The idea germinated on New Year’s Eve on the social network Discord.
At first it was like a joke: “Well, why don’t we get together and buy McDonald’s (MCD) – Get McDonald’s Corporation Report and guarantee a future job for ourselves in case we fail our crypto trading,” launched one of the participants. It was collective hilarity.
“It started from the sort of, you know, 90% meme,” recalled Bill “Swo” Lee, Launch Code Capital partner and crypto veteran. Lee is an adviser to friesDao.
A month later, the joke has become reality.
FriesDao, a collective of crypto fans and enthusiasts, which decided to establish a new form of governance in the world of web3 and metaverse, the buzzwords in the tech world, has raised $4.4 million in a week to actually buy fast-food outlets and govern them, whether directly by or indirectly by.
“The main point of this is: Can we as a community, together, govern and expand a fast-food operation in the real world?” Lee says.
FriesDao, which according to its founders had 4,600 dedicated members as of Feb. 2, has set the maximum amount of money it intends to raise from members of the community at a little less than $10 million.
“So the 10 million actually has some sort of objective planning, where, you know, if we average each restaurant that we need to acquire might cost anywhere from 500,000 to a million,” Lee says.
“That gives us a couple of stores that we could actually ramp into, while also leaving ourselves with administrative expenses. So we kind of did the math and figured this should be sufficient for us to gain a good level of interest while also demonstrating this proof of concept can be realized, where DAO is operating a real world operation or real world asset.”
The group, a decentralized autonomous organization, or DAO, says it has brought in a former manager of a large fast-food chain as an adviser but doesn’t want to disclose the name yet. Preliminary discussions with various brands are under way, but chances are good that the first fast-food restaurant bought and managed by FriesDao will be a Subway.
Who and What Is FriesDao ?
FriesDao is a collective of cryptocurrency and blockchain technology aficionados.
The members say that borders have no place in the business world and that everyone, as long as they participate, has a say.
DAOs are a new form of decentralized and transparent governance that lacks a trusted third party.
The DAO mechanism enables members to quickly obtain cash to invest without the need for complex canvassing for fundraising.
A DAO is characterized by its mode of governance: It issues tokens, called governance tokens. These tokens give those who own them decision-making power proportional to the number of tokens they own.
Each person who buys a token will thus both increase the treasury and participate in the direction the community takes. FriesDao distributes tokens called Fries to its community members.
“People that contribute to this treasury, they would be getting a sort of symbolic token recognition in the form of a fries token,” Lee explains.
“But that token also gives them a bit of a say in the decision-making process of how they influence where the stores are bought and how they expand the future stores, possibly evolving even into very specific store-modification improvements, subject to what a brand might allow.”
He adds: “A governance proposal can say, ‘hey, well, we’ve got $2 million budget that we want to expand next door. Do we want to put one in Atlanta, do one for New York City, we want to put one in, you know, Los Angeles.’ And you can influence that as a token holder.”
Why Does FriesDao Want Fast-Food Restaurants ?
For the founders of this decentralized community, it all started with a fairly widespread joke in the cryptosphere. But very quickly the group decided to prove to themselves, and to the rest of the world, that this new form of decentralized governance was possible both in the current world and in that of the metaverse/web3.
“I think, as if we can pull this off, we would probably be the first crypto community to really tie a real world venture together. And that would be an amazing feat, and I think we can do that,” Lee says.
“And if we execute this successfully, then it would be an open framework that we share with the rest of the DAO community, so that anybody that also has some experience, they could copy and reproduce that exact same game plan and call a proposal to use their treasury to expand to a different store.”
DAO-governed fast-food restaurants cater to the original spirit of franchising. The fast-food industry is an ideal target for DAO governance because it has been a model that interests many first-time entrepreneurs.
Furthermore, fast food is an industry that Main Street understands well and frequents regularly. If friesDao doesn’t say so, there’s no denying that for an industry looking to push for wide adoption of crypto to prove to the general public that it can run restaurants just as well as traditional centralized entities and if not better appear as an opportunity to seize.
Instead of insisting on trying to explain mathematical concepts and protocols that most people don’t understand, adopting a well-known brand does not require any particular demonstration because fast food is part of popular imagery.
Subway and McDonald’s: How Would This Work?
FriesDao wants to buy a first fast-food restaurant in the next three to four months. Preliminary discussions with franchise restaurant owners are in progress. But the scales lean toward a Subway franchise.
The location is yet to be determined. But the community ultimately wants to run a restaurant near or in every major U.S. city. At the beginning, the cost and the speed of the steps are the main factors that count.
Subway would apparently be the right deal because of the cost, according to friesDao. The basic investment required to start a Subway franchise ranges from $139,550 to $342,400 if the franchise leases equipment from Subway, according to Subway Franchise Disclosure from May 2020.
The cost of starting a McDonald’s franchise is at least $1,3 million, according to Franchisehelp.com, while the total monetary outlay to open a Burger King (QSR) – Get Restaurant Brands International Inc Report franchise varies from $333,000 to $3.4 million.
“We don’t want to use our first attempt and then blow through, you know, 20% of the Treasury,” Lee says. “We want to take something small and Subway has a candidate because they have a lesser up-front cost than most other franchise brands. So that is one of the reasons why we decided to go with them as the first call.”
As part of its research, the community intends to release annual reports on its performance, findings and experience in its franchising endeavors as a DAO. This, the group says, can help promote legitimacy of the crypto space.
Legislation regarding DAOs is still hazy and uncertain, much as it is with the rest of the cryptosphere. To navigate this uncertainty, friesDao offers tokens, called Fries, to members who fund the effort.
These tokens are symbolic. They don’t give any equity in the restaurants the friesDAO will purchase. There will be no dividend or profit sharing.
“That’s because of the limitations of the [Securities and Exchange Commission],” Lee said. “We actually spent a lot of due diligence and time to look how we can make this a reality but not violate any regulatory issues. So that’s kind of the reason why we have to frame this as a symbolic token of your contribution.”
The value, friesDAO says, lies not so much in the profit-sharing or the dividends. The value lies in the social-currency element, the group argues.
The value of having a token alignment is that it incentivizes everyone for a common goal. “For example, we can issue sort of membership passes, maybe in the form of an NFT, where these token holders have also NFT rights,” Lee says.
“And we can negotiate with some of these stores that we acquire where there’s, you know, promotion rebates that are given and a form of, let’s say, free food to an NFT holder.
“And that element alone is — the value [is] not so much in the free food but [in] the fact that a community can now interact with the real world asset with a real world use case. And that’s what makes it amazing.”
He adds: “So there’s a perceived network value from that. Now, we can’t testify to if there’s monetary value, we can’t because of regulations. But again, you know, people perceive network value in different ways between each other. And that’s what we really want to sort of experiment and see how this works in a real true social currency setting.”
What If It Doesn’t Work?
FriesDao, like many decentralized autonomous organizations, learned from the mistakes of its predecessors.
The group has plans to return the money to its members if it fails to buy restaurants from major fast-food chains.
To avoid a hack that would be accompanied by the theft of funds, FriesDao stored the money in a “gnosis-safe multisignature wallet.” That’s a smart contract on the ethereum blockchain that requires a minimum number of people to sign for a transaction to occur.
For example, if you have five people who are involved in a trade, the wallet can be programmed to require the green light from all five before a transaction is triggered. The advantage is to avoid the prospect that a single person disappears with the funds.
friesDao, like other DAOs, still faces the fact that the individuals with the most tokens have greater influence over the running and direction of the community. Basically, the wealthiest in the community will have the most power. Potentially, the most qualified may have the least.
“If someone’s going to put in $1 and then they’re going to go away, versus somebody puts in $100 and it’s going to go away, you do have to take into account the fact that someone is putting in more risk than someone else,” said Brett Beller, co-founder of the online liquor store Drizly and an adviser to FriesDao.