Why DAOs Are Shaking up the Art Market
The phenomenon of trading digital artworks as NFTs took the art world by storm in 2021. As a result, interest in the underlying blockchain technology powering NFTs soared among some artists, collectors, and art market professionals. Blockchain technology comprises several core principles: distributed databases, immutability, transparency, security through cryptography, consensus algorithms to verify transactions, and decentralization.
The principle of “decentralization” undergirds another phenomenon to have recently impacted the arts scene, that of the “DAO,” which stands for “Decentralized Autonomous Organisation.” A DAO is often described as an Internet community with a bank account. Some were formed as communities looking to invest in NFT digital art, like Bored Ape Yacht Club (BAYC) and Flamingo DAO, while others have focused on acquiring physical works of art, such as ConstitutionDAO, which in 2021 almost succeeded in purchasing a copy of the U.S. Constitution at a Sotheby’s auction, and Spice DAO which did in fact succeed in purchasing a copy of film director Alejandro Jodorowsky’s Dune book adaptation.
Why are DAOs suddenly drawing attention from various corners of the arts, media, and entertainment businesses, and what advantages do they have to offer?
New Opportunities, Social Capital, and Democratization
As vehicles for crowdfunding that do not depend on a centralised platform like Kickstarter, DAOs can offer their members access to rare artworks that they could not otherwise afford, and control over what happens to them after acquisition through their decentralised governance structures. DAOs also typically bring like-minded people together with similar passions, beliefs, and interests, fostering a higher level of trust between members. This combination is not only exciting from a collector’s perspective, but socially meaningful and rewarding.
A case in point of both advantages working well in tandem is ConstitutionDAO. In November 2021, a group of more than 17,000 individuals banded together to create ConstitutionDAO to raise enough capital to purchase a rare copy of the U.S. Constitution, or more specifically, to receive governance tokens tied to the document they were to acquire.
It took this group a short “sprint” to pool together over $40 million in cryptocurrency. Even though they did not manage to buy the rare document, the experiment turned into a showcase of how effective and potent DAOs are becoming. One more important perspective is how DAOs, fuelled by the power of crowdfunding and collaboration, democratize the way people can purchase and own expensive artworks.
As decentralised organisations, DAOs tend to attract those with an interest in and a commitment to crypto-based projects. Since their advent, blockchain technologies and crypto assets have been centred around transparency and decentralized cooperation. At the same time, these technologies have played a key role in democratizing art by making art accessible digitally and elevating interest in digital artworks. DAOs can serve as spaces that bring together passionate supporters of crypto-based projects and lovers of art.
Another element attracting people to DAOs is their potential to limit the role of the traditional art market power brokers by marshalling resources and expertise as self-organised collectives. Historically in the fine art world, elite tastemakers and the art cognoscenti have held sway over which artworks are perceived to have value, which emerging artists are the most exciting, and which established artists remain in vogue. They constitute a small and exclusive club of experts. Plenty of artists, aspiring collectors and business professionals would like to see the influence and control of these power brokers in the art market ecosystem diminish.
The desire to belong to an active, committed, and passionate community is another reason why some are gravitating towards DAOs. Aaron Wright, founder of LAO which embodies a network of DAOs, has described his experience with DAOs as fun, like “working with a bunch of friends you have never met on topics you are very passionate about.” While DAO members may initially have never met before, after a time they might organise in person gatherings and develop close friendships. The decentralised and democratic ethos that DAOs ascribe to, where (at least in theory) members have an equal voice in decision making and equal voting rights as token holders (members donate funds in exchange for tokens that bestow governance rights), reinforces the feeling that you are part of a trustful community of active participants. This can be especially appealing to a younger generation of art enthusiasts familiar with the practice of meeting others, developing friendships, and organizing through the power of digital networks.
Concept of “Hive Minds”
One of the important characteristics of DAOs as crypto-native entities is that they can gather members from all over the world to pool crypto funds, build social connections, self-govern, and allocate capital or services using the concept of “hive minds.”
Flamingo DAO is a notable example of this concept, uniting at once the flamboyance of NFT collectors, curators, and artists in their passion for art, crypto, and the NFT space, while at the same time allowing different members to focus on distinct aspects of the ecosystem, giving the DAO broad coverage and extensive knowledge-sharing power.
The hive minds concept allows DAOs to maintain a strong foothold in this emerging digital art ecosystem and gives members the freedom to develop and deploy NFT-focused investment strategies and help to collectively manage the DAO.
DAO Membership Benefits
DAOs are bringing together like-minded people with similar passions and common interests, which helps to form trust between members, establish norms of behaviour, and build a prospering vision together.
Some DAOs go even further and provide their members with extra benefits, like an invitation to acquire virtual goods within some future metaverse, an opportunity to purchase a collection of exclusive NFT art pieces, or real-world rewards like free membership merch or tickets to extravagant parties.
This is what Bored Ape Yacht Club (BAYC) does for its members. Apart from access to parties, branded hoodies, and leather jackets, people who buy a Bored Ape avatar get other exclusive benefits. One of these is access to The Bathroom, a collaborative graffiti art project. BAYC holders also automatically receive ApeCoin tokens — the new official cryptocurrency of the BAYC.
BAYC is a noteworthy example of how a community built around an NFT collection can attain a sufficient level of social capital and influence to become both a brand and a status symbol. People in the cryptocurrency and NFT space use their profile pictures on Twitter, Discord, and other channels to tout their NFT credentials and to signal status and affluence, much like chief executives wear Rolexes for the same reason.
Final Thoughts
DAOs may represent the start of a new trend in collecting at the top end of the art market by groups of collectors rather than by wealthy individuals. They allow more people to pool resources, share ideas and insights, and work collectively to buy expensive artworks and rare collectibles, as well as reduce the influence and control of power brokers over the art market.
DAOs could also affect and even disrupt how art professionals, collectors, and artists interact and do business together, how relationships in the art world are formed, and help to shape the future of the art market ecosystem. This piece has considered the advantages of forming or joining a DAO from the perspective of the arts, media, and entertainment businesses. A contrarian viewpoint that accounts for the risks, challenges and hazards facing these nascent and unorthodox organisations will be the subject of a subsequent article on this topic.
Author: Doron Fagelson,
Vice President of Media and Entertainment Practice at DataArt
Originally published on https://www.dataart.com/blog/ in June 2022
