Drew Mailen

<div id="highlights-block_62e3f845a80e9" class="highlights">
 <ul>
 <li>D-ETF membership has been open and decentralized from the onset — without reliance on a single individual</li>
 <li>The DAO avoids &#8220;single point of failure&#8221; situations, which could be situations where one or a few people are making decisions on behalf of the majority of people, the DAO said</li>
 </ul>
 
</div>



“Wisdom of crowds” is a long-held principle that posits that many minds are greater than one. It has been tested and studied since the days of Aristotle — and popularized in the world of finance through James Surowiecki&#8217;s 2004 breakthrough book &#8220;<a href="https://en.wikipedia.org/wiki/The_Wisdom_of_Crowds:_Why_the_Many_Are_Smarter_Than_the_Few_and_How_Collective_Wisdom_Shapes_Business,_Economies,_Societies_and_Nations" target="_blank" rel="noreferrer noopener">The Wisdom of Crowds</a>.&#8221;



Throughout history, experts have discovered that not every crowd makes wise decisions. Harnessing that wisdom requires a set of characteristics. The crowd must be diverse, independent, decentralized, aggregated and trustworthy. Humans have been attempting to develop governance models around those characteristics for centuries. Today, through the power of blockchain technology, we can enshrine these characteristics in code. We sat down with the DAO behind D-ETF, one of the first decentralized ETFs, to learn how its governance aligns with these characteristics.



<h3 class="wp-block-heading">Diversity of Opinions</h3>



In Surowiecki&#8217;s understanding of the diversity of opinion, every person must have a private source of information when forming an opinion.



The inability to source information privately generates the opposite of diversity. It creates group think. D-ETF has taken intentional steps to ensure that the DAO (decentralized autonomous organization) avoids that classic pitfall. It does this by keeping the proposal process open. They explain that,



&#8220;Any D-ETF token holder with 10,000 or more D-ETF tokens can make a proposal to swap any existing token in the protocol — partially or fully for any other tokens.&#8221;&nbsp;



Because participants are submitting proposals on their own accord, each one uses its own information source. And because the votes are anonymous (no one can see who voted which way and why), voters aren&#8217;t subtly influenced by the information sources of others.&nbsp;



The DAO went on to explain the voting process in greater detail,&nbsp;



&#8220;The only technical requirement from the D-ETF protocol is that the token is ERC-20 based and is available on the 1inch automated market maker. Once the token pair has been decided (e.g., USDC for LINK), the proposer will have to choose a slippage tolerance, as the total voting period is 48 hours, it&#8217;s important to give room for price fluctuations. Once the 48 hours have passed, the proposal is either passed or denied. If passed, the proposal goes into a 24 hour time lock period, which was put in place for security reasons. After the 24 hours has passed, the token swap will automatically be executed by the D-ETF bot,&#8221; the DAO said.&nbsp;&nbsp;



&#8220;If the DAO community decides to remove an asset, it&#8217;s mainly because the project no longer has the expected future potential and intentions as firstly initiated. Or if the asset has simply over- or underperformed, and the majority of D-ETF holders agrees that change is required,&#8221; the DAO said.&nbsp;



<h3 class="wp-block-heading">Independence</h3>



Not only does each member need a private source of information, they also need to form their opinion independently from everyone else. This requirement is another safeguard against groupthink. D-ETF explained how anonymity plays a critical role in this:



&#8220;It&#8217;s only possible to see which addresses have voted ‘for,’ ‘against,’ or ‘abstained,’ because there is no know-your-customer connected to a voter.&#8221;



This anonymity forces participants to come to their own conclusions on proposals. Yet, it&#8217;s important to note that despite being independent actors within a DAO structure, the independent token holders are aligned through the same goal — the DAO&#8217;s growth. This shared economic incentive may prevent what is known as a &#8220;race to the bottom&#8221; scenario.&nbsp;



Aristotle uses a potluck dinner as an analogy. The dinner as a whole can go wrong if guests bring grocery-store-bought dessert instead of the cake from the local bakery. Aristotle refers to these actors as free riders. The free riders create a situation known as a race to the bottom. A race to the bottom happens when a guest opts to bring something poor while anticipating that others will bring something premium. If every person fears the group will leave them with a bad bag, a race to the bottom ensues, resulting in the common dinner being bad.&nbsp;



D-ETF DAO&#8217;s structure essentially guarantees the equivalent of premium dinner guests because of a small gas fee.



&#8220;A proposer is paying a small gas-fee for submitting the proposal to the ERC-20 network. The small fee ensures that proposers are serious. To encourage D-ETF holders to vote, airdrops will be given to both voters and proposers from time to time,&#8221; the DAO said.



When guaranteeing that token holders meet this premium (the equivalent of ensuring the dinner guests bring premium food upon entry), then the potluck dinner would be a diverse group of constituents who would be considerably better company than yourself. The gas fee and the usage of a Web3 wallet further ensure the crowd&#8217;s intelligence.&nbsp;



This approach aligns with Aristotle, who argues that success is more common when a group has a shared economic incentive. In other words, when the constituents of a group have a desirable outcome that they all want, then the group participants are likely to act more for the benefit of the group. However, having a shared, common incentive is just one hallmark of a strong group.&nbsp;



The gas fee further guarantees independence and creates incentivization while minimizing freeload opportunities.&nbsp;



<h3 class="wp-block-heading">Decentralization</h3>



Surowiecki defines decentralization as the localization of knowledge. In other words, the crowd&#8217;s collective wisdom is represented by first-hand knowledge instead of a centralized repository, such as a library or the internet.&nbsp;



For example, an Aave developer will better understand the protocol than someone who read the whitepaper online. For an organization to capture as much of that local knowledge as possible, membership needs to be decentralized and open. If it is only available to friends of friends, then most members will pull from the same knowledge base.&nbsp;&nbsp;&nbsp;&nbsp;



D-ETF explained that its membership has been open and decentralized from the onset — without reliance on a single individual. This structure helps source the most local knowledge possible.&nbsp;



<h3 class="wp-block-heading">Aggregation&nbsp;</h3>



Surowiecki establishes that an intelligent group&#8217;s aggregation comes from its ability to transform private opinion into a group decision. One example of how D-ETF carries out this principle is how proposals are shared.&nbsp;



&#8220;All new proposals will automatically be shared on Twitter, Telegram and Discord where community members can discuss and communicate about their opinions, which can also lead to new proposals. It is a good idea to engage fellow community members before making a proposal, to ensure sufficient support to make a proposal valid through a minimum of 4 million D-ETF votes,&#8221; the DAO said.&nbsp;&nbsp;



Furthermore, D-ETF DAO has integrated automation technology to transform private opinion into a public vote.



The team has created the D-ETF DAO to avoid &#8220;single point of failure&#8221; situations, which could be situations where one or a few people are making decisions on behalf of the majority of people,&#8221; the DAO said. &#8220;Democracy has proven itself historically to be a well-functioning model of decisions, and it is slower than autocratic leadership, but you ensure the opinion of everyone. That being said, the D-ETF is unlike traditional democratic voting, as one D-ETF token equals one vote, which means more tokens will give more voting to the individual.”



&#8220;All other DAOs that we are aware of, are solely &#8220;opinion tools,&#8221; meaning there is no automated execution behind the outcome of the decisions, and at the end of the day, it&#8217;s one of a few people physically carrying out the decisions. We wanted to make D-ETF truly decentralized, by giving complete power to the community,&#8221; the DAO said.&nbsp;&nbsp;



<h3 class="wp-block-heading">Trust&nbsp;</h3>



Trust is one of the most ground-breaking elements that DAOs offer in governance structure. For all distributed ledger technology, trust is in the tech.&nbsp;



In conclusion, the DAO underlined the importance of trust: &#8220;The D-ETF DAO has no human interaction behind the scenes. It only has one function — token swaps. We created a completely self-operating ETF…hence the name &#8220;D-ETF.&#8221;



This content is sponsored by <a href="https://d-etf.com" target="_blank" rel="noreferrer noopener">D-ETF</a>.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



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How DAOs like D-ETF Harness the Wisdom of Crowds

John Gilbert

<div id="highlights-block_6279353b6c917" class="highlights">
 <ul>
 <li>Even though US markets have yet to see the traditional crypto spot ETF approved, investors can still experience its benefits through holding D-ETF’s ERC-20 token</li>
 <li>The D-ETF team created one of the first ETFs that can offer dividends instead of ongoing costs</li>
 </ul>
 
</div>



<a href="https://d-etf.com/" target="_blank" rel="noreferrer noopener">D-ETF</a>, a decentralized exchange-traded fund, has received a $50 million commitment from GEM Digital. The DAO-managed crypto ETF said that the commitment is a critical step to a public sale on a tier one exchange and will be used for global expansion, intrinsic value and product development.



Even though US markets have yet to see the traditional crypto spot ETF approved, investors can still experience its benefits through holding D-ETF’s ERC-20 token. Its <a href="https://medium.com/@detf_official/d-etf-whitepaper-40d327d9659a" target="_blank" rel="noreferrer noopener">white paper</a> explains the governance and tokenomics, but essentially this instrument enables investors to diversify risk without paying the individual transaction fees or fund management fees. It exposes them to a basket of cryptocurrencies managed through a DAO (decentralized autonomous organization) structure.&nbsp;



By structuring the fund around a DAO, the D-ETF team created one of the first ETFs that can offer dividends instead of ongoing costs. This innovation revolutionizes the traditional ETF model by replacing the traditional fund manager with the community. The fund model doesn’t need payment for managing the portfolio. D-ETF programmed the smart contract to divide transaction fees between funding the intrinsic value pool and sending direct dividends to token holders.&nbsp;&nbsp;



Similar to staking yields, the DAO offers dividends in the native token. The dividend consists of 1.5% of the total transaction volume. So over time, a user wouldn’t just see the value of their D-ETFs change; they would see the number of D-ETF tokens increase.&nbsp;&nbsp;&nbsp;



Because DAOs are a relatively novel organization structure, D-ETF recently <a href="https://medium.com/@detf_official/d-etf-no-centralization-risks-6832c9ac9d97" target="_blank" rel="noreferrer noopener">published a paper</a> outlining the mechanics of avoiding centralization. It explains how its multi-sig wallet and 24-hour clock offer the community transparency and ensure funds are protected from a single point of failure.



D-ETF built the project on the premise that with the right governance and smart contracts, a decentralized community can make better risk-averse investment decisions than an individual investor or portfolio manager.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;



The GEM commitment signals an institutional appetite for an alternative to the long-proposed bitcoin ETF. Regardless of institutional adoption, the instrument will make it easier for new investors to get into the space. But it will also introduce them to one of the foundational value adds of blockchain technology: trustless governance.&nbsp;



As more people see the practical utility of DAOs in decentralized finance (DeFi), they will likely explore other similar solutions in industries such as metaverse gaming, physical real estate and NFTs (non-fungible tokens). It is an educational on-ramp to the world of decentralization.



D-ETF is still in early development, but the financial commitment from GEM Digital is a significant step toward its plans for a public sale. In Q1 2022, it raised $300,000 from an initial dex offering with <a href="https://thorstarter.org/" target="_blank" rel="noreferrer noopener">Thorstarter</a> and $200,000 from <a href="https://cyberfi.tech/" target="_blank" rel="noreferrer noopener">CyberFi</a>. It also completed a second security audit from <a href="https://www.certik.com/projects/decentralized-etf" target="_blank" rel="noreferrer noopener">Certik</a>. Before the public sale, D-ETF plans to integrate a FIAT on-ramp solution and add stake pools. 



GEM is a $3.4 billion alternative investment group that has completed over 530 transactions in 70 countries. The family of funds and investment vehicles provides GEM and its partners with exposure to small-mid cap management buyouts, private investments in public equities, and select venture investments.



<hr class="wp-block-separator"/>



This content is sponsored by <a href="https://d-etf.com" target="_blank" rel="noreferrer noopener">D-ETF</a>.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



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D-ETF Secures $50 Million Prior to Public Sale

Aaron Ahmadi

<div id="highlights-block_61ddc7f9edcd5" class="highlights">
 <ul>
 <li>Traditional ETFs fail crypto markets with inefficiency. ETFs have an expiration, and thus funds must “roll” into a new ETF if the investor isn’t ready to withdraw, which can incur average fees of 13% annually, if maintained for a year.</li>
 <li>It&#8217;s a community-based investing model that mitigates risk and solves the TradFi-induced problems with traditional crypto ETFs.</li>
 </ul>
 
</div>



Some would say it’s only a matter of time before the entire financial industry is decentralized. With new crypto ETFs coming out frequently, it would seem that ETFs are doing perfectly fine, offering risk-managed exposure to alternative assets. However, I sat down with the team building <a href="https://d-etf.com/" target="_blank" rel="noreferrer noopener">D-ETF</a>, and they feel differently.



<h3 class="wp-block-heading">The Problem With ETFs</h3>



Ask a DeFi (decentralized finance) enthusiast what their vision for the space is, and chances are they’ll suggest everything will one day be decentralized. But as TradFi organizations attempt to integrate digital and decentralized assets, it’s becoming increasingly clear that the two paradigms don’t always blend well.



Trying to use a traditional ETF to capture crypto price movements is a great example of this.



According to the D-ETF team, “Most of the approved ETFs are futures based, meaning the ETF issuer is not actually holding the simulated asset. So these products are in theory not adding value to the crypto industry as a whole. Furthermore, we see an issue regarding trading hours in general, especially on crypto products; most news happens outside of trading hours, making investors potentially vulnerable to drastic changes while markets are closed.”



Beyond logistical and ideological incompatibility, traditional ETFs fail crypto markets with inefficiency. With futures-based ETFs, funds must “roll” into a new ETF when the futures expire if the investor isn’t ready to withdraw, which can incur average fees of 13% annually, if maintained for a year.



To top it off, crypto ETFs face numerous roadblocks, including excessive regulation, high minimums and expensive and inefficient KYC.



<h3 class="wp-block-heading">Decentralized ETFs</h3>



The team at D-ETF proposes to solve these issues by decentralizing ETFs. The project uses a DAO to invest in a range of cryptocurrencies and offers users the ability to invest in a single token. By holding the D-ETF DAO (<a href="https://cms.blockworks.co/the-investors-guide-to-daos/" target="_blank" rel="noreferrer noopener">decentralized autonomous organization</a>) token, investors gain both diversified crypto exposure as well as the ability to vote on which currencies make up the DAO’s portfolio.



It’s a community-based investing model that mitigates risk and solves the TradFi (traditional finance) problems with traditional crypto ETFs.



DAOs are changing the way the world organizes, and the finance industry can profit from these changes, too. When asked whether a DAO was necessary for a decentralized crypto ETF, the D-ETF team said, “In the traditional world, you might have one or just a few people making decisions on behalf of all the investors. With a DAO, you can include the investors in the direction of the fund. Investors, both retail and institutional, gain much more autonomy and influence in their investment decisions.”



Keep in mind that having a DAO only benefits a protocol when that DAO is truly autonomous. Unlike some DAOs in the space, the D-ETF DAO smart contract automatically executes the results of community votes, ensuring both transparency and efficiency.



<h2 class="wp-block-heading">Come One, Come All</h2>



Another key difference between traditional ETFs and a decentralized crypto ETF is ease of use. With D-ETF, all a potential user needs is a MetaMask wallet and an internet connection. In the near future, TradFi onramp processes will also be released.&nbsp;



Barriers to entry are low, according to the team: 



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“D-ETF is making it more convenient for crypto investors to get a wide exposure with less effort and lower costs. With transaction fees across DEXs sometimes as high as 100-800 USD per token swap and slippage decreasing the value of your investment, a relatively high investment is required for a trade to be worthwhile.&nbsp;When buying the D-ETF, on the other hand, you pay a gas fee once and get exposure to 10-20 different tokens.”</blockquote>



Investing is a very personal decision that requires entire communities to transform markets. As old centralized paradigms shift to new decentralized ones, markets are likely to see more personal influence over investing processes. Paradigms change, but risk is ever-present. Participate with caution, whether in DeFi or TradFi.



<hr class="wp-block-separator"/>



This article was sponsored by <a href="https://d-etf.com/" target="_blank" rel="noreferrer noopener">D-ETF</a>. To learn more about D-ETF, <a href="https://medium.com/@detf_official/d-etf-whitepaper-40d327d9659a" target="_blank" rel="noreferrer noopener">explore their whitepaper</a> and <a href="https://twitter.com/detf_official" target="_blank" rel="noreferrer noopener">follow them</a> on Twitter. They are holding a limited community sale this month, which you can <a href="https://d-etf.com/buy-d-etf" target="_blank" rel="noreferrer noopener">learn more about here</a>.



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