How Do DAO Projects Get Funded?

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Cryptocurrency and blockchain technology have paved the way for innovative decentralized systems, including Decentralized Autonomous Organizations (DAOs). 

DAOs are community-driven entities that operate based on smart contracts, enabling decentralized decision-making and governance. They have gained significant attention and popularity due to their potential to revolutionize various industries and disrupt traditional hierarchical structures. 

Billionaire Mark Cuban tweeted about the DAO concept and called it β€œthe ultimate combination of capitalism and progressivism.”  

In this article, we will explore the different funding methods used by DAOs to support their growing number and the development of these decentralized entities.

Β» Additional read: How do DAOs work?

Funding via DAO token sales

Token sales are a popular method for DAOs to raise funds and kickstart their operations. Let’s explore the fundamentals of token sales in a beginner-friendly manner.

Token sales explained 

Token sales involve offering digital tokens or cryptocurrencies to investors and contributors in exchange for funding. These tokens represent the DAO’s ecosystem’s ownership, utility, or governance rights.

How DAOs create and issue tokens

DAOs create and issue tokens using smart contracts, self-executing agreements on blockchain platforms like Ethereum. These contracts define the token’s features, supply, distribution, and associated rules or functions.

Most tokens adhere to established standards like ERC-20 (Ethereum) or BEP-20 (Binance Smart Chain) to ensure compatibility and ease of integration within the broader crypto ecosystem.

Importance of token sales for initial funding

Token sales enable a broader range of individuals to participate in early-stage investments, allowing retail investors to support promising projects and benefit from their success.

Token sales facilitate the formation of a community of token holders who are financially invested in the DAO’s success. This community can contribute to the project’s growth, provide feedback, and participate in governance decisions.

Token sale methods used by DAOs

Token sales, including ICOs, IDOs, and DAICOs, offer a decentralized and inclusive approach to fundraising for DAOs. 

They empower investors and the community, enabling them to participate in the growth and success of innovative projects. However, participants need to conduct thorough research and exercise caution when engaging in token sales, as the crypto space can be complex and subject to risks.

  1. Initial Coin Offerings (ICOs) 

ICOs, or Initial Token Offerings (ITOs), involve issuing and selling tokens by a project or organization, in this case, a DAO, to raise funds for its development, operations, or specific projects. With ICO, tokens are not necessarily placed to be traded on crypto exchanges right away.

Tokens offered during an ICO represent a stake in the DAO, utility within its ecosystem, or participation rights in decision-making processes.

These tokens are then distributed to participants during the ICO based on predetermined rules, such as the amount contributed or a fixed token allocation per participant.

  1. Initial DEX Offerings (IDOs)

IDOs are similar to ICOs, but token sales are conducted on decentralized exchanges (DEXs) that provide a fair and accessible platform for investors.

They allow DAOs to offer their tokens directly to the public without the need for intermediaries, such as traditional investment banks or centralized exchanges.

IDOs often leverage liquidity pools and automated market-making algorithms to enable token trading immediately after the sale.

  1. Decentralized Autonomous Initial Coin Offerings (DAICOs)

DAICOs combine the concepts of DAOs and traditional ICOs, introducing additional security and investor protection mechanisms (Buterin laid out some details about DAICOs here).

DAICO token sale explained

In a DAICO, investors contribute funds to a smart contract-controlled treasury, and the DAO’s development funds are released gradually through a voting process.

This voting mechanism gives investors greater control over the project’s development and allows them to influence the release of funds based on the DAO’s progress and milestones achieved.

Token pre-sales or private placements (VCs)

Token pre-sales and private placements are alternative funding methods commonly utilized by DAOs. In addition to public token sales, DAOs may use these methods to secure early funding.

The token pre-sale or private placement concept is a fundraising event offering tokens to select investors before the public sale or token launch.

These investors typically include venture capitalists (VCs), strategic partners, early supporters, and individuals with close connections to the project.

Advantages of pre-sales and private placements

  • It provides early access to capital, allowing DAOs to secure significant funding before opening their tokens to the broader public.
  • Participation from venture capitalists, strategic partners, and respected individuals in the crypto industry can lend credibility (other investors always analyze where VCs invest) to the DAO and its project.
  • Allow DAOs to establish relationships with early supporters who are invested in the project’s success from the early stages.

Investment and NFT DAOs

These DAOs pool funds from their members and make collective investment choices, leveraging the knowledge and expertise of their community.

Investment and NFT DAOs are very similar types to each other.

There is only a technical difference:

  • Investment DAOs pool resources in the form of cryptocurrencies or traditional funds.
  • NFT (Non-fungible token) DAOs can raise funds by launching different collections of NFTs or by issuing tokens for sale with specific usage rights.

Both fundraising approaches offer exciting opportunities for individuals to collectively invest in cryptocurrencies, digital assets, and valuable NFTs. By pooling resources and leveraging the collective knowledge and expertise of their communities.

Investment DAO examples:

  • MetaCartel Ventures – an investment DAO that supports early-stage startups and projects in the Ethereum ecosystem.
  • The LAO –  an investment DAO that allows individuals to pool funds and invest in various projects, primarily focusing on the NFT and DeFi sectors.

NFT DAOs examples:

  • Flamingo DAO – a community-led NFT collective that acquires and supports significant art pieces in the crypto space.
  • PleasrDAO – an NFT DAO that specializes in acquiring iconic cultural artifacts and digital collectibles, aiming to preserve and showcase them within the crypto ecosystem.

Crowdfunding and community sales

Crowdfunding and community sales involve collecting contributions from many individuals who believe in the DAO’s mission and vision. It allows DAOs to establish a direct connection with their community and supporters.

Benefits of crowdfunding for DAOs:

  • Crowdfunding can provide a decentralized funding source, enabling the community to actively participate in the DAO’s growth and success.
  • Offering perks, rewards, and limited editions to contributors can incentivize community involvement and generate additional funding. 

Grants and partnerships

DAOs can leverage grants and partnerships to secure funding and resources for specific projects and initiatives. 

Importance of collaborations for DAO funding:

  • Collaborations with organizations, foundations, and institutions can bring financial support, expertise, and broader exposure to the DAO.
  • Grants and partnerships enable DAOs to access resources and networks they might not have.

Acquiring grants and sponsorships:

  • DAOs can apply for grants from blockchain foundations, governmental programs, or organizations supporting decentralized initiatives.
  • Sponsorships and investments from companies aligned with the DAO’s mission can provide funding and potential synergies.

DAO treasury funds explained

DAOs often establish treasury funds to manage their financial resources, ensuring the sustainability of their operations and initiatives. 

Overview of treasury funds in DAOs

Treasury funds are pools of capital owned and controlled by the DAO, consisting of various cryptocurrencies or tokens.

These funds serve as a financial reserve that the DAO can draw from to support its activities and community.

Liquid and vesting treasury assets

Within the treasury, DAOs may hold both liquid and vesting assets.

  • Liquid assets are readily available for immediate use and can be used to cover operational expenses or fund projects.
  • Vesting assets, on the other hand, are subject to a predetermined lock-up period before they become fully accessible.

Treasury fund management 

Proper management of treasury funds is crucial for a DAO’s long-term success and sustainability.

  • DAOs typically employ decentralized decision-making processes to determine the allocation of funds, involving token holders in governance and voting mechanisms.
  • Funds may be allocated to various areas, such as community grants, strategic investments, research and development, partnerships, marketing and awareness campaigns, operational expenses, and more.

Treasury funds allocation

DAOs typically keep the raised money in various cryptocurrencies, depending on their preference and the nature of their operations. The choice of cryptocurrencies in the treasury can vary from one DAO to another. 

Some common cryptocurrencies that DAOs may hold include:

  1. Ether (ETH): As one of the most widely adopted cryptocurrencies, Ether is often a prominent component in DAO treasuries. 
  2. Stablecoins: Popular stablecoins such as Tether (USDT), USD Coin (USDC), or Dai (DAI from MakerDAO) may be held in the treasury to provide stability and liquidity.
  3. Governance tokens: DAOs may also hold governance tokens associated with their ecosystem or protocol. 
  4. Other cryptocurrencies: Depending on the DAO’s specific goals and strategies, they may hold other cryptocurrencies such as Bitcoin (BTC). 

The allocation of funds across different cryptocurrencies is often determined through DAO governance mechanisms and community consensus. DAOs may prioritize diversification to mitigate risks or focus on specific cryptocurrencies that align with their goals and ecosystem. 


Various statistics show that funding plays a vital role in the success DAOs. Some DAOs raised millions in funds but, unfortunately, get hacked.  

By utilizing token sales, pre-sales, private placements, crowdfunding, grants, partnerships, and treasury funds, DAOs can secure the necessary resources to fuel their development and ecosystem. 

As the crypto industry evolves, we expect DAOs to explore and adopt innovative funding practices that align with their mission and values, fostering a decentralized and inclusive financial future.

Article by
Artem Minaev