Web3 Research: Understanding Flamingo DAO in One Article
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Web3 Research: Understanding Flamingo DAO in One Article
"DAO" replaces this hierarchical management structure with software, operates via "smart contracts," and encodes its goals, rules, and transaction records on the blockchain, thereby eliminating the need for centralized authority.
Navigating Web3 tides with focused insights
Author: Fateh Singh Mann
Translation: 0xbb, TechFlow
Note: DAOs have always seemed somewhat mystical, but this research report on Flamingo DAO traces their origins from the beginning of DAO history, explaining how the largest DAO use cases operate and exploring potential future trends. Translated by the TechFlow Friends volunteer community at TechFlow.
Reading Highlights:
This article refreshed some of the translator's preconceived notions:
1. It’s not that non-investment-focused DAOs are more common; rather, investment—being inherently financial and deeply monetary—is naturally suited to being structured as a DAO (and thus codified via smart contracts), especially within the crypto space.
2. The narrative around DAOs may indeed be underestimated and overly abstracted. Composability matters just as much in the DAO world—the LAO spawning new DAOs, or DAO-to-DAO collaboration, already proves this point.
3. Investors with ambition, courage, and confidence in the future should seriously consider transforming their own organizations into DAOs—not just conceptually or philosophically, but practically and programmatically, through code.
Background
What is a DAO?
In 2013, Ethereum co-founders Daniel Larimer and Vitalik Buterin first explored this concept in an article. The premise was that companies organize human activity under a set of contractual rules and objectives. To clarify and enforce these contracts, traditional companies adopt hierarchical management structures.
A “DAO” replaces such hierarchical structures with software, operating via “smart contracts,” with goals, rules, and transaction records encoded on a blockchain—eliminating the need for centralized authority. In theory, DAOs offer several advantages:
1) Automation through smart contracts reduces operational costs.
2) This model ensures full transactional transparency, increasing stakeholder trust.
3) Participants gain a sense of ownership, enabling mutual economic and psychological support, leading to higher productivity compared to traditional employees.
The Story of the First DAO
In May 2016, a group of Ethereum team members launched the first DAO, intended to function as a venture capital fund for blockchain and crypto projects.
The DAO raised funds by issuing tokens in exchange for ETH and achieved massive success, raising nearly $150 million.
However, due to a now well-known technical vulnerability, one or more hackers stole nearly $70 million from the DAO. Later, Ethereum hard-forked to return the stolen funds to their original owners—a move that sparked significant controversy.
Additionally, the U.S. Securities and Exchange Commission (SEC) determined that the DAO’s tokens were securities and therefore subject to federal securities laws. To protect investors and ensure proper disclosure, any token tied to profit-sharing rights in a for-profit DAO must be traded on a registered exchange unless exempted.
Unsurprisingly, the DAO soon shut down, but interest in DAOs did not end—experiments continued.
Company History and Key Personnel
TributeLabs (formerly OpenLaw):
In June 2017, the founding team behind Flamingo DAO first came together to create "OpenLaw—the Ricardian Contract System"—with the goal of creating contracts understandable by both humans and machines, particularly machines, so they could be cryptographically signed, verified, and stored on the blockchain. Thus, OpenLaw served as a bridge between traditional legal systems and the emerging cryptographic world.
The Ricardian contract system was proposed by Aaron Wright, a trained lawyer focused on blockchain and its regulation, who also authored the book *Blockchain and the Law*.
The OpenLaw team began experimenting with various use cases, such as real-time tax reporting. Eventually, they concluded that the best application was helping emerging DAO ecosystems establish legal structures compliant with U.S. securities law.
This was critical because the first DAO, established in May 2016, had clearly failed—not only due to the infamous hack that initially lost nearly $70 million, but also because the SEC ruled that the first DAO and its investors violated U.S. securities laws. As a result, subsequent DAOs operating under similar models would function under highly uncertain regulatory conditions.
Note: In September 2021, OpenLaw officially rebranded as Tribute Labs, with the explicit mission of helping DAOs operate legally in the United States.
The LAO
To better understand the precise products needed by DAOs, the team began "eating their own dog food" by using their own software extensively when building DAOs. The first major organization of this kind was The LAO.
LAO stands for "Limited Liability Autonomous Organization," founded in April 2020 as a limited liability entity (compliant with securities laws). Individuals could contribute ETH to purchase "LAO Units" and become members. The pooled capital was used to invest in blockchain-related projects in exchange for tokenized equity or utility tokens. All governance and execution (voting, contributions, fund transfers, etc.) occurred via smart contracts. The project raised $5 million.
The second project LAO invested in on the SuperRare platform became what is now widely known—the digital art and non-fungible token (NFT) marketplace. Soon, members began debating whether LAO should focus solely on investing in NFT projects, platforms, or infrastructure, or also acquire individual artworks. They decided to pursue both paths and launched a new investment vehicle dedicated to the NFT market: Flamingo DAO.
LAO has since evolved into a DAO incubator, spawning other DAOs focused on specific investment areas. To date, LAO has launched six distinct DAOs, deploying a total of $200 million in capital on Ethereum. Two additional DAOs are即将 launched.
1. Flamingo DAO
2. Neptune (DAO focused on DeFi)
3. Neon (DAO focused on Metaverse)
4. RedDAO (digital fashion)
5. ReadyPlayerDAO (gaming)
6. Museo (NFT-native museum and art collection)
Flamingo DAO
Flamingo DAO was founded in October 2020, raising capital through the sale of "Flamingo Units." With a structure similar to The LAO, Flamingo DAO raised approximately 6,000 ETH (around $6 million at the time).
In February 2021, Flamingo DAO purchased a CryptoAlien Punk for $750,000.
Key Figures:
Aaron Wright is a lawyer, scholar, and tech entrepreneur who sold his company to Wikia in 2007. He played a minor role in Ethereum’s founding. His research on the intersection of blockchain and law culminated in a published book that laid the groundwork for OpenLaw.
Priyanka Desai is a seasoned lawyer who joined Aaron’s OpenLaw project in 2017 and currently serves as Vice President of Operations and is a prominent member of Flamingo DAO.
Mechanics
Membership
Due to regulatory requirements, Flamingo DAO membership is limited to accredited U.S. investors, capped at 100 members.
Initially, members purchased 100,000 "Flamingo Units" for 60 ETH, representing 1% voting power and proportional rights. The maximum share any single member can hold is 9%. Importantly, these are not tokens and cannot be traded or transferred unless otherwise agreed upon by a majority of members.
Existing members decide whether and when to open new memberships within a limited timeframe. Aaron stated on the "This Week in Startups" podcast that the current cost for a new member is 3,000 ETH. New members join by diluting existing shareholders’ stakes. Unlike traditional investment firms where new members benefit only from future investments, new Flamingo DAO members receive returns from all investments made throughout the DAO’s entire operational history.
Many distinguished applicants seek to join Flamingo DAO, and the team carefully evaluates candidates based on their expertise in the NFT space before granting membership.
Investment Process
The group holds biweekly calls to discuss potential new investments and market trends.
To protect privacy and prevent front-running, members conduct Moloch-style votes to determine whether to allocate a portion of Flamingo’s assets (approximately 20%) toward acquiring new assets.
Members nominate projects or propose NFT funding through a portal called "The dApp." After nomination, members vote on whether to support the proposal.
Currently, members manage asset liquidity in two ways: proportional distribution of funds to members, or creating tradable tokens representing yield interests.
If a member wishes to liquidate, they simply sell part of their stake in Flamingo DAO to another member after approval. If multiple members simultaneously seek liquidity, the majority decides how to implement it.
Voting System
Blockchain-based smart contracts facilitate voting, with results recorded immutably on the Ethereum blockchain.
Voting rights are allocated proportionally. Decisions are consensus-driven without quorum requirements—members are not obligated to vote, and proposals are evaluated excluding the lowest votes.
For specific issues, voting rights can be delegated to other members, and delegation does not affect the delegator’s earnings.
Beyond voting on purchases, members can submit and vote on proposals regarding Flamingo DAO’s structure, form, or strategic decisions (such as handling liquidity or launching a Flamingo DAO token).
Rage Quitting
Members can choose to withdraw their capital at any time—they can exit Flamingo DAO whenever they wish, a process known as "rage quitting," which ensures members feel secure joining and can vote freely.
After voting on each proposal, if a member disagrees with the outcome, they may opt for "rage quitting." Exiting members receive a share from unallocated capital and retain the right to profits from Flamingo DAO’s prior investments, provided legal and investment terms allow. The documents do not clearly specify how or when these profits are distributed to exiting members.
Note: Founder Aaron Wright clarified that the Flamingo DAO governance document does not mention the right of exiting members to receive investment returns. This interpretation comes from the LAO governance document, which shares identical language with Flamingo DAO’s.
Miscellaneous:
All administrative and operational activities, including establishing legal frameworks, maintaining software ("dApp" where decisions and governance occur), smart contracts, community support, tax compliance, and regulatory adherence.
Business Model and Secrets
Activities
1. Acquiring NFTs and, where applicable, fractionalizing them—including the famous Alien CryptoPunk purchased for $750,000.
2. Investing in core NFT infrastructure and projects. According to Crunchbase, Flamingo DAO has invested in at least 10 such projects—for example, participating in OpenSea’s $23 million funding round and Nameless’s $15 million raise (Nameless is an API developer for minting, testing, and selling NFTs).
3. Commissioning artists like Joy and Hackato to create new works and launch new NFTs.
4. Investing in digital artists through their respective communities or community tokens.
5. Curating acquired works to build digital museums and exhibition galleries.
6. Exploring ways to grow and further monetize existing assets. For instance, after acquiring the copyright to the Alien CryptoPunk, they created a social media persona, gave it a 3D presence, designed Zoom skins, brought it into the metaverse, and even launched a DAO around it.
This trend points toward a clear endpoint: virtual influencers (like virtual pop star Miquela).
Portfolio
Flamingo DAO started with $6 million in ETH. Over time, it has accumulated over 1,300 NFTs, including hundreds of CryptoPunks (Flamingo DAO is the third-largest holder), five rare AutoGlyphs, NFTs from digital artists, and equity in OpenSea.
While valuation is difficult due to volatility, Flamingo DAO’s holdings are currently estimated at around $100 million. This figure was mentioned by Aaron during the Boardroom Governance podcast on November 8, 2021, at the 54-minute mark.
Economics
1. Revenue Streams:
1) Sale of digital assets and investments: Includes previously acquired assets and new NFTs launched in collaboration with artists.
2) Sale of units to new members.
Flamingo currently has about 70 members. Per its original charter, membership can grow up to 100. As noted earlier in the mechanics section, existing members decide when and whether to open new memberships and at what price. Currently, the price for 100,000 Flamingo Units has risen from 60 ETH at launch to 3,000 ETH—an increase of 50x in ETH terms and roughly 2,000x in USD value.
Given this highly nascent field, more revenue opportunities are expected to emerge, potentially including monetization of digital museums and galleries, building communities or DAOs around existing NFTs, and more.
2. Cost Structure
1) Fees paid to service provider OpenLaw (now Tribute Labs) for legal structuring. DAO tools handle administrative and compliance tasks along with community support. Initial fee is 2% annual management fee on committed capital, decreasing to 0.7% after five years. (Source: "This Week in Startups"—LAO’s committed capital and explanation of 2% annual fee).
2) OpenLaw does not take a carry; this is decided by members. Flamingo DAO has no investment manager.
3) In addition to the above fees, the service provider is entitled to 2% of the total proceeds from any NFT acquired by Flamingo DAO. If the service provider receives an ownership interest in an NFT acquired by Flamingo, then 2% of that ownership interest applies.
4) Marketplace commissions, such as OpenSea’s 2.5%.
Competitive Advantages
Note: Flamingo DAO and most DAOs have very limited operational history and emerged during a crypto bull market; drawing definitive conclusions may be premature.
1. While competitive dynamics remain unclear, Flamingo DAO may compete with other DAOs for investment opportunities and also with venture capital firms and traditional investors. The ability to identify new deals and opportunities: In a highly dynamic, decentralized industry with globally dispersed participants, scouting terrain and spotting opportunities is far more challenging than in centralized environments like Silicon Valley startups.
1) Flamingo DAO vs. VC Firms
Flamingo DAO benefits from "collective intelligence" and a flat organizational structure, featuring a network of 70 digital asset experts from diverse backgrounds—better suited than traditional institutions to spot opportunities in fast-evolving ecosystems.
2) Flamingo DAO vs. Other DAOs
a. Flamingo boasts a high-quality membership base with deep, long-standing engagement in the blockchain and NFT ecosystem, setting it apart from most DAOs. Though competitors like PleasrDAO also curate elite members, Flamingo strengthens this further with a network of top-tier curators who help identify trends and emerging opportunities—though they don’t make purchasing decisions.
b. Unlike many peers, Flamingo DAO operates as a relatively tight-knit cavalry of over 70 members, likely resulting in higher participation rates. Aaron Wright cited “60%” as the average participation rate across all LAO-networked DAOs in a podcast. However, this is smaller than some counterparts (e.g., Fingerprints DAO with 250 members), which may be better at discovering long-tail projects. Time will reveal more about the trade-offs between DAO size and member engagement, and how governance can balance them.
c. Goodwill, reputation, and community: The nascent NFT and crypto industry is highly idealistic and purpose-driven. Strong reputation and community attract valuable deal flow.
3) Against Traditional Investors
Another area where DAOs, leveraging the combined networks and shared ethos of all members, may outperform traditional investors.
4) Against Other DAOs
Flamingo is the most prominent, earliest, and largest DAO. Dubbed the Medici of NFTs, it is the only DAO featured on Fortune’s list of the 50 Most Influential People in NFTs.
2. Speed and Flexibility
1) The DAO structure is optimized for speed and agility. Recently, LAO launched Neptune DAO, completing a $20 million deal in just 40 minutes—whereas a VC firm might take 3–6 months.
2) VCs are limited in the range of activities they can pursue, while DAOs can creatively enhance the value of their holdings and discover novel monetization methods. For example, a DAO can launch a new DAO around its most popular NFT, monetize assets via digital museums, etc.
3. Regulatory Compliance:
Flamingo DAO is member-directed, with members holding voting and investment rights, minimizing delegation and agency conflicts.
4. First Principles:
NFTs represent an emerging asset class, and regulators are still figuring out how to oversee them. Due to its relationship with Tribute Labs, Flamingo DAO operates as a "wrapped DAO," maintaining a conservative structure to meet compliance standards. Its legal founder, Aaron Wright, positions it best to navigate an evolving regulatory landscape.
Competitive Position
External Landscape
1. NFTs are an emerging industry that has seen significant market cap growth over the past year, reaching $10.7 billion in Q3 2021.
2. Growing public interest in NFTs—celebrities, investors, individuals, and other DAOs—are bidding on new artworks and projects. Prominent "collectors" and holding DAOs (including PleasrDAO and FingerprintsDAO) are active. Additionally, DAO members often jointly purchase single NFTs, such as ConstitutionDAO, whose partial ownership grants permanent usage rights.
3. Entry barriers are low, and as tools and infrastructure for launching DAOs improve, it becomes easier for individuals to enter. Meanwhile, laws like Wyoming’s DAO bill reduce regulatory uncertainty surrounding DAOs.
Internal Position
1. For NFTs, Flamingo DAO is the oldest and largest use case, though only founded about a year ago—highlighting the industry’s early stage.
2. Threats:
1) NFT Market Collapse:
Even optimistic investors and collectors must acknowledge that NFTs may currently be experiencing speculative mania—many NFTs could become worthless.
2) Ethereum Price Crash:
All of Flamingo’s reserve assets are held in Ethereum. A drop in ETH price could limit their available resources.
3) Innovation in DAO Formation and Governance:
a. To comply with regulations, Flamingo DAO restricts membership to U.S.-accredited investors, capped at 99 members. This may hinder competition against more globally inclusive teams (though Dunbar’s number may suggest an optimal size for investment DAOs).
b. High entry costs and limited membership make Flamingo DAO exclusive, which is disadvantageous when exploring long-tail investment opportunities.
c. Flamingo DAO relies on service provider OpenLaw for backend support, operated by Flamingo members Aaron and Priya Desai. Rapid market evolution may bring superior tools, and given OpenLaw’s economic interests, Flamingo DAO may theoretically resist migrating to new platforms.
4) Entry of High-Level Players:
Currently, the NFT industry is too small for capital to provide strong moats. But if it grows significantly in the future, the landscape may change. Under those conditions, Flamingo and other DAOs could face intense competition from participants with larger, deeper capital pools.
Sources:
Website: Flamingo DAO
Twitter: Flamingo DAO
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