Diving Deep on SquidDAO: Exploring a crypto-native hedge fund built in web3
You may approach the Squid.
Right up front:
I own some $SQUID. It’s not a lot. Not enough to change my life, or influence me to shill to you. But I do own some. Fair warning.
This is not a bull case or bear case or financial advice in any way. This is one big dingus trying to figure out how stuff works.
I’m not a representative of or affiliate of SquidDAO. I’m using my own depictions here and I don’t know if they’d agree with them or not.
The purpose of this is to try and understand (by attempting to explain) one project in web3, and this project includes a few web3 mechanisms built in. Learning is fun!
I don’t know if SquidDAO will go up, down, sideways, or straight to hell. But I’ll try to dissect it in my own words.
This post assumes some working knowledge of Ethereum and interest in crypto. Read Ethereum 101 or other web3 posts if you this loses you.
What is SquidDAO?
Technically, it’s a DAO (Distributed Autonomous Organization). Which is a group of internet people trying to accomplish something together.
The mission as I understand it is to create a profitable crypto investment fund. It feels mysterious and exciting, like being part of a villainous conspiracy in a bond movie. The logo even looks a little like Spectre. But it’s not evil or (particularly) shady.
I like to think of it as a benevolent conspiracy for mutual enrichment.
Ok, but… WHAT TF IS SQUID DAO?
Fair question – I didn’t actually answer.
The treasury is the core of the DAO. Like a bank account or balance sheet. As of this post, the treasury controlled by SquidDAO has about $42,000,000 in it. These are held entirely in crypto-assets. The purpose of the DAO is to grow the treasury. As the treasury balance grows, the value of the $SQUID token grows (in theory, anyway). And everyone who owns $SQUID tokens gets more money. Yay! Fun!
The treasury is currently mostly in Ethereum, though it also has positions in Convex, owns 4 Bored Ape NFTs, and other smaller positions. You can see the treasury for yourself in their Zapper account, here.
Growing the DAO Treasury
The treasury grows in 3 main ways:
NFT Sales
Treasury Yield
Bonding Revenue
NFT Sales: Every day, 1 SQUID NFT is Auctioned. ETH from the sale is split and goes to the treasury, other NFT holders, and SQUID holders who *locked* their squid. Yesterday’s NFT sold for 5 ETH ($15,000).
Treasury Yield: The $42,000,000 treasury is used to earn more crypto. Usually through staking or providing liquidity to exchanges.
Bonding Revenue: When new members join, they can buy newly-minted SQUID at a discount. The revenue from this new SQUID goes into the treasury.
Side note: The art is coooooool, from a variety of comissioned artists! Check Squid NFTs on OpenSea.
The NFT Sales system is inspired by NounsDAO, which auctions off NFTs for their DAO governance. The Bonding Revenue system is inspired by OlympusDAO who pioneered “protocol-owned liquidity.”
SquidDAO is kind of like Voltron – forking the best functions of a few different DAOs to create something new and powerful. (Side note on forking: It’s what developers call copying and adopting a chunk of code to use on their own project, or take in a different direction. Think a fork in the road.)
Summarizing SquidDAO:
So in “Tradfi” (Traditional Finance) language, SquidDAO is an investment fund where anyone can buy in. The fund takes in more money to invest by selling equity and control to newcomers. The better the fund’s deployment strategies, the more money everyone makes!
Governance of the DAO
There are two ways to get votes to help steer the DAO:
Buy a SQUID NFT
Lock up your SQUID tokens for long-term (1-4 years).
Locked $SQUID is designated as veSQUID. The locking mechanism is forked from Curve, another Defi Protocol.
Tools of The DAO
DAOs are entirely remote, often entirely pseudonymous organizations. Almost everyone is a volunteer-first, with incentives aligned around a common token, NFT, or project. There are a common set of tools most DAOs seem to use which you might want to know if you dive in.
Most DAOs I’ve seen have a similar structure, so this little glossary may be helpful for any DAO you try to learn about.
Website - Where you bid on NFTs, Bond/Stake/Lock your $SQUID Tokens. They also just added a Dashboard with key metrics.
Docs - This is the wiki/FAQ/Explain-it-all place. Hosted on Gitbook, this is the most comprehensive place to read up on SquidDAO and get your common questions answered. If you can’t find an answer here, ask in the Discord. Link to SquidDAO’s Docs.
Discord - A group chat app. Like Slack for fun people. You’ll see different channels organizing topics on the left. There are some scammers in Discord, DO NOT REPLY TO DIRECT MESSAGES. Link to SquidDAO Discord.
Discourse - A forum where proposals for the DAO are discussed. Discourse automatically tracks your time reading, likes, topics, etc. It’s a really cool way to see “proof of work” and trust that anons are putting in their time. Link to SquidDAO Discourse.
Snapshot - Where the voting actually happens. Votes go “on-chain” through Snapshot, which verifies each voter’s right to vote, and keeps a record of each important DAO vote on the blockchain. Link to SquidDAO Snapshot.
Twitter - Sharing announcements, memes, hosting Twitter Spaces, and NFT Auction announcements. Link to SquidDAO Twitter.
Zapper - View the SquidDAO treasury balance and assets held here.
There are a ton more resources in the #Resources Channel of the Discord. There, you’ll find smart contract trackers, buying guides, links to exchanges with $SQUID token liquidity, and more.
People of the DAO
I had a few Squids come on my podcast and learned a bit more about them and the project. One has a traditional finance background, one was an engineer who founded and sold a startup, and another had a chief-of-staff role at startups become going full-time crypto in 2018.
We talked all about their skills, their work in the DAO, how they decided to jump into the opportunity.
I also asked them why they stayed Pseudonymous?
The answers were interesting – they were pseudo not because they planned to “rug” (run away with funds), which is what most people are afraid of, but for a variety of sane reasons:
Having a boss/team members they wanted to keep their moonlighting work quiet from
Unsure of legal precedent around being responsible for DAO contributions
Enable a more fair meritocracy, everyone is known only for the quality of their recent work, not their reputation or resume.
Another layer of protection from hackers/identity theft.
And, which totally changed my perspective – many of the most hardcore participants are known personally to each other. Either before joining or after, but it seems much easier to trust a whole group of pseudos if you know and trust even one person in the chain.
Strategy and Product of SquidDAO
The products as I can define them here are: 1) The NFTs, 2) The Tokens, 3) The Returns.
The Returns are what really matters over the long run, which gives value to the NFTs and the Tokens. Returns will be interesting to see evolve – can a group of Anons outperform an actively managed traditional fund? Will the scale of the fund and reach of the DAO give them unique opportunities?
If the returns of $SQUID can outperform holding and staking ETH, I’d consider it a success. If it can outperform other funds (net of fees), I’d consider it a huge success. DAOs are so new that there’s not a lot of precedents to go on.
We see often Wikipedia-style projects succeed, and we know groups are often better at estimating outcomes than individuals. But we also know organizations run by committees can falter. It will be interesting to see if SquidDAO (and DAOs in general) can harness the benefits of the group and avoid pitfalls of management by committee.
As for the strategy – I see that as evolving. Certainly, the strategy for the treasury to drive returns will be ever-evolving in the fast-paced world of crypto investing.
But the strategy and brand at the DAO-level seems to be evolving too. Is this DAO for Whales? Institutions? Individuals? Who and what are these products finding market fit with? I think that’s the super interesting question yet to be answered.
(SquidDAO is voting today on forming a Marketing Team, so maybe we’ll see this happen soon!)
One thing is clear to me – in the web3 world where any project can have their code and concept forked and cloned in a matter of hours, the true “moat” is a community, and the talent and energy a project earns from that community.
Learn More in my SquidDAO Podcast Episode
I did a nice long conversation on the Podcast with these contributors, the valuation, economics, and more. Learn much more about the DAO and the people in it by listening to the SquidDAO podcast episode or finding it on Youtube.
Things I still don’t know:
…are many and varied. I learned a lot about web3 dissecting this project, but there’s a lot I haven’t answered satisfactorily for myself:
What is the exact split of earnings between Treasury, NFT holders, and veSQUID for various revenue sources?
What are the expenses of the DAO? Haven’t seen an accounting statement. (note to self: I should learn to read Etherscan contracts.)
Is someone paying themselves exorbitantly?
What is the best way to model value for a DAO token? Is this a cheap buy? Can the price keep going down?
What drives token inflation? How does token inflation affect price?
Will SquidDAO be able to attract new members? (And does that matter?)
What happens if this thing just slows to a stop? Liquidation?
Will the “voting class” slowly just vote themselves all the spoils?
I still have little shadow feeling of “if you don’t know who the sucker is, it’s you.”
Still though, the whole thing just feels… COOL.
“Let’s get Kraken”