The Breakdown - Why 2020 Is The Year Of DAOs feat Aragon's Luis Cuende

Episode Date: January 9, 2020

The aftershock of the 2016 The DAO hack meant that DAOs weren’t nearly as hyped as ICOs and later some other aspects of the web3 movement. In 2019, however, DAOs came roaring back and start 2020 with the wind at their sails.  In this episode, we look at the 2019 DAO tale of the tape - what people thought would happen and what actually did happen, including the launch of Moloch, MetaCartel, Ethereum’s MarketingDAO and more than 1000 DAOs on Aragon. We also hear from Aragon founder Luis Cuende who discusses 1) why the newly launched Aragon courts expand what DAOs can do; 2) examples of the need for subjective human intervention in DAOs; and 3) why 2020 is poised to be DAOs best year yet.

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. What's going on, guys? It is Thursday, January 9th, and today we're doing a special narrative watch edition. So for those of you who have never heard one of my narrative watches before, it's basically where instead of the three daily topics like usual, I hone in on one kind of theme. or story or narrative that I see as a part of the ongoing conversation. In particular, I'm always looking at things that are changing and emerging into more significant parts of the industry. And so today's narrative watch is about DAWS and whether 2020 is poised to be the year of the DAO.

So let's talk historically about DAO's first. So the term DAO, decentralized autonomous organization, originally referred to a specific organization. And it was meant to fund projects in the crypto space, and of course was famously subject to a hack, which ultimately led to the split between Ethereum and Ethereum Classic. And there's a lot more to get into, but I think what's worth noting about that history and the history of Dow's is that Dow's sort of escaped the worst excesses of the irrational exuberance of the 2017 ICO boom. And what I mean by that was that people were so cool already on the idea of DAWS because of this hack when the ICO boom happened, that all of that energy and attention kind of passed them by. Now, of course, there were some projects that were still

passionate about that. There were projects like Colony and Aragon who were working to build a new infrastructure for these decentralized organizations. And within those communities, there were obviously lots and lots of people who, just because of the hack, hadn't given up the idea that these new types of organizational forms might matter, but you didn't see an explosion in the number of DAOs or people trying to build DAOs, as you did with people just trying generally to create token projects and go sell their tokens.

And I think in some ways that was actually to the advantage of the entire DAO space. Now, the idea of DAWS and why DAWS matter is for a lot of the folks who are in this space, it seems crazy to them that there is no formal organization structure between, on the one hand, an informal Facebook group, let's call it, and on the other hand, a formalized non-profit or business. That doesn't seem to fit the world that we live in where groups come together and form in many, many different ways and for many different purposes at all kind of levels of

types of coordination, intensity of participation, duration of participation, type of participation. And DAWs for those who are passionate about them potentially answer and explain and give a new form that can accommodate all of that, that middle range that isn't a formal and enduring kind of legal structure, but is neither an informal kind of group or association. So anyone who lives in the internet can think of different contexts where this happens. But of course, a lot of the folks who are in the Dow space are focused on DAOs that are organizing and coordinating people and resources around different crypto communities and different crypto projects. Going to this idea of, is 2020 going to be the year of the Dow? Well, let's look back at 2019.

first. So in 2019, Stefano Bernardi, who was at the time working with Aragon, he's an investor in crypto companies, he's been a publisher, he had a newsletter that was one of the best in crypto for a long time called token economy that still does a great job of summarizing technical developments in the space. He wrote a post called why 2019 will be the year of the Dow. So obviously this meme has some precedent, but he pointed to six different trends that he thought were a reason that Daos were poised to be on the rise. So the first of the trends he pointed to was the globalization of talent and the transformation of work. So obviously this refers to the idea that we no longer live in a paradigm where working means popping down to the office in your locality. It often means

signing into your computer or your Slack room or whatever a world away. And in that context, the way that we organize work and how long people work for an organization, what they contribute, how they get remunerated for that contribution, all of these things are shifting. And And, you know, right now we still more or less live in a paradigm of corporations that coordinate efforts. But, you know, it's not impossible that the freelancer sites you see around the world and remote teams are actually sort of just part of a larger shift where you may even see the way that companies are organized shift. And so Dow seems useful for that. He talked about stakeholder networks needing coordination. That was the second trend. So obviously, this gets into

these crypto communities that have these big asset pools and treasuries that are trying to do things differently and want a different way to allocate resources that isn't just the traditional command and control corporate model. He talked about the emergence of defy and what requirements that might have, again, in terms of governance and coordination, and indeed governance is his fourth trend as well, the normalization of governance participation. Dow's are inherently more involved. It's not like a blockfi or a nexo where you park your crypto assets and they do something for you. The idea of DAOs are inherently more participatory. And usually, you know, even the DAs that we've seen, which are explicitly about resource coordination, involve an element of agency and autonomy and

decision-making. So the more that people get used to participating in governance in these crypto-asset networks, the more normalized that becomes. His fifth trend that he pointed to was deplatforming growing as an issue. So this gets kind of into the Web3 critique, let's call it, of the existing web infrastructure that we have today, where people are likely or subject to be deplatformed based on their, you know, political or social statements or beliefs. Especially at the beginning of 2019, there was a lot of buzz and hype and talk about that, and that persisted throughout the year. We've talked previously, we talked, I think, last Friday about whether decentralized social networks are just a pipe dream, but certainly,

at least in some nascent way, there is demand there. Finally, he pointed his sixth trend was an upswing in political organization. I think this one is somewhat obvious in the wake of a world that is increasingly unstable, increasingly volatile, and has growing sets of populations that feel like it is just not working for them. The system that we have been gifted is not going to do. In the context of more political organization, which inherently doesn't fit easily into these long duration type of organizational structures, but need something more than just, again, joining the Facebook group, this seems like an interesting opportunity. So that was at the very beginning of the year, it was January 17th that he published that. So the question then becomes,

what is the tale of the tape? What actually happened in 2019? And the short answer is a lot. I think one of the most important things is that we had our first notable Taos in the wake of the first Dow, right, the Dow. So I think chief among them for a lot of people was Malik. Malik was convened by Amin Soleimani from Spank Chain and a number of others, and basically was designed as a funding mechanism for public infrastructure for Ethereum projects, right? So they believed that a lot of these different projects that were building on Ethereum had similar needs, similar sets of tooling needs, similar challenges, that really what they needed was a public shared infrastructure, and that perhaps a Dow was a great way to do that. And I think Malik was notable in

a couple ways and had a couple big, significant impacts on the industry. The first was that it was actually in some ways a simplification from what some of the other Dow folks were talking about, right? Even in Stefano's piece, there's, you know, this huge array of types of DAOs that he's implicating from the way that work gets done to defy kind of crypto things to political organizations. Well, Malik is taking a very different and took a very different perspective, which is that This is about resource coordination. The purpose of the DAO is one thing to pool resources and make decisions about where those resources go. That simplified vision, I think, was to the benefit of the whole DAO space by really refocusing the energy and efforts on that very clear use case.

And I think that in a lot of ways, it is this use case of coordinating a shared pool of contributor resources is the thing that makes the most just logical next step sense when you look at over the last 15 years, let's say, the normalization of crowdfunding, right? Crowdfunding has been normalized to potentially a scary degree. If you look at the percentage of U.S. healthcare costs that actually are funded by GoFundMe and people having to raise from their families, there's actually even major questions about the system that it brings up. But nevertheless, the point is that crowdfunding and contributing to shared pools of resources

has become normal. It is not a particularly difficult extension to say in certain contexts, you want not only to contribute to that shared pool of resources, but you actually want to have a stake in how those resources are used. Certainly that becomes a different type of beast, but that's really what Malik centered the narrative and the focus of Daos around. It was from here, I have some money, to here have some money and I want to say in where it goes. And I think that that's a powerful and natural shift. A second thing that's a powerful and natural shift. A second thing that Malik did was it created a template for others to split out from. Malik is this very strong brand.

It comes from a Ginsberg poem. Malik was the Canaanite god of sacrifice. So this is not the brand that everyone wants to be associated with it, even though I think it's frigging awesome and have always liked the kind of more gritty revolutionary side of things. But others, that wasn't what they wanted. And moreover, it wasn't just the brand, but maybe they wanted to focus on different things. Maybe they didn't want to fund the same types of projects. Well, we saw Metacartel spring off and

kind of build both a different brand in terms of what they wanted to be seen as and how they wanted the community to feel, but also something that was a slightly different focus in terms of moving away from just funding shared infrastructure for Ethereum projects to really thinking about different types of DAPs and just, again, creating another shared pool of resources. These things aren't competitive in my mind in the sense that when you're talking about coordinating pools of capital to do things, there's going to be a lot of things that people do, and different pools are going to be specialized for different outcomes and different desired outcomes. So you saw Mollett create a template for DAWs like Meta cartel, but you also saw that even continue.

So you saw the Lao, which is announced towards the end of last year, which is about limited liability autonomous organization. So this is a collaboration with folks. from Malik and Metacartel and Open Law that is looking at how you could expand them to for-profit ventures in a way that doesn't run afoul of the law, which is obviously a whole different dimension. You saw within the context of Ethereum, the actual the marketing DAO was announced towards the end of the year, and this is meant to be a DAO that funds, effectively, Ethereum as a decentralized protocol doesn't have a marketing department. And so marketing Dow is effectively a decentralized outsource marketing department that can accommodate the contributions of lots of people. And is theoretically,

they're going after projects like, I think their first initiative is to memeify Ethereum in the same way that there's a digital goal. They're looking into what the right core meme for Ethereum is, which as anyone who has listened to my show for any longevity knows, this has been an ongoing debate within the context of a theory and what the narrative is forever, right? And it's a constantly evolving thing. I've spoken about the marketing doubt before specifically. I think it's a fascinating effort intellectually. It'll be interesting to see because I think that marketing decisions are so much more usually about gut-level sensibilities from a heretic than they are about any sort of group think. But maybe they will prove me wrong. I have both interest and skepticism. But the point relevant to

this question of the tale of 2019's tape as it relates to Dao's, is neither here nor there on what I think about any one specific Dow. It's about the fact that they are starting to pop up in a much more significant way. The very end of the year saw Ryan Zer, who previously been at Polychain Capital and then was at the Web 3 Foundation, split out from the Web 3 Foundation to start a new project called the Dow. So in his estimation, this is the closest thing to the intention of the original Dow for funding in different token projects and really being a totally different take on capital allocation than the venture capital organizations that we've seen before. And again, with a for-profit model, with a lot of different mechanisms to solve some of the

early issues, both from a technical standpoint, but also just from a governance and checks and balances standpoint. And so again, when you have someone like Ryan who really can pick his type of project, his community to work with in this larger crypto community, deciding to focus on effectively resuscitating this idea that maybe got cut short because of this major hack, you have to think that there's something significant there. And lastly, just from a pure numbers perspective, Aragon, which is one of the leading infrastructures for Dow creation, they have a set of tools they've been building for three years now, building out the tooling for Dow's, had more than a thousand DAOs on Mainnet created last year. And obviously, a ton of those are small experiments

and, you know, one-off things. And that's fine. Like, that's kind of the point of having tooling that makes it easy is to let a thousand flowers boom. But still, the fact that it is actually a thousand flowers last year is really, really significant. And so Eragon was actually the context for doing this narrative watch now. They just announced the other day that they had started recruiting jurors for a tokenized court. And so basically they are trying to create a subject or offline human-powered infrastructure that coordinates with the objective online resource coordination to allow for more complex use cases for DAWS. And so I think that this is really interesting. Obviously, we could spend an entire episode just talking about objectivity,

subjectivity, human participation, what it all means. But I wanted to actually turn it over to Luis from Aragon, who's one of the founders of the organization, to talk a little bit about a few things. So first I asked him, what was the significance of the courts? Why they were a game changer? What different capacity they enabled? So that was kind of question one that you'll hear in this little interview. Question two was, what's an example of time and when a DAO would need to call in these courts? What does that actually look like? And question three, which is sort of the broadest, was, you know, how much different is 20s-20 starting in the context of Dow's than 2019? Is this really a C-Change? Is this evolutionary? Is this revolutionary? And what does it look like

for 2020? So let's turn it over to Luis Quende from Aragon for the answers to those questions. Atagon court is a game changer in terms of what Daos can do, because previously Daos were restricted to smart contracts. And smart contracts don't handle subjectivity very well. So said otherwise, smart contracts really thrive when we're talking about interactions that can be measured on chain. But when you think about our human interactions, the ones we do with people we work with, they are usually very subjective. So you have a bunch of things that a blockchain cannot decide. And so that's where you want a court, that once you want people to resolve disputes because they can get into the human skin and they can actually understand

subjectivity. There are many examples where the court may be useful. I think one example, for example, let's say DAO's handle a lot of bounties and a lot of contractors because of the nature of a DAO, which can be an open DAO and then anyone can join and work for it. So I think contractors being kind of an escrow between different parties, it's quite an interesting use case for our own court. So you may basically have one party, which is the DAO, and this DAO wants to contract someone

in a sense for work, the same way that protocols do that all time via work tokens. And so this DAO may need some guarantees that the contractor is actually going to perform the work. But sometimes that work is not very objective. Sometimes that work is not just mining a block of Bitcoin and submitting a hash. So it's harder to measure what's right and what's wrong. And so there the DAO may use the court. And the contractor may also use the court to get certain guarantees that if the work is completed, the contractor is going to get paid.

I think DAOSA are way better position now than they were in 2019. I think a lot of the infrastructure now it's built. We at Oregon spent nearly three years just building this core infrastructure to make something possible that wasn't possible before, which is DAO's themselves. And I think now it's a matter of finding the use cases and actually creating them and iterating on them. And I am so excited because we spend so much time building this infrastructure so that people can create DAO's in literally minutes.

And we have started seeing those use cases flourish. in the end. So I am very happy about that. I think the prediction that I have for in 2020 is that we're just going to see another thousand of them. So we launched our going in late 2018 and now we have a thousand dows on main net. I think we're going to easily see another thousand, if not many, many more. So I'm looking forward to that. So there you have it. A thousand dows in 2019, a thousand dows or more in 2020. I certainly think that in some ways that's actually a safe prediction. I don't think there'll be any less attention or interest. I guess the bigger question for me is what they actually do and will within

all of these experimental use cases, there be one type of use case that really proves itself as the big opportunity. I think that any time, obviously, you start to deal with trying to herd cats, i.e. coordinate people, especially when you're coordinating people around money, and you're trying to coordinate around making decisions about money, it's an immensely complex affair. And I think that Dow's need to still be in this category of experimental. But I do think that in the same way that we saw, I believe, defy split off in a lot of ways from many other aspects of the crypto industry to really be its own sub-industry, its own phenomenon, its own community, its own set of unique challenges and opportunities that are, if related in some way,

basically fundamentally different than the world of Bitcoin and money. I think that Daos might be, or at least have the potential in this year, to carve out a similar fundamentally differentiated space. I think this is what it looks like to see the quote unquote crypto industry mature. People are finding their way to the part of the industry that makes the most sense to them. And often it's for very different purposes and very different outcomes. And in fact, by the time they land where they want to be, it is so fundamentally a field from, other things that people call crypto or label as the same industry, that it's hard for them to abide by that label anymore. I don't know if DAOs are going to get there in 2020, but I certainly

think that among the emergent phenomenon, it has to be seen as one of the most interesting experiments that has the potential to really grow into something much more significant that it is today. It's hard for me to imagine that over the next decade, we won't fundamentally change the way that we organize. I think that organizational structure and institutional structures lag from the way that people communicate and coordinate already. And I think that they're at their breaking point in a pretty fundamental way. And maybe DAWS are part of the way that that changes. Maybe it's something else after DAWS.

Either way, I think it's fascinating. I hope you enjoyed this conversation. I hope you enjoyed hearing from Aragon. So that is narrative watch. That is the breakdown for today. We'll be back for a recap of the week in a normal breakdown episode tomorrow. But until then, thanks for listening. And I will catch you soon.