Buyer beware — when cooperative is used as an adjective, not a noun
As founder of one of the first #platformcoops, I’ve been deep in the trenches for years on topics of community ownership and governance. In recent months I’ve noticed a disturbing trend, which is either blatant and/or ignorant miss-use of the term “cooperative” in both the web3 and overall startup space.
But first, a few terms, in case you’re brand new to these topics…
Platformcoop — the idea that people should own the digital platforms they use, in the form of a legal entity known as “cooperative”.
Web3 —seeks the next version of the internet, in which Web 2.0 abuses from the dominant platforms (Facebook, Googletube, etc) is replaced with platforms based on new technologies. Originated in the blockchain space, but can also apply to data-ownership models like Solid or PolyPoly.
Cooperative — a legal entity in which an enterprise is collectively owned, managed and governed by its members.
DAOs — decentralized autonomous organizations evolved out of the blockchain space and are often used for governance (to varying degrees) of projects and communities.
Whales — token holders with powerfully large supplies.
And finally, for a little context… I dedicated years of unpaid labor in a streaming music coop that I only have a single share. Not saying this to toot my own horn, but simply as a proof of my dedication to the cooperative mission.
Now then, back to the main topic…
How Web3 projects are misusing the term “cooperative”
I’ve begun noticing an increasing number of Web3 projects, mostly in the blockchain space, that are using terms like “community owned” or “cooperative” to describe their protocols.
When examining whether this is true or not, one must do a bit of sleuthing to suss out if these are simply value-based words, or legal statements of fact.
The definition of cooperative varies depending on whether you are looking at it from the perspective of a cooperative enthusiast, a corporate lawyer, or a tax lawyer. A cooperative enthusiast would probably say that ANY organization that is committed to and practices cooperative principles is a cooperative. However, a corporate lawyer would probably say that a cooperative must be formed under a cooperative statute. And a tax lawyer would say it doesn’t matter what statute it’s formed under as long as it “operates cooperatively” as that term is defined in tax law.
It is clear that an organization may be formed under almost any kind of a state statute and still follow cooperative principles. However, most states have one or more statutes specifically designed for cooperatives. In many states, an organization that is not formed under a cooperative statute may not use the word cooperative in its name. [emphasis mine]
Based on this description, its quite possible that many Web3 projects are using the term “cooperative” as an adjective, simply describing their desire to work collaboratively with their membership, rather than in the legal sense as a noun describing an incorporated entity.
Why is this bad?
For many reasons, but top of the list is the potential for abuse and/or exploitation in various forms. Having a DAO where members vote on feature upgrades or earn tokens for participation is a long way off from the benefits real co-ops provide, such as being able to submit proposals that change bylaws, vote for new board members to serve the community, or equitably share in profits.
Put another way, I’ve seen the term “community owned protocol” when this is actually just a fancy term for being able to vote for features in their app, but has no meaningful impact on decision making on the corporate level, including who actually owns the service — the founders and investors.
Many, if not most, blockchain protocols have token distribution models where a massive chunk of the overall pool goes to founders and VCs, while the tokens distributed to members are so diluted as to have little meaning in the legal sense of “ownership”.
Some ways to suss this out… is there a board of directors? Do they say where they’re incorporated? Do they even list a business address? Do they link to their rule book, the governing document for the organization?
For blockchain related projects, another way of determining their status is whether they have traditional account administration (effectively including KYC — know your customer) or whether you interact anonymously with a crypto wallet. The distinction here is that real co-ops, governed by the laws in which the society is formed, require KYC in order to declare legal membership in the organization. Anonymous participation via wallets is a good sign that you’re an essentially invisible person on the internet, not an actual human being with legal rights. In these situations, you’re ownership and participation is only as real as the DAO smart contract it’s built on.
Silicon Valley “Cooperative” Whitewashing
For those around during “sharing economy” hype cycle in the early 2010s, most of us who were paying attention quickly realized that “sharing” actually meant “exploitation”. In fact, the gig economy that was born out of this era was a major influence in the rise of the #platformcoop movement.
And now we’re starting to see this in traditional startups shifting away from “sharing” to use of the word “cooperative”.
Found in an article in the Baffler, a company called Coop Commerce is taking this kind of blatant misrepresentation to new heights. (I found this so appalling that it led to writing this post.)
On their blog, they boast about a recent $5.8M seed round.
Let me make this clear… there isn’t a co-op on the planet that is raising money like this from VCs (venture capitalists). Why? Because real co-ops don’t have equity to sell. And equity (or massive token allocations in the blockchain space) is all that VCs want.
Honestly, I wouldn’t be surprised if this company has to rebrand soon, as they’re also blatantly ripping off the long-standing logo from the International Cooperative Alliance and for fucks sake, they actually refer to their company using the word “co-op” as if it’s theirs to own.
Shades of grey
While I can’t reconcile the above story as anything other than one more example in a long list of Silicon Valley profit seekers co-opting authentic movements, I’ll be the first to admit there are probably many shades of grey to the use of the “cooperative” word in the DAO space:
And this insightful reply from a cooperative legal expert:
Through this lens of understanding — that DAOs and coops are both words with various meanings — we can start to craft a framework of analysis, that will hopefully help folks navigate the wide range of participation opportunities on offer. Critically important as this movement is poised to explode and may in fact be key to humanity’s survival. (More on this in a future post.)
Questions to ask of any token-based system and/or community DAO
- Who actually owns the platform? Investors and founders? An elusive foundation that has no governance protocol? If legally based in the real-world, what is the entity, where is it based and what is that region’s definition of cooperative?
- If you’re voting, what are you voting for? Changing minor features in a service or do you and your colleagues have the ability to steer the ship in a different direction?
- If voting via tokens, what is the model? Token-weighted where whales have the ability to override the will of the larger community? (Of note is Ethereum founder Vitalik Buterin recently writing about his doubts about the limitations of token based voting systems.)
- Does the project encode its values in a manner similar to the 7 Cooperative Principles that have been adopted worldwide?
Optimism over all
I’m the first to acknowledge I can come across as quite pedantic at times. (A combination of being emotionally oriented + obsessed with justice = a recipe for annoying the f*** out of the people around me LOL.)
In reality I’m actually quite excited at what’s happening right now.
One major hope I have for the explosion of conversations linking coops and DAOs is that in many regions, spinning up a quick co-op is extremely difficult. In many cases the administrative burden leads to dramatically reducing resources that could be applied to more effect elsewhere. So I’m sincerely hoping that as this space evolves, we’ll find new ways of creating micro-organizations that adhere to the 7 Principles, while avoiding dealing with antiquated legal systems that may not even be necessary for their essential operations. (Granted that most of those laws exist to protect people from abuse, so that’s also an area that requires closely monitoring.)
Of course, there’s always room for evolution. While the A (autonomous) in the DAO space has some benefits (and perhaps necessity in some cases) I agree with Austin that a better phrasing would be…
After all… as humans we should aspire to be accountable to our fellow humans. Hyper-individualism has been a scourge for humanity, but with the on-going evolution of these new collective organizational forms, there is hope.