default-output-block.skip-main
BoF Logo

The Business of Fashion

Agenda-setting intelligence, analysis and advice for the global fashion community.

DAOs Are Coming for Fashion. What Are They?

Decentralised autonomous organisations are new, relatively small vehicles looking to change how fashion funds and produces everything from companies to T-shirts.
Dolce & Gabbana's NFT release broke records.
Dolce & Gabbana's NFT release broke records. (Dolce & Gabbana)
BoF PROFESSIONAL

Dirt, a newsletter that covers cultural criticism in technology and media, runs on NFTs.

The newsletter has no paywalls and doesn’t accept donations. Instead, its founders, Kyle Chayka and Daisy Alioto, regularly release non-fungible tokens to pay the bills. The most recent large-scale release in October featured the site’s mascot — a large brown blob aptly named “Dirty” — as different characters available for purchase on OpenSea, pricing 100 NFTs at .1 ETH or roughly $300.

“Think of it as a Kickstarter tote bag but much, much better,” the writers told subscribers when they announced their second NFT release in October.

This month, they’ve gone a step further by launching a DAO, which stands for decentralised autonomous organisation. Where an NFT gives the buyer ownership of a digital asset, buying into Dirt’s DAO through its NFTs provides voting rights on the future of the newsletter. The first vote last month gave token holders the chance to choose the banner artwork for newsletters, along with two ranked story ideas.

“We’re creating more value for subscribers by allowing them to also be consumers and investors and share in governing the editorial direction of Dirt at the same time,” said Alioto, describing DAOs as a “digital Soho House” for users.

Over the past few months, DAOs have emerged as the latest Web3 buzzword in fashion.

For many in the industry, the concept first rose to their attention as some of the biggest buyers of the first wave of fashion NFTs. Red DAO, which describes its purpose as facilitating and funding the future of digital fashion, spent roughly $2 million on Dolce & Gabbana’s digital couture NFTs. Others, including the Constitution DAO, which brought thousands of people together in an unsuccessful attempt to buy an original copy of the Constitution, can be used for a one-off investment or acquisition.

Like NFTs and cryptocurrency before them, DAOs have proven divisive in both the tech and fashion communities. Proponents say DAOs could offer a completely new model for ownership, investment and creative direction, allowing a broader swath of consumers to participate in the fashion industry. But the concept has its critics, who say many DAOs overpromise and underdeliver – or are outright scams.

How It Works

Sometimes described as a group chat with a shared bank account, DAOs are decentralised, meaning they are meant to operate like a company with no CEO or board of directors. Their operations and rules are programmed through a series of smart contracts backed by a public, permissionless blockchain like Ethereum, meaning that once decisions are made they can’t be changed or altered by third parties.

In order to join a DAO, members typically have to apply by purchasing a certain amount of cryptocurrency, which grants them governance tokens, or a DAO-specific currency, in order to vote on decisions and investments.

Those tokens provide a pool of capital and treasury for the DAO to funnel into projects, assets or other endeavours. Users theoretically have an incentive to work on their DAO’s project in order to drive up the value of their tokens. They can exit the DAO by selling their shares.

Red DAO, for instance, requires 50 ether — the native currency of the Ethereum blockchain — or roughly $160,000, in exchange for 100,000 units. Members can purchase up to 300,000 units total. Voting rights are based on the total number of units that each member holds for any relevant vote posed to members. They can also recommend and vote on new applicants, typically those with an expertise or skill set that’s valuable to the DAO.

At their best, DAOs can act as think tanks, combining the knowledge of their members to identify talent and investment opportunities.

“A lot of what DAOs do is filter the noise of what exists online, " said Priyanka Desai, head of operations at Tribute Labs, a company that creates and supports more investment-focused DAOs.

Since its launch in November 2021, Red DAO has made several high-profile NFT acquisitions and equity investments in digital-first fashion companies like The Fabricant and UNXD, the platform that facilitated the release with Dolce & Gabbana. Next, they plan to expand their NFT collection, consult and collaborate with other digital fashion brands and launch an editorial vertical.

“It’s just a really cool lab for everyone to operate in the digital fashion space under one account,” said Megan Kaspar, a member of Red DAO and managing director of Magnetic Capital. “There’s not a whole lot that one person can do in this space by themselves. But when you have a multiplier effect of 50 plus people, it’s more powerful.”

Beyond traditional investments, DAOs could also enable a new kind of ownership model. Kaspar adds that Red DAO’s primary purpose isn’t to extract returns for limited partners but to act as a “community instigator” that supports virtual fashion.

“Once things become so big, or platforms become so algorithm-driven, it’s difficult to re-inject that sense of intimacy and community, [and] everyone feeling like they have a stake in the outcome of brands,” said Alioto.

Still, Dirt isn’t giving free rein to holders over all content. While Alioto and Chayka will run whatever content is chosen by members, they’ll still select a few pitches from writers themselves.

DAO devotees also believe they can bring more transparency to fashion manufacturing and sourcing. A design and manufacturing DAO that counts designers Jeremy Karl and Eugene Angelo as members, is looking to enable more democratised processes for designers, pattern makers and workers across the supply chain through smart contracts. The idea is that with such processes, creators would be able to have more ownership over manufacturing as well as retain the value they create from projects and designs through community-owned ateliers and royalties backed by blockchain technology.

“In a world of everybody copying everything that we want to implement this idea of [a] more collective creation process,” said Karl.

What Comes Next

DAOs still face a number of hurdles before they become a widespread force within the fashion industry.

“It’s very hard to produce really unique and striking design outcomes through consensus. And that’s one of the main challenges with DAOs is that everything is by committee,” said Angelo. “Generally from a design perspective [it] can result in very middling outcomes.”

Users are also opening themselves to risky investments with sparse legal or regulatory oversight.

“The law doesn’t really accommodate these things yet,” said David Yermack, chair of the finance department at NYU’s Stern School of Business. “A lot of the hype and interest is understandable but it’s gonna take time to build it out.”

There’s also the risk of members taking the information they obtained through a DAO and using it for personal gain. Kaspar noted that DAO members could individually purchase an NFT or make an investment after learning about it through the DAO and before it comes to a vote or is purchased by the DAO. And because DAO members are often allowed to remain anonymous, they could lobby on behalf of their own company or a brand they have equity or investment in.

What’s more, because participation in a DAO is voluntary and not permanent, there’s a certain level of fluidity and movement in the space as members come and go, particularly within a young organisation.

“We have plenty of time to build that out and to see how our structure will evolve,” Kaspar said.


Further Reading

Nike, Adidas and other big brands have plunged headlong into the latest crypto craze. But companies and their customers may soon discover converting virtual fashion into real-world profits isn’t so easy. Caveat emptor, says The NPD Group’s Matt Powell.


Brands will have to navigate how to reach a new kind of audience in order to make their digital assets stand out.



In This Article
Organisations

© 2021 The Business of Fashion. All rights reserved. For more information read our Terms & Conditions

The Business of Fashion

Agenda-setting intelligence, analysis and advice for the global fashion community.
CONNECT WITH US ON
Voices 2022
© 2022 The Business of Fashion. All rights reserved. For more information read our Terms & Conditions and Privacy policy.
Voices 2022