The Evolution of Cooperation: A DAO consulting and events ecosystem
DAOs, or Decentralized Autonomous Organizations, have stood at the edge of crypto-currency thinking, oscillating between two markedly contrasting representations of its practical implementation. First as the living embodiment of decentralized governance made possible by technology that makes achieving a consensus on the technical, monetary and fiscal policies of crypto-currencies possible (block size, inflation rate, transactions fees etc..). And conversely as a pipe dream of philosophers, economists and political scientist that rolls all in one a revolution in socio-political organization, the relations of production and the (self)-organization of labor within a generalized decentralized governance framework.
DAOs are organizations that are governed by a set of rules written in code and executed on a Blockchain, that can aggregate the preferences of different entities into a decision making process that is transparent and binding (within the code is law maxim and the boundaries of voluntary participation). The first such experiment named “The DAO” which raised 15% of all the ETH in existence during its ICO in 2016 and saw its funds siphoned by an attacker. Since then the word DAO has been associated with shaky foundations and hacking, despite the good will and great vision of its ideators and the necessity for its existence. The main weakness was in having its limited ability to improve the protocol in a democratic and swift manner.
We can also view permissionless public blockchains as already existing models of DAOs within a more limited set of actions: the manner in which the bitcoin core protocol upgrades (or forks) is the result of an integrated governance system that was developed through time with BIP adoption (one of Amir Taaki’s contributions to the ecosystem) and miner support signalling acting as technocratic and political battles whose result decides the protocols fate.
The end goal of the DAO space is the emergence of a new form of organization tailor made for the Information Age that is decentralized and adaptable yet resilient and scalable. In classical firms size allows for economies of scale and scope but there is a natural limit to it due to increasing costs of coordination (in Coase’s words the internalization benefits are lower then the contractual transaction costs, and in some cases lower then the marginal benefit of hiring one more person).
By lowering costs of coordination DAOs allow for productive organizations of a much larger scale. This re-organization of the productive processes and organization of labor fits within the Iconomy framework that incorporates Blockchain, tokenization and collective intelligence. (this concept can be compared to various theories such as Post-Fordism, Information Age, Knowledge Economy, 3rd/4th Industrial Revolution, Cognitive/Vectoral/Netarchical Capitalism etc..).
Despite past difficulties, new tools are emerging to enable what Vitalik Buterin has called a very underdeveloped aspect of cryptocurrency. DAOs could enable the practical implementation in code of the ideas of direct democracy and game theory such as in Ralph Merkle’s Futarchy. In this nascent ecosystem a few pioneers such Aragon, Colony, DAOstack, Democracy Earth and others stand out at the forefront of governance innovation.
One reason for the difficulty in “Getting to Denmark” (Fukuyama’s analogy for high levels of development caused by governance) by developing scalable, resilient, predictable and coercive (within the bounds of voluntary participation) institutions supported by crypto-currencies is inherent to the maturity of DLT and decentralized governance tools. Traditional models of governance have had thousands of years to evolve. Yet so have other cornerstone institutions like the concept of Money itself which today are being disrupted.
But DAOs in going from a narrow set of rules based on crypto-economic primitives to mapping a much larger action space are confronted with exponential complexity, both in setting the incentives and securing against multiple attack vectors. This is very neatly showcased by Elad Verbin’s chart !
Our ancestors delved into philosophical and practical experiments in governance and this generation is porting their ideas, good or bad, to new contexts, new frontiers of understanding. And in our quest for better and fairer governance we must use the best tools available to us.
So in the first part of our series on Decentralized Governance we shall zoom into one applicable use case, explain the reasoning behind it and propose first concrete steps.
Use Case 1: DAO/DAC Consulting Partnership
In the U.S one third of jobs are those of freelancers. As we move away from contracting via corporations or on top of tech platforms towards relations based on trust the economy will be increasingly powered not by your typical 20th century corporation or turn of the century start-up but by decentralized webs of collaborative productions. This will be a huge challenge to the areas of labor regulation, intellectual property and management theory. By endowing actors with skin in the game incentives at the organizational level via tokenization, we can also reduce systemic risks created and amplified by agency hazards.
At Horatii Partners we have been advising crypto-currency projects on blockchain architecture, token economics and ICO structuring, but as a founding team of two we have encountered difficulty on-boarding more clients while maintaining a high quality of service. This is also due to not being able to specialise as a small team. When expanding a business with a decentralized web of colleagues, advisors and projects it is particularly difficult to conform with a global nexus of regulation. Furthermore fixed salary costs must be considered when you are talking about a time investment that has an uncertain and relatively distant payoff as often is the cas when working with crypto-projects. It makes much more more sense to have a fair allocation of future proceeds based on the contributior’s added value. This could be done by way of a Decentralized Autonomous Corporation, a specific form of DAO.
Horatii+ will work as a DAO/DAC operating on DAOstack and/or Colony for budget and task allocation, reputation flow and rewarding contributions in future paid tokens by advised projects. This means that it is not only a decentralized corporation but also a growth network that acts as decentralized incubator, providing promising projects with an expanded community of collaborators working in a transparent manner.
In the case of a fiat retainer there would be a need for a traditional business structure for receiving and disbursing funds. A shareholder’s agreement could be made where the board decisions would be aligned with the attached DAOs collective decision thereby reducing trust risks.
There will be a mutually agreed success fee for on-boarding clients as well as a structure fee for Horatii DAO that will go towards reinvestment or dividends towards reputation and/or token holders (this mix is to be further discussed and subject to a vote). This will also serve to cover non crypto expenses (for example business flights and conferences) incurred by the real life structure.
The proposed organization would be analogous to a traditional legal and consulting partnership with founding partners followed by principals, associates and trainees.
Positions would be unlocked via a peer vote when sufficient reputation has been accrued. Trainees are not directly compensated but rather work on transversal research and documentation. Positions enable a different share in year end dividends and vote share in the DAO. This hybrid model also allows for compensation of external entities and partners when needed.
There will be a mechanism (through ETHlend for example) in order to allow partners or external creditors to finance expenses with a promise of interest on future revenue.
(side thought: Trent Mc Conaghy’s thoughts on the intersection of A.I and DAOs can guide us to a future where autonomous algorithms act as firm managers https://blog.bigchaindb.com/ai-daos-series2-3876510d6eb4 )
Consultants are usually despised as they take the positive payoffs of their advice while not feeling the pain of mistakes. This entire system also internalizes the pain of mistakes onto consultants by having an equal payoff curve as the entrepreneur: the token. By also having a distributed web of incubatees and consultants the system is also more resilient by balancing small costs and projects that didn’t pay off given the work invested and the occasional jackpot outcome. We must also keep in mind what it means when these tokens become tradable and thus risk transferable to other people.
Use Case 2: DAO Conference
“Seldom do businessmen of the same trade get together but that it results in some detriment to the general public” Adam Smith
A crucial aspect of the maturing ecosystem is the conference tour, with founders piling on miles for promotion and partnership making, as marketing exposure in the commonly held view correlates closely with valuation and by proxy with available budget and net worth (yet there has been no empirical study on the ROI of conference hopping). Not only are they a vehicle of monetary gain but also for identity and community building. According to Aristotle’s in the Nichomachean Ethics, the creation of currency in Ancient Greece was paramount in developing the idea of a polis and common citizenship. In more modern times Bitcoin and other cryptocurrencies are taking over the mantle of identity building, which often times results in petty tribalism. Key to bridging gaps in Athens was the Agora, locus of goods, peoples and ideas. So is today’s conference tour.
Beyond being an aggregation of speakers, the meeting between a person and a people some “magic” conferences somehow add up to being more then the sum of the parts. This begs the question of whether the output of purely contextual collaboration can be monetized, fairly distributed and enlarged thanks to blockhain? What if we view a conference as a living organism, analogous to an ecosystem, with members coming and leaving, investing and cashing out, based on the performance and output of the group? With tokenizing we can endow all stakeholders, not just organizers, but also speakers, hosts and sponsors, some degree of skin in the game. We can thus also determine a fair distribution of proceeds based on a fair valuation of contributions. This is also a very relevant discussion pertaining to other contextual happenings such as Hackathons.
In this quest we must ask ourselves what would be more attractive to the public and more efficiently managed: one off events or a “touring” band of speakers and organizers? How to combine the power and familiarity of the local with a worldwide decentralized web of actors and decision markers? How to best incentivize stakeholders? And what is the best mechanism design to ensure scalability as well as resilience?
Many theoretical questions permeate this discussion and so the only way forward is to start experimenting hands on, in other words : BUIDL!
The proposed form is that of the permissionless congress, a constituent assembly of experts in their subject manner, self-governed within the bounds of
What must DAO based conferences have (with today’s still immature tools):
- Collection of a secure treasury via crypto or fiat to crypto-bridges. This is a high point of failure due to attacks on funds. In some cases a hybrid DAO/foundation model could be used where the physical foundation would disburse funds on behalf of the decisions of the community (legal contract that is conditional on a smart contract’s or DAO’s output). There should also be a governance protocol for deciding the treasury’s balance in terms of percentage of each tokens and fiat currency.
- Budgeting allocation method and spending, with a democratic vote or multi-signature based disbursment of funds to various parties. In conferences some expenses are last minute and contingent on the physical space’s condition (for example buying extra paper cups and towels). One possible avenue could be to allow for delegated “budget lines” within certain financial and time limits to individuals who would then have discretionary power over the funds use.
- Proposition upload and adoption mechanism for example choosing between logos, locations, speakers. This would entail an on-chain democratic vote as found in all DAO protocols.
- Ability to compensate speakers, partners and receiving sponsoring and donations in both fiat and tokens.
- A way to deal with a DAO that would operate at scale, with thousands of agents making potentially millions of decisions, while simultaneously guaranteeing resilience (enough collective attention given to decisions). This could be provided by DAOstack’s Holographic Consensus that combines decision making with the power of predictive markets. https://www.youtube.com/watch?v=FwL7IYb6YiY
- A way to deal with confidentiality: the public nature of compensation for speakers or of sponsoring amounts by firms and individuals could be a cause ofshame and resentment or conversely rock-star status cementing. The present does not offer any solution to this but could come from the future use of secret smart contracts (zero knowledge proofs and secure computation) which would allow private bids, where contributions would not be shown but only the cleared or not status of the speakers. At the same time making this information be public would create a transparent TCR (token curated registry) of speaking and sponsoring fees.
- A contribution valuation engine will be necessary to rate peoples contributions and skills in order for them to earn a fair return on collaborative assets and efforts. (Aragon->Pando, Colony->Integrated). This can also include the reputation-weighted peer vote.
- A robust token economy that incentivises initiative taking and investment, by integrating a fair compensation of organisers and R.O.I for investors. For example a fixed supply of tokens for the DAO with a percent of proceeds being given back to token holders. This increases liquidity and investment attractiveness but leaves conference DAOs exposed to potential litigation by regulators as it would be considered a security token.
This is most of all a call to action to my fellow actors in the ecosystem and to the wider public in order to make this shared vision a reality sooner than later! In this view I am creating the following Telegram chat group for all those interested in discussing this in an open forum: https://t.me/joinchat/GCUN_RFh1LYIl_R0CE99RA
Thanks to Cem Dagdelen, Theodor Beutel, Erik Rodrigues and the DAOstack pollinators group for their feedback and Matan Field, Vincent L’Orphelin, Elad Verbin, Trent Mc Conaghy and the whole DAOscape for inspiration!
