research

The Role of DAOs in Web3

research

The Role of DAOs in Web3

March 2020

Posted by

Lawrence Lundy

Member

He informs technology policy as an advisor to the OECD Blockchain Advisory Group, a Fellow at the WEF Centre for the Fourth Industrial Revolution, and an Expert Advisor to the UK All Party Parliamentary Group (APPG) on Blockchain. He contributed to the UK Cryptoasset Taskforce led by HM Treasury, FCA and Bank of England and the UK National Data Strategy led by the Department for Digital, Culture Media & Sport. He has authored over 20 papers on the impact of emerging technologies like AI and blockchains on the economy. He is a regular speaker on the technology industry and has been quoted in the BBC, Bloomberg, The Economist, and The Wall Street Journal, and presented at over 20 events and universities including MIT, Imperial College London, and Cambridge University....read more

It is hard to think about anything but Covid-19 at the moment. The scale of the devastation is only just becoming clear to millions of people around the World. I have nothing valuable to add to the conversation and in fact, any contribution would almost certainly be ill-informed and wrong.

However, with millions of people WFH looking for distractions, maybe 850 words on the role of DAOs in Web3? Well then, here you are.

The key theme of Web3 is peer-to-peer trust. Web3 offers the building blocks for trusted peer-to-peer interactions. So the obvious next question is under which organisation form these peer-to-peer interactions will take place?

In the past, it was like this

The limited liability company is a legal form that has come to dominate global business since the 1850s. This legal invention is a product of its time. Specifically, in 1811, to incentivise the production of local textiles and useful goods in New York because of the trade war with the U.K. and France. The New York Legislature needed to scale up domestic production as quickly as possible and made it easier to form and fund a business by limiting the liability of investors. Investors weren’t on the hook for when the company bankruptcy. It worked. Just seven years later, in 1818, one hundred and twenty-nine manufacturing firms had incorporated in New York. General limited liability took off after the Limited Liability Act of 1855 by in the U.K; the goal was the same: encourage investors to finance new companies. This drive to promote private financing led to further laws like the unrestricted transfer of shares, primary and secondary share markets, as well as tax breaks. The tension for the Government is how to ensure responsible company financing in the face of limited liability.

Then something happened 

“One of the big questions for the next decade is: how should we govern the large new digital communities that the Internet has enabled? Platforms like Facebook have to make tradeoffs on social values we all hold dear — like between free expression and safety, or between privacy and law enforcement, or between creating open systems and locking down data and access. It’s rare that there’s ever a clear “right” answer, and in many cases, it’s as important that the decisions are made in a way that feels legitimate to the community. From this perspective, I don’t think private companies should be making so many important decisions that touch on fundamental democratic values.” Mark Zuckerberg

Mark Zuckerberg is suggesting that private companies have got too big and infringing on the role of The State. Is the limited-liability joint-stock company the right corporate structure for digital platforms used by billions of people? Digital services, especially social media and Internet search, are now public services run by private companies with very little regulation. As more of our lives move online to be supercharged by AR and VR, how can we ensure corporate structures have legitimacy and strike a balance between universal access and profit maximisation?

So the future might be like this

We now have a new invention, the decentralised autonomous organisation. I’m not convinced that a collection of smart contracts running on a blockchain-based network will replace the limited liability company in its entirety. But at the core of the DAO model are two things:

  1. Anyone can contribute and be rewarded based on resource contribution (money, time, expertise, etc.) (regulation notwithstanding)
  2. Anyone can vote and influence the resource allocation process

Just like the invention of limited liability, the DAO could encourage company formation and financing by making it easier and cheaper to start a company and get funding. The DAO solves for the flaw in the joint-stock limited liability company whereby only a few people can buy shares and get rewarded in the form of dividends, but more importantly, take decisions that impact billions of users. Users of the network contribute all of the value but get no reward. Nor do they have a say in how the network is run.

DAOs are the antithesis of Big Tech today, in which founders have full control, arguably with some accountability from activist investors and board members. But this is a small group of people who collectively decide what we read, watch, listen to and therefore over time, believe. The DAO is transparent and open; users decide on the allocation of resources. There is a lot of work to be done on exactly how to organise DAOs to achieve optimal outcomes. Still, experiments abound with Aragon, Colony, DAOStack, MakerDAO, and MolochDAO amongst others. DAOs are bringing together engineers, economists, lawyers and governance experts to rethink the fundamentals of what organisation can be in a 2020 context.

I think DAOs will have the most significant impact in the short term as they become formalised as new productivity software. An Asana Board DAO where each completed task executes a smart contract to draw down a bounty, for example. As Web3 emerges, DAOs will become the de facto organisational structure; digital and global with broad-based governance. An organisational structure fit to support trusted peer-to-peer interactions.

Note – our accelerator program is accepting applications for our third cohort in Berlin. Apply here.

Thanks to Jack Laing of Pokt.Network for a recent discussion that helped inform this conversation. He curates a newsletter on all things governance-related. You should subscribe.

Posted by Lawrence Lundy - March 2020

March 2020

Posted by

Lawrence Lundy

Member

He informs technology policy as an advisor to the OECD Blockchain Advisory Group, a Fellow at the WEF Centre for the Fourth Industrial Revolution, and an Expert Advisor to the UK All Party Parliamentary Group (APPG) on Blockchain. He contributed to the UK Cryptoasset Taskforce led by HM Treasury, FCA and Bank of England and the UK National Data Strategy led by the Department for Digital, Culture Media & Sport. He has authored over 20 papers on the impact of emerging technologies like AI and blockchains on the economy. He is a regular speaker on the technology industry and has been quoted in the BBC, Bloomberg, The Economist, and The Wall Street Journal, and presented at over 20 events and universities including MIT, Imperial College London, and Cambridge University....read more