The Breakdown - Can DAOs Do More Than Coordinate Money?

Starting point is 00:00:04 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.com, and FTCS, and produced and distributed by CoinDesk. What's going on, guys? It is Sunday, July 10th, and that means it's time for Long Reads Sunday. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dig deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Also, a disclosure as always. In addition to them being a sponsor of the show,

Starting point is 00:00:48 I also work with FTX. So today we are talking DAWS. And DAWS are something that on the one hand feels super obvious to me, right? Humans are inherently social creatures. We form groups for business purposes, for cultural purposes, basically for all purposes. And because of that, the idea that we wouldn't keep evolving our organizational forms just seems insane to me. What's more, the internet creates totally new types of viable social connections between people. And so in terms of those social connections turning into more active shared pursuits, that also feels inevitable. Right now, from an applied perspective, there isn't really much that sits between a Facebook group or a Discord server and an LLC. And it feels like there's a lot of space of shared human pursuit that will

Starting point is 00:01:38 fit in that middle eventually. Dow's are crypto and Web3's answer to that empty space. And so in principle, I'm super interested. The question, of course, is what DAOs are really useful for? Which types of these shared pursuits are actually things that people will want to do over the long term. Put more venture capitalist crassly, where is the product market fit? The one thing that seems kind of for sureish to me is that people would use Dow's to organize funding decisions, to pool capital and say, we're going to buy that set of NFTs, or we're going to invest in this set of companies, or we are going to donate this set of money to charity. Shared financial decisions have a really, really broad space, much broader, I think, than we

Starting point is 00:02:24 recognize. And I think that Crypto Rails enable kind of a shift in kind of what you can do with that type of coordinated funding. Now, as we've already seen from funding DAOs and things like that, there are overlaps with the existing legal apparatus as well. But anyways, I think that the point is for me, shared group funding decisions or investment decisions are an area or a use case that seems, again, obvious. What I'm less sure of is basically everything else. Group decision-making is a really, really difficult challenge, and very quickly it becomes its own laborious process. The fact that there are so, so many startups out there that are Dow tooling right now shows kind of just how complex those mechanisms can be. I'm not sure in what context

Starting point is 00:03:13 this sort of semi-democratic decision-making process is actually going to be useful, but I'm open to the possibilities. Anyways, this week was the future of work week for CoinDesk, which meant that they had a series of op-eds around the future of work and what it might look like, and a number focused on DAO, so we're going to read some of those pieces and come back and decide whether I am more or less convinced of DAO's outside of this very specific type of use case that I was just mentioning. I would also say that my skepticism is a conviction that is very loosely held, so I am open to being convinced. With that, let's read, Dow's are the real meritocracies by Parker McCurley. The first limited liability company was established in Wyoming in 19.

Starting point is 00:03:54 and it took a decade for the federal government and many business owners to wrap their heads around this pivot in the idea of organization and ownership and business. Coincidentally, it seems Wyoming yet again serves as the legal birthplace of this new type of enterprise, as it is the first state to officially recognize a decentralized autonomous organization or Dow as a business entity. Dow's represent the most dramatic shift of structure, governance, and asset management in business in our contemporary lives. Though many Taos that govern treasuries have fallen prey to losses due to exploits or bugs in the code, these issues are a reflection of the greater need across all of Web3 for robust auditing, and not a reflection of the value of decentralized governance

Starting point is 00:04:32 in itself. In concept, DAOs now stand out is the most significant leap in terms of how we can think about running and managing organizations since the disco era. By and large, however, the primary questions concerning DAOs and the larger conversation remain fundamental in nature. Chiefly, what exactly are the principles that defined organizations in businesses, and can Dow's meet and redefine those standards in a healthier, more equitable way? Open source access to knowledge. In most business structures, information is kept secret, as though knowledge itself assigns a monetary right to ownership.

Starting point is 00:05:05 In extreme cases, we have even witnessed manufacturers purposefully designing products so that owners are unable to repair or modify them out of a fear that may lead to the increase of reverse engineered designs. Thankfully, right-to-repair laws are starting to come to the U.S., but when even physical items have become inaccessible to inquiring minds, we've crossed the line when it comes to stifling competition and knowledge of how the world works. Locking innovative technologies and proprietary forms suppresses valuable information that could be used to improve systems and conditions for all.

Starting point is 00:05:34 This exclusionary behavior inhibits innovation by design, prioritizing proprietors need to generate value and prohibiting competitors from piercing their monopoly. Imagine if the entire human genome had to be rediscovered to perform genetic research. Think of all the ways that keeping information in terms. silos can damage advancements in nearly every field of science, healthcare, business, and entertainment. Unfettered access to information leads to innovation, and innovation enables emerging technologies to evolve in ways that serve to advanced knowledge in naturalistic and representational ways. Empowering individuals is the catalyst for true societal progress.

Starting point is 00:06:06 Open source methodologies break down the walled gardens built by privileged corporations and restore to all the freedom to innovate, paving the way for society to progress. However, a major roadblock to open source approaches becoming more common is the lack of uniform standards of earning income from contributions. Simply put, it's hard to get paid to create something that will be given away for free. In times like these, security of your assets should be your number one priority. If you want to offset risk as much as possible and still stay in crypto, you need a trusted partner by your side. Nexo is a security-first company that manages risk by relying on mechanisms such as over-collateralization. real-time auditing and insurance on custodial assets.

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Starting point is 00:07:14 and investigations support for all crypto assets. organizations like Gemini, Crypto.com, and BlockFi. Gain unparalleled visibility and maximize your potential with the leading blockchain data platform by visiting us now at Chainalysis.com slash CoinDesk. The breakdown is sponsored by FTXUS. FDXUS is the safe, regulated way to buy and sell Bitcoin and other digital assets, with up to 85% lower fees than competitors. There are no fixed minimum fees, no ACH transaction fees, and no,

Starting point is 00:07:49 withdrawal fees. One of the largest exchanges in the U.S. FDXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTCS, you pay no gas fees. Download the FTCX app today and use referral code breakdown to support the show. The labor proposition. Being part of something greater than oneself offers a source of meaning and purpose. The approach to open source contribution in the tech sector has a long and story history of people who have shared their specific knowledge or skill and expected nothing in return but the satisfaction of work and its potential impact. Contributing to open source projects, however, is difficult for most people who are exhausted trying to make ends meet to pay bills by working their day jobs. As a result,

Starting point is 00:08:34 creators and contributors for many open source projects are well-intentioned volunteers who have limited time and attention to allocate. The paradox here is clear. Altruistic projects often cannot be bankrolled by those who would most be helped by those innovations. Physical and emotional constraints, economic barriers, class antagonisms, and scarcity of leisure time limit contribution and support from the individuals whom the projects are intended to benefit most. The accumulation of wealth In a proprietary organization, considerable work is extracted from the worker, which is not matched in compensation.

Starting point is 00:09:07 The pursuit of wealth is not inherently bad, and the idea that successful wealth creation must be unethical, selfish, or greedy is false. Predatory profit motives are the problem. When a hierarchical system of revenue and earnings become, more important than an equality of social prosperity, the system grows inhumane. A common heard word in the world of open source and cryptocurrency is meritocracy. A meritocracy ensures that work of value yields wealth of equal value. In other words, it's a system that should reward members strictly based on their contribution towards the system's goals. Sadly, in a proprietary system

Starting point is 00:09:38 whereby economically or politically advantaged actors can opt in to increase wealth without contribution, meritocracy is impossible. Once individuals are tricked into mistrusting open source methods as a potential pathway to wealth, they face a sobering truth. In our society, it's far easier to contribute to the proprietary system and be happy with the drip feed of trickle-down economics than to attempt an alternative approach. Enter DAWS. Dow's are the best model we have to create an open-source meritocratic framework for promoting unbiased knowledge, work, and wealth. In practice, here's what DAWS can offer as solutions to the above conditions. Openness. Dow's revolve around a shared mission that inspires their members to value the significance of their work.

Starting point is 00:10:18 In a Dow, all information required to understand the mission, goals, and objectives is openly available to all. The strategy by which a Dow accomplishes its mission can be contributed to and updated via open forums in real time, allowing a Dow to redirect and iterate its own strategic path quickly and efficiently. Labor. Dow's can publish specific and granular tasks that contribute to their greater goals and mission. This work should be denominated in levels of granularity based on risk and required resources so that the Dow supports the spectrum from livable wages to an hour of one's time. By providing access for global contributors, the Dow provides more opportunities for scalable employment scenarios than a traditional company hiring full-time employees in its own

Starting point is 00:10:55 region. Available work becomes an open meritocratic marketplace that's remunerated based on contribution to the overall mission and goals of a Dow and serviceable by anyone. Wealth. Through the tokenization of labor hours and expertise, members are compensated fairly based on contributions, resulting in a meritocratic reward and governance system. Over time, assuming the mission of a Dow is truly valued by society, the desire to contribute or govern the Dow will increase and drive demand for consistent participation. As the Dow's succeeds, so do all of its members. Dow's present a clear path to coordinating meaningful labor opportunities and ethical wealth creation in an open-source design and will reshape the future of business.

Starting point is 00:11:33 All right, back to NLW now. So there is a lot in here that I agree with and I think is really smart. I'm really excited that folks like Parker are working so hard to put these ideas into practice. I do think, however, that when I read this, the big, missing thing is this last part. Over time, assuming the mission of a Tao is truly valued by society. What are the missions of Taos that we're going to find are truly valued by society? That's the key question. And what's more, are those missions well-suited to an organizational structure that inherently involves a semi-democratic process of decision-making?

Starting point is 00:12:11 Remember, corporations and businesses didn't evolve their system of decision-making. making in order to be exploitative or ruthless, they did it because of efficiency. To have every member or even some large percentage of members of an organization have a direct stake in decision making across a wide array of decisions strikes me as an extremely burdensome alternative to the existing corporate structure. Now, that doesn't mean that there aren't missions where it's exactly the right approach. For example, would you prefer an authoritarian dictator to make all the decisions for your country, or do you want something that looks more like representative democracy? The inefficiency of the process of democracy is part of the point. It is a natural slowdown to

Starting point is 00:12:54 the volatility of change, and what's more, it's a scenario and context in which the fact of voices being heard, even if their perspective is ultimately not the one that makes the decision, is a good in and of itself. So I'm left here in roughly the same spot of thinking that there is something really interesting about the alternative that DAO's offer, but still wondering where the best place for that to come to fruition is. Now, one more piece from the series this week that I'm not going to fully read, but I'll give you just a little bit of, does kind of try to answer this in specific. It's by Simon U, and it's called why brands should adopt a hybrid Dow model. Simon writes, a hybrid Dow can take many forms. Ultimately, it's about allowing customers to

Starting point is 00:13:38 propose and vote on various product or service features. For instance, brands can distribute a product roadmap poll, letting stakeholders weigh in on the most important feature enhancements and new capabilities. This delivers the voice of the customer directly to product development teams which can simultaneously enhance customer sentiment and brand maturation. He goes on that brands could embrace a Dow ethos by engaging stakeholders on design updates, product look and feel updates, branding and logo changes, event and festival programming. Effectively, he's arguing for DAO's as a super type of customer engagement and customer involvement in the company. Imagine, if you will, that every Fortune 500 in America had at least one board seat that was

Starting point is 00:14:14 run by a DAO. The specific proposals that that DAO would be voting on were, in fact, the same proposals that the board was voting on. That's something that I think is actually much more interesting, and I've talked with a couple teams looking at this in some specific real-world contexts, where I actually think it would be potentially powerful. So I guess where we'll leave this discussion for today is that there is something interesting, some thread to keep pulling on here. The question that I would encourage us to ask is where this sort of semi-democratic governance process of DAWS is actually important not just for the efficiency of a type of decision-making in business, but in which the process of involving those opinions is a good in and of itself. Let me know what you think, or better yet,

Starting point is 00:14:57 come join us on the Breakers Discord. This is exactly the type of thing we can talk about there. For now, I want to say thanks again to my sponsors, nex0.io, chain aliasis and FTX, and thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Can DAOs Do More Than Coordinate Money?

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