases on behalf of the DAO and properly work our accounting systems and do our taxes?
Right now, the web3 wallet architecture is not business friendly for the real world. We each have to have separate hot wallets or ensure we mark business transactions on a personal wallet respectively. Otherwise, we run into accounting and tax issues.
Rain is one of the few web3 native startups setting out to solve this. I’m excited to see what they build.
Haters Gonna Hate
A section to address some of the common gripes and questions that are likely to come up as you read through this piece.
You’re right. The intention is to learn about web3, NFTs, crypto, and DAOs. Implementing everything at once is overkill for a bunch of newcomers and not the right solution. The intention is to progressively decentralize and move things on-chain as we get more comfortable over time.
I know. I wish I had the time to go through everything, but sometimes it’s better to build and pivot than to spend absorbent amounts of time digesting minor nuances. We’ll progressively decentralize, time and effort will tell if that was the right decision. No paralysis by analysis here.
While we’re trying to get as efficient as possible, it’s not what we’re optimizing for. We want to learn and truly believe DAOs will be the structure worth truly understanding going forward. I rarely take the advice of someone who hasn’t experienced something for themselves – learn by doing > learn by reading, watching, listening, etc.
Right now – no, but non-members can’t actively join without approval, so it’s gated in the sense the Telegram and Syndicate are closed. We do intend on token gating things as we scale.
Here are all the tools that were mentioned in this piece and some other great tools we came across late in the process. It’s not an exhaustive list, but something to help anyone get the ball rolling.
- Syndicate: https://syndicate.io/
- Upstream: https://upstreamapp.com/
- Colony: https://colony.io/
- Prysm: https://www.prysm.xyz/
- Gardens: https://gardens.1hive.org/
- Notion: https://notion.so/
- Google Docs: http://docs.google.com/
- Mirror: https://mirror.xyz/
- Clarity: https://www.clarity.so/
Contributor Compensation, Payouts, & Reimbursements
- Utopia Labs: https://www.utopialabs.com/
- Parcel: https://parcel.money/
- Coinshift: https://coinshift.xyz/
- Coordinape: https://coordinape.com/
Bookkeeping, Accounting, and Taxes
Shoutouts and Thank You’s
While so many people have been integral to me learning about DAOs, there were a handful that have been tremendously helpful in writing this piece and sharing information that helped get Spicy Duck to where it is.
- Adam (@heywiseman) – the utmost appreciation to the person that’s been my go-to for DAOs. Without asking an endless supply of questions in Shiny, I wouldn’t be close to figuring any of this out.
- Jordan (@jordanjpappas) & Will (@WillPapper) – these two and the Syndicate team graciously allowed me to pepper them for multiple weeks with questions and thoughts on how to run a DAO. Without Jordan and Will, the legal, tax, and launching of a DAO would have been exponentially more difficult.
- Richie (@richiebonilla) – the team at Clarity has taught me more in the past couple weeks than I’ve learned in a while. Being among a group of other DAO members, operators, and founders has only increased my growth in the space.
- Teri (@ziddyten) – my first true web3 friend. The encouragement and nudges of validation helped push through annoyances and difficulties in building Spicy Duck.
- Courtland (@courlandleer) – what would we do without liberal arts? Massive thank you to Courtland for going over this piece and helping this flow 10x better.
- Nora (twitter-less 🙄) – my favorite human. Thank you for editing this piece and reading on a subject that I’m overly obsessed with.