True Meaning of DAOs — Uniswap & BAYC
“The year is 2031. BTC and ETH have taken over the world. Everyone who aped into crypto is rich beyond their wildest dreams. But now they are all bored and want to hang out with other like-minded apes. To do that, you need to go somewhere special.”
Backstory to Bored Ape Yacht Club
DAOs present a new way for humans to collaborate in the post-internet age. They remove the corporate ladder from organizations and allow any member to have a saying regardless of their title, educational background, or personal identity.
One simple way to think of DAOs is like an online forum where the members share their own currency and collectively manage a project with pre-encoded rules. To be fully decentralized, any member of the DAO should be able to implement changes without help from a core development team. To be fully autonomous the DAO should be able to auto-update and work towards a predetermined purpose for example by independently seeking out human professionals for help with complex tasks.
Today, the DAO nametag is labeled on a mishmash of highly diverse projects, but they are rarely fully decentralized or autonomous. Instead, DAOs today can be characterized by two other key attributes:
- They are open-source which means anyone can inspect the underlying code, propose changes, and even copy it in its entirety to design a competing system.
- Their governance mechanism allows a community of users to vote on decisions and initiatives. The members of the DAO vote with their share of the platform-agnostic governance token. DAOs are thus, like Bitcoin, leaderless democracies where the popular vote stirs the direction of the project instead of a board of directors or a CEO.
In this post, we will gain much knowledge on the practical application of DAOs. I will briefly go over two historical examples of DAOs, The DAO, and ConstitutionDAO. They are no longer in function but serve to illustrate and bring context to the true meaning of DAOs. Afterwards, I will dig deep into Uniswap and Bored Ape Yacht Club, two projects that I am personally interested in.
2. Historical Examples of DAOs
2.1 The DAO & The Hack
“The DAO” was the first major DAO project on Ethereum. It launched in April 2016 after an ICO (Initial Coin Offering) where more than $160 million was raised in crowdfunding. The DAO was a virtual venture capital fund, that allowed token holders to submit a proposal for funding of their project. Unfortunately, the DAO had a very short lifespan.
In June 2016, the project suffered a fatal attack when a hacker exploited a vulnerability in the system and callously moved 3.6 million ether away from The DAO (+ $50 million at the time). As a result of a security measure built into the smart contract code, the stolen funds were frozen in an account subject to a 28-day holding period. For a while, the community engaged in intense discussions about what to do next. The funds could theoretically be recovered, but doing so would compromise the spirit of blockchains as they are supposed to be immutable and censorship-resistant.
After much-heated debate, the Ethereum community decided after all to move the funds to a recovery account and return the locked tokens to investors. But the decision to tweak the smart contract code and “turn back time” remained highly controversial. As a result of the disagreement in the community about the course of right action, the Ethereum network was hard forked in July 2016 and divided into a version of the blockchain where the funds were recovered (Ethereum) and a version where the funds were not recovered (Ethereum Classic).
For a while after the hack, the public’s interest in DAOs as a concept mellowed out. MakerDAO saw the day of light in 2017, MolochDAO in 2019, but it wasn’t until 2020 that a landscape of DAOs began to take shape.
ConstitutionDAO was a crowdfunding project that was organized to purchase an original copy of one of the 13 remaining US Constitutions at a Sotheby auction in November 2021. Contributors received governance tokens ($PEOPLE) that would allow them to vote on matters related to the Constitution, such as where it would be displayed, how it should be exhibited, for how long, etc. Technically, the contributor’s donations would not grant them any fractional ownership rights to the Constitution.
ConstitutionDAO raised over $42 million in ether from more than 17.437 donors in a matter of days. Unfortunately, it was not enough to surpass the winning bid of $43.2 Million made by the billionaire, Citadel founder, and CEO, Ken Griffin, who was convinced by his son to swoop in and overbid the DAO. Nonetheless, besides breaking the record for most money crowdfunded in less than 72 hours, the project draw headlines in mainstream media and introduced many first-timers to the DAO concept.
Uniswap is a decentralized exchange (DEX) that qualifies as a DAO after the development team launched its governance token $UNI in September 2020. Today $UNI is the highest valued DAO token by market cap. Uniswap is known as a major actor in DeFi (decentralized finance) together with other prominent DeFi DAOs like MakerDAO, Aave, Compound, and Bancor that are used for lending, borrowing, trading, and earning interests on crypto assets. With Uniswap you can exchange crypto tokens privately, securely, and without anyone looking you over the shoulder. You can also list tokens on Uniswap for free without going through KYC regulations (Know Your Customer) and without giving away any personal information.
In general, I would like to claim that crypto is not rocket science. But to understand in-depth how Uniswap works is indeed complex like rocket science (see the Version 3 white paper here). It gets very technical, very quickly. Nonetheless, I will try to give a laymen’s explanation of how Uniswap works.
3.2 Users and Liquidity Providers
Overall, Uniswap is used for swaps of Ethereum-based tokens and it is operated by smart contract code without relying on a trusted intermediary. Users are therefore exempted from paying fees to the platform. Uniswap challenges the business model of traditional, centralized exchanges like Bitcoin challenges banks with a decentralized payment system (I like to draw threads back to Bitcoin when discussing DAOs ).
There are two main ways you can contribute to Uniswap: as a user or as a liquidity provider.
As a user, you can connect to Uniswap with a crypto wallet like MetaMask or Coinbase Wallet and swap cryptocurrencies like Ethereum, Apecoin, Aave, USD Coin, Shiba Inu, Wrapped Bitcoin, Axie Infinity, and other tokens that are based on Ethereum’s fungible token standard (ERC20). Instead of paying platform fees, you pay transaction fees to liquidity providers each time you swap tokens currently at a standard rate of 0.30%. The fee you pay is distributed among all liquidity providers proportional to their share of the given liquidity pool.
The role of liquidity providers is easiest understood in connection with traditional finance. Centralized crypto exchanges like Coinbase or Binance, or stock exchanges like Nasdaq and NYSE (New York Stock Exchange), use an “order book model” to price assets. This means that buyers and sellers settle on a price. If no one is willing to place their orders at a fair price level market makers provide liquidity so users can always trade without a counterparty. Market makers are motivated to provide liquidity in large volumes since they earn tiny fees from the price action. On traditional exchanges, Citadel Securities and Goldman Sachs are among the biggest market makers.
Liquidity provider’s role on Uniswap corresponds to market makers on traditional exchanges. They are motivated to facilitate trading on Uniswap as they earn interests in the form of users’ transaction fees when they contribute to the so-called liquidity pools.
3.3 Liquidity Pools
Different from centralized exchanges, Uniswap does not depend on order books or market demands to determine and adjust prices. Instead, it uses liquidity pools together with an algorithm called “Constant product formula” (more on that in the next section).
Liquidity pools consist of a token pair for example ETH/DAI. Every token pair that you can exchange on Uniswap is underpinned by a liquidity pool (see list here). Liquidity providers are required to deposit an equal amount of both tokens in the pool when they supply liquidity.
If for example, you would like to contribute $1000 to the ETH/DAI pool on Uniswap, you would have to contribute with $500 ETH and $500 DAI. That means if 1 ETH is trading for $500, while 1 DAI (as a stablecoin) is trading for $1 a user would contribute with 1 ETH and 500 DAI to keep the liquidity pool in balance.
Liquidity providers can set a targeted price range in which they are willing to trade, or alternatively provide liquidity for the full price range no matter how high or how low prices go. If liquidity providers set a targeted range, they will only earn interests when the token price is within that range. After a user has supplied liquidity, they are granted a liquidity provider token (LP Token) that can be redeemed (burned) at any time for the underlying collateral plus the earned transaction fees.
3.4 The Constant Product Formular Algorithm
Vitalik Buterin wrote a post on Reddit in 2016 detailing an idea for a type of “decentralised exchange” that would lay the foundation for what would later become Automated Market Makers (AMM). AMMs allow users to trade against smart contracts via liquidity pools instead of human buyers and sellers.
Uniswap’s Constant product formula algorithm is a type of AMM based on a simple mathematical formula:
Token x * Token y = k
To use the example from last section, Token x is ETH, Token y is DAI, and k is a fixed constant. The ratio between the two tokens has to stay constant (50:50), so the pool’s total liquidity supply remains the same. If we imagine that the first liquidity provider supplies the pool with an initial 10 ETH and 5000 DAI the math would look like this:
10 ETH * 5000 DAI = 50.000
In order for a user to buy DAI, the trader has to supply an equivalent amount of ETH into the exchange (and vice versa). If a user swaps DAI for ETH, the supply of ETH in the pool would naturally increase, while the supply of DAI would decrease. This changes the value of Token X and Token Y in the equation. However, the total supply of tokens in the pool has to remain constant. That is where Uniswap’s AMM comes in and calculates the exact number of DAI the user is required to put into the liquidity pool for ETH.
If you want to go deeper into the calculations, I can recommend this video from Whiteboard Crypto:
If token prices in the pool venture too far off from the market prices, an instant arbitrage opportunity is created. In other words, traders are incentivized to take advantage of price differences by buying or selling tokens from the pool to outside exchanges like Coinbase or Binance which will balance out prices.
4. Bored Ape Yacht Club
4.1 BAYC and Yuga Labs
Bored Ape Yacht Club (BAYC) is an NFT collection and a social community that launched in April 2021.
While Uniswap is a DeFi DAO used for crypto trading and interest-earning, BAYC would be categorized as a Social DAO, a kind of social club where members get together in virtual and physical spaces to hang out.
BAYC was created by the company Yuga Labs. The four founders are best known by the pseudonyms, Gargamel, Gordon Goner, Emperor Tomato Ketchup, and No Sass and by their Bored Ape NFT avatars on Twitter. The founders remained completely anonymous up until recently when BuzzFeed doxxed them in an investigative article.
Yuga Labs has become the most successful NFT company in history by far. Namely, March 2022 has been a month with extraordinary announcements from Yuga Labs as they have:
- Acquired two of the most valuable NFT collections, CryptoPunks and Meebits.
- Raised a $450 million funding round led by the Silicon Valley-based venture fund Andreessen Horowitz (a16z) resulting in a business valuation of $4 Billion.
- Released Apecoin (APE), the community’s ERC-20 token that governs Apecoin DAO.
- Announced BAYC’s forthcoming metaverse expansion, the Otherside. Apecoin will be used as the in-game currency. See the impressive promo video here.
The release of Apecoin marks BAYC’s transition to a community with DAO governance. Besides, with Yuga Labs’ success in NFTs, I think it makes perfect sense to expand the BAYC world into the metaverse. As I have previously argued, NFTs are bridges into the metaverse.
4.2 The BAYC Collection
When Gordon Goner announced the official pre-sales launch of BAYC NFTs on the 23rd of April on Discord, it was met with little fanfare. Almost no reactions. However, when the artwork of BAYC was revealed later on the 30th of April, the creativity spoke to many people and all Bored Apes were sold out a day later (except a few saved for team members, giveaways, and promotions).
Since then, BAYC has taken the world by storm. Initially, the 10.000 unique Bored Ape NFTs (see all of them here) were sold for 0.08 ETH a piece (less than $200 at the time). Now, as of today, the floor price for a BAYC NFT easily exceeds $150.000, but at least a dozen Bored Apes have been sold for more than $1 Million.
The Bored Ape NFTs were created with generative artwork — a method of making art that involves an autonomous system. The Bored Apes were originally established through rough sketches by Gargamel and Gordon Goner, then fleshed out by professional illustrators and finally placed into an algorithmic program that generated 10.000 different combinations based on more than 170 possible, “handmade” traits.
All Bored Apes are therefore unique in their design. They come in different clothing, facial expressions, and background colors, each with varying attributes such as laser eyes, bubble gum in their mouths, sunglasses, rabbit ears, golden fur, biker vests, or colorful teeth. But as we know, Bored Ape owners are not just paying staggering amounts of ETH for JPEGs of artwork. They are paying for the underlying NFTs that are uniquely identifiable and prove the record of ownership on the Ethereum blockchain.
4.3 The BAYC Community
The most attractive selling point for Bored Ape NFTs is perhaps that they serve as exclusive membership cards to the BAYC community. The community has a number of high-profile celebrity members like Justin Bieber, Stephen Curry, Jimmy Fallon, Eminem, Snoop Dogg, Madonna, and many others. The members are granted access to a private Discord server, a members-only graffiti board called “The Bathroom”, treasure hunts with big rewards, and private events like “Ape Fest 2021”, a party that was held in a Brooklyn warehouse and featured live acts such as Lil Baby, the Strokes, Questlove, Beck, Chris Rock, and Aziz Ansari.
Another benefit of being a part of the BAYC community is exclusive airdrops. With Bored Ape NFTs in high demand, and for the most part off the market, Yuga Labs has released two more NFT collections, Mutant Bored Ape Club (MBAC,) and Bored Ape Kennel Club (BACK). NFTs from both collections were airdropped to Bored Ape holders (read more about the creative Mutant Ape airdrop here). Besides, when Apecoin launched in March 2022, 150 Million APE was airdropped to holders of BAYC and MBAC.
4.4 Apecoins and the Otherside
Although Yuga Labs’ NFTs have a high entry bar that prohibits the average Joe from participating in the community, BAYC is no longer a cult for the elite. Anyone who purchases Apecoin on a crypto exchange such as Uniswap or Coinbase can now participate in the future of BAYC by submitting proposals, commenting, and voting.
However, the Apecoin DAO is not (yet) solely responsible for managing BAYC. The APE Foundation is responsible for the day-to-day administration, bookkeeping, project management, and earns support to the Apecoin DAO so the ideas can become reality.
Finally, the “Board” is a special council on the APE Foundation that provides oversight of the APE Foundation. It meets on proposals requiring administrative review under ApeCoin DAO rules.  The initial Board serves a term of six months, after which DAO members will vote annually on Board members. The current Board consists among others of Alexis Ohanian, co-founder of Reddit, Amy Wu, Head of Ventures & Gaming at FTX, and Yat Siu, co-founder of Animoca which is behind The Sandbox metaverse.
The next step on Yuga Labs’s journey is the metaverse gaming world, the Otherside, which is still under construction. The website explains:
“We set out to build the Otherside with one thing in mind: the metaverse should be anything but boring. The world should be dynamic, steeped in narrative, and your actions should hold consequence. Step into the Otherside, where the normal rules do not apply. Where you end up is up to chance. Where you go is up to you”
You can already claim land in the Otherside by purchasing “Otherdeed” with Apecoin, mint 1 Otherdeed for free minus gas fees if you are a BAYC or MAYC holder, or just explore a map of the world. It has also been announced that all BAYC, MAYC, BAKC, and CryptoPunks holders will be provided with Otherside-ready 3D models of their NFTs.
In this article, we’ve had a closer look at Uniswap and BAYC. We have also briefly looked at The DAO and ConstitutionDAO as historical references to clarify the true meaning of DAOs. I believe that both Uniswap and BAYC hold great potential in their own way. The two DAOs also serve to illustrate how far the DAO label is stretched. While Uniswap is a DEX used for trading ERC-20 tokens through an AMM, BAYC is a social club for NFTs holders that is turning into a gaming metaverse. Should both projects be categorized as DAOs, or is the DAO function really just a non-defining feature of the projects?
 Daryl Loh (March 2022), From 0.08 To 769 ETH: Exploring The History And Rise Of The Bored Apes -> https://chaindebrief.com/bored-ape-yacht-club-history-rise-of-bayc/ (29–05–2022).
 Vitalik Buterin (May 2014), DAOs, DACs, DAs and More: An Incomplete Terminology Guide -> https://blog.ethereum.org/2014/05/06/daos-dacs-das-and-more-an-incomplete-terminology-guide/.
 Nathaniel Popper (June 2016) A Hacking of More Than $50 Million Dashes Hopes in the World of Virtual Currency -> https://www.nytimes.com/2016/06/18/business/dealbook/hacker-may-have-removed-more-than-50-million-from-experimental-cybercurrency-project.html (11–05–2022).
 Read more about the DAO hack here: Osman Gazi Güçlütürk (Aug 2018) The DAO Hack Explained: Unfortunate Take-off of Smart Contracts, https://ogucluturk.medium.com/the-dao-hack-explained-unfortunate-take-off-of-smart-contracts-2bd8c8db3562#_ftn6 (10–05–2022).
 http://daotimeline.com/ (22–05–2022).
 The ConstitutionDAO FAQ -> https://docs.google.com/document/d/1oMbg2d_7QmhO7QtoLmIeqg9HCdNfZgoC_w7oi7RMD7Q/edit (22–05–2022).
 Twitter post by ConstitutionDAO -> https://twitter.com/ConstitutionDAO/status/1461498841820192771/photo/1 (20–05–2022).
 Harry Robertson (Dec 2021) Citadel billionaire Ken Griffin’s son told him to buy a rare copy of the US Constitution — driving him to splash out $43.2 million to outbid a crypto group -> https://markets.businessinsider.com/news/currencies/ken-griffin-citadel-constitution-copy-constitutiondao-crypto-collective-meme-stocks-2021-12 (22–05–2022).
 Twitter post by ConstitutionDAO -> https://twitter.com/ConstitutionDAO/status/1461498841820192771/photo/1 (22–05–2022).
 https://www.coingecko.com/en/categories/governance (22–05–2022).
 Uniswap Docs: https://docs.uniswap.org/protocol/V2/concepts/advanced-topics/fees (29–05–2021).
I have learned about market makers and automated market makers from this video: Finematics (2021), How do LIQUIDITY POOLS work? (Uniswap, Curve, Balancer) | DEFI Explained à https://www.youtube.com/watch?v=cizLhxSKrAc.
 Rahul Nambiampurath (March 2022), What is Uniswap à https://thedefiant.io/what-is-uniswap/ (26–05–2022).
 Single-sided asset provisioning is possible with range orders, see here: https://docs.uniswap.org/protocol/concepts/V3-overview/range-orders.
 Nader (April 2021), What are Liquidity Pools and How do they Work? ->
April 16, 2021 https://learn.zapper.fi/articles/what-is-a-liquidity-pool (31–05–2022).
 Read more here https://help.uniswap.org/en/articles/5391541-provide-liquidity-on-uniswap-v3.
 Kris Machowski (December 2021), An Introduction to Automated Market Makers -> https://www.machow.ski/posts/an_introduction_to_automated_market_makers/.
 Samantha Hissong (November 2021), How Four NFT Novices Created a Billion-Dollar Ecosystem of Cartoon Apes https://www.rollingstone.com/culture/culture-news/bayc-bored-ape-yacht-club-nft-interview-1250461/ (05–06–2022).
 Jacob Kastrenakes (March 2022). Bored Ape Yacht Club creator buys CryptoPunks and Meebits https://www.theverge.com/2022/3/11/22973394/bored-ape-yacht-club-cryptopunks-meebits-nft (05–06–2022).
 Eli Tan (March 2022), Bored Ape Yacht Club Owner Yuga Labs Raises $450M Led by A16z -> https://www.coindesk.com/business/2022/03/22/bored-apes-owner-yuga-labs-raises-450m-led-by-a16z/ (05–06–2022).
 Jacob Kastrenakes (March 2022), Bored Ape Yacht Club creates a cryptocurrency to fund games, events, and merch -> https://www.theverge.com/2022/3/16/22981916/apecoin-dao-launched-bayc-bored-ape-yuga-labs (05–06–2022).
 The Bored Ape Yacht Club (BAYC) NFT Collection: Everything You Need to Know -> https://medium.com/@coinregwatch/the-bored-ape-yacht-club-bayc-nft-collection-everything-you-need-to-know-fc7002b8a155 (06–06–2022).
 https://www.coingecko.com/en/nft/bored-ape-yacht-club (04–06–2022).
 Top 20 Most Expensive Bored Ape Yacht Club NFTs (Updated 2022) -Z https://www.nftsstreet.com/most-expensive-bored-ape-yacht-club-nfts/ (04–06–2022).
 NFT Insights (September 2021), How the BAYC took over the NFT world in a matter of months à https://www.nft-insight.com/p/how-the-bayc-took-over-the-nft-world?s=r (06–06–2022).
 Jessica Klein (November 2021), The Bored Apes take Manhattan -> https://www.inputmag.com/culture/bored-ape-yacht-club-nft-nyc-ape-fest (06–06–2022).
 Morten Christensen (September 2021), Mutant Apes Airdrop — This Will Blow Your Mind -> https://blogs.airdropalert.com/serum-for-mutant-ape-airdrop/ (06–06–2022).
 https://airdrops.io/apecoin/ (07–06–2022).
 https://apecoin.com/about (07–06–2022).
 https://otherside.xyz/world (07–06–2022).
 https://otherside.xyz/ (07–06–2022).