DAOs are interesting, likely, and terrifying

How I'm thinking about DAOs and platform cooperatives

It’s time for my thinkboi piece on DAOs. Here’s how I’ll break it down:

• Why DAOs are interesting to me

• Why weakening institutions make DAOs more relevant

• Why cooperatives and DAOs might make sense together

• Why DAOs are terrifying

If you’re not yet familiar, DAOs are Decentralized Autonomous Organizations. A DAO is a way to describe the structure of an organization like a firm where a such an organization is, at its core, a set of resources, a set of value flows, and a set of procedures for participants to make decisions about these things. An LLC or C-corp is one kind of firm. A DAO is another. DAOs are in the news because they are implemented through computer programs running on top of blockchains, which receive undue amounts of buzz and speculative investment. Overhyped as the technology may be, the movement around DAOs is showing great enthusiasm for experimenting with ownership and democratization. Rejecting the entire movement out-of-hand would be a mistake.

Why DAOs are interesting to me

DAOs might be the future of corporations

The corporate form, in my understanding, is about 1000 years old in the West. It developed the “limited liability” concept early on as well as investor-operator partnerships. The joint-stock company shows up in the 1600s and adds pooled ownership. The private corporation in the 1800s. The modern fully-financialized firm, maximizing only shareholder profit, maybe in the 1970s.

DAOs might be the next evolution of the firm. They have some advantages that will inspire their growth, such as ease of creation and a current lack of regulation. It is likely that DAOs will gain many analogues of the legal structures enjoyed by the C-corp. I imagine banks will offer traditional fiat accounts where access is gated by multi-sig smart contracts instead of multiple ink signatures on a check. Case law will develop around legal corporate bylaws intersecting with DAO governance. Some governments will experiment with legal support for DAOs, like the Wyoming DAO law.

Hybrid DAOs are an especially likely path. A hybrid DAO is an organization where governance is split between on-chain/token-centric structures and legal structures registered with a state or multiple states. Incorporated hybrid DAOs could specify that certain decisions, such as electing a board of directors, are governed by token holders while other decisions, such as equity sales and fiduciary responsibilities, are governed through state-legal means.

DAOs and open source product platforms

DAOs might be a good fit for partnering with open source projects to do (and fund) product development.

Looking at the landscape of open source software today, I note two things. First, successful open source platforms tend to be partnered with caretaker organizations. Wikipedia has the Wikimedia Foundation, Linux has the constellation of organizations around the Linux Foundation, and Kubernetes has the Cloud Native Computing Foundation. Second, open source development has won (defeating free software), but only at the level of infrastructure and tools. Products for end-users, which are higher up the value chain, remain closed-source and centralized.

Perhaps DAOs are the right caretaker organizations for open-source product platforms. DAOs can be profit-seeking entities that may use hierarchical principles like management, just like corporations. They can raise capital, hire staff, and procure resources just like any other corporations. However, DAOs are massively more transparent than legacy corporations or non-profits. Transparency in DAOs will probably lead to less hierarchical organizational forms. The culture around DAOs also, currently, embraces transparency. There is an expectation that DAOs publish their budgets publicly. Anything on-chain, especially currency in-flows and out-flows, is inherently transparent.

This mixture of hierarchical and open sounds a lot like an open source project to me. Open source projects have maintainers who gate access to submitting code. Projects can be forked at no cost. Very large projects are already governed through transparent processes like those used by the LLVM Foundation. It strikes me that the organizational structure of the CNCF is probably more inclusive, more effective, and more democratic than most socialist organizations. Blending these governance structures with DAOs might make new forms of organization available to more open source products.

I am watching to see how this thesis develops, and for an opportunity to employ it.

Transnational DAOs

National structures for corporations are struggling to keep up with the world created by globalized communication networks. If I want to start a business with someone in another country, we are going to have a difficult time using legacy corporate structures. The only corporations that thrive in this regulatory regime are multinationals, who write the rules for themselves.

DAOs may enable transnational organizational structures that are currently difficult to imagine. This year I worked at a company for six months before I met any of my coworkers face-to-face. We have staff in multiple countries. I am certain this will be perfectly normal in the future. Corporate forms will be molded to fit this new remote/international-by-default reality, and DAOs are one implementation pattern for doing so.

For most workers on earth, transnational firms have offered employment on more favorable terms than might have been offered without them. This is not the right-wing talking point about “job creators”. I am a Marxist and I know:

To say that “the worker has an interest in the rapid growth of capital”, means only this: that the more speedily the worker augments the wealth of the capitalist, the larger will be the crumbs which fall to him, the greater will be the number of workers than can be called into existence, the more can the mass of slaves dependent upon capital be increased. —Karl Marx, Wage Labour and Capital

But I also know we make history not in conditions of our own choosing; transnational organization of the firm is a reality workers both benefit from and toil under. Capital has certainly used the transnational firm and international trade to crush workers’ movements in the rich world. The C-corp has no problem bounding across borders, but it is a structure only accessible to the top echelons of capital. The question posed by DAOs is whether we can organize transnational structures on our terms.

Why weakening institutions make DAOs more relevant

Our institutions aren’t working so well. Average trust in institutions is falling. The COVID pandemic should be read as a stress test of US institutions, and it’d be hard to say we did well. Some succeeded, such as the rapid development of multiple vaccines (in collaboration with global efforts). Many failed, as evidenced by the US’s still-rising COVID case count and caustic political divisions.

We are seeing many, many signals of a coming or ongoing crisis. When the Panama Papers were released, implicating the global elite in massive tax dodging schemes, nothing happened except a reporter was murdered. Only one random banker was jailed over the 2008 subprime crisis. In the VW emissions scandal, some executives were charged but it was later revealed that basically every major car manufacturer had been lying about their contributions to climate collapse, and very few companies were held accountable. The pattern is this: states are unwilling or unable to regulate industry, and oligarchs are benefiting from states’ abdications. (One exception would be the Communist Party of China which governs over the PRC. The CPC has a very different relationship to industry than Western governments.)

The continued collapse of legitimate institutions could lead to a much worse environment for most people living in the West. I’m cautious about accepting Red Scare propaganda, but one way I think of the US in decline is that life in the US may become more like life in the Russian Federation. Russia is a liberal capitalist state like the US, only further degenerated. Political corruption, fake elections, and rule by oligarchs are the norm in Russia in a way that seems quite comparable to the US and its current trajectory. One could posit that if Europe was the mid-20th century version of capitalism in crisis, Russia today is an iteration of the 21st century crisis of capitalism.

If the governing state can’t be relied upon to adjudicate legal issues arising in organizations, DAOs may represent an alternative that may prove more resistant to kleptocracy. At least what happens around a DAO is transparent by default. Obviously cryptoassets can be seized and controlled by the state just like normal assets, but some aspects of DAOs like support for anonymity and dispersed ownership might make doing so more challenging. We should already be unhappy with the legal structures provided by the state for organizing production, as they were developed by capitalists for their interests. But if even the weak protections built into the organizational structures of today may be at risk, it would be smart to start planning for a future without them even if we choose to also defend the status quo.

It’s also hard to imagine the US successfully regulating new structures like DAOs. Even the right wing of the Democratic Party has turned on the latest nominee for Comptroller of the Currency despite her being far from a radical when it comes to regulating financial oligarchs. The political paralysis the US state is experiencing shows no signs of abating. Betting on good governance from the US is not, currently, a great bet.

A well-functioning state without the need for DAOs would almost certainly be preferable to a degenerate state with DAOs, of course. But we might not be able to stop the collapse of the US, especially as climate collapse collides with political dysfunction. The DAO community seems to be attempting to establish a parallel system of financing and governance. This might be useful if the legacy system proves unreliable.

Why cooperatives and DAOs might make sense together

I work for a worker-owned cooperative. We are incorporated with the state as a profit-seeking entity. The legal structures available for cooperative ownership are quite mediocre compared to the structures and cultures available to capitalist-owned corporations. Excellent work has been done to expand the forms of legal ownership available to us, but they are still lacking and we feel the pain constantly.

For instance, interactions with the state are not streamlined for businesses with a large number of owners. Our cooperative is almost entirely owned by immigrants, people of color, and women. This fact entitles us to participate in certain programs and opens certain types of business with the state to us. In order to prove this status, however, we have had to collect a huge pile of data about our member-owners and submit it through systems that are clearly not designed for an entity with hundreds of owners. This has taken up time and energy that could be devoted to building our business instead. The path for small and capital-owned businesses is well-trodden. The cooperative ownership path is not, so it contains many more rough edges.

I am interested in alternatives. If the hybrid DAO is the future of the LLC, then when should cooperatives begin to explore structuring themselves through hybrid DAOs? Should we let our disdain for private profits and the associated structures keep us using legacy structures forever? For people not involved in industry, I understand why they would argue that ignoring the rise of DAOs is the ethical thing to do. But I am a practitioner. I need to be looking out for the economic prospects of our cooperative’s thousands of drivers. My job is to put money in workers’ pockets. My project is challenging the largest platforms at the largest possible scales. I am determined to use whatever tools necessary to do so. I can’t let our capitalist-owned competitors outfund and outmaneuver us forever.

The sooner cooperative ownership is enshrined as a legitimate form of organization through DAO structures, the sooner we can build first-class structures for our future cooperatives. DAOs even present a unique opportunity to do so. The LLC is designed for a small set of owners. The public corporation is designed for mass ownership by capitalists. But DAOs, at least nominally, have already established a norm of ownership by all stakeholders, including users.

Why DAOs are terrifying

People organizing through DAOs seem to move faster than could have previously been imagined. The ConstitutionDAO project, failure though it was, looks like a signal crisis to me. Thousands of people came together around an idea in a matter of weeks, then in a matter of days made that idea go viral and collected $40 million dollars to attempt to have an effect in the physical world. This kind of rapid coordination has a ton of potential, both good and bad.

I’ve had a phrase stuck in my head for the past few months: ISIS DAO. What if thousands of people around the world decided to come together to fund extremist militant actions? Not all militant actions are bad, but some certainly are. Moving large amounts of dollars around in a semi-untraceable manner used to be the the province of well-connected elites and their seedier associates. Now anyone with some access to capital can do so. Towards what ends will this power be applied?

Transnational arbitrages are also an inherent corollary of DAOs. Corporations have always practiced regulatory arbitrage. Silicon Valley exists in large part because manufacturers raced westward to escape pro-labor regulation in the East. Today transnationals still expand to new locales to push labor standards down lower and lower. But transnationals require massive amounts of capital to practice these expansions. These hefty capital requirements gatekeep the practices of cross-border arbitrage, but DAO structures provide transnational organization for essentially no cost. When anyone can create an entity that materially organizes the flow of value across borders, what can national regulatory regimes do to stop them? What will this do to labor and environmental standards? I can see massive benefits as well as grim consequences.

Smart crypto boosters already know that DAOs are for doing crimes, where crimes include adopting ownership structures that do not conform to legal regulations. But crimes also includes crimes and ultimately terrorism. Like the internet has removed gatekeepers from content creation, flexible DAO structures could remove gatekeepers from the organization of value flows. With the internet’s flattening of access to publishing we’ve seen the rise of organized disinformation actors dealing in everything from vaccine denialism to pogroms organized in WhatsApp groups. We should expect the corresponding ills of DAOs to be similarly terrifying.

The genie is probably out of the bottle, though. Being mad about crypto on Twitter doesn’t seem to be working. Some nation-states like China and India have banned or gestured towards banning cryptocurrency. It’s not clear that such regimes will be successful. And it’s just not possible that global bans could succeed, especially with the United States entering a post-governance era. While I reject technological determinism, sometimes the combination of a technology and the material organization of society will lead to certain outcomes becoming inevitable.

What comes next?

I’m continuing to research DAOs. I’m pretty busy with, like, running a software team at The Drivers Cooperative, and most of our operational concerns are about getting drivers on the road doing trips. But I’d love to talk to more people in the DAO space. I plan to spend the next few years thinking about (and building) open source labor platforms. If DAOs are a part of these platforms of the future, I want TDC to be at the forefront of it.

If you’re interested in talking token structures or financing, I would like to talk to you. I’m also interested in hearing criticism—I know most of my friends are highly critical of anything related to cryptocurrency. But I think a lot of the criticism I see targets the worst, most childish crypto hype rather than engaging with DAOs as I see them, as a new imperfect structure that grows out of existing structures, thus giving us (and our enemies) new opportunities for gaining power.