Labor-only Tokens for Decentralized Autonomous Companies

Companies, as we know them, have channeled human effort to achieve complex and long collective endeavors for centuries. However, it now seems possible that companies, as we know them, may not actually be the only (or the best) way to face these collective endeavors.

Decentralized Autonomous Organizations (DAOs) could represent better alternatives to attempt, and achieve, even larger and more complex ventures. If this is the case, DAOs will, nevertheless, need to find solutions to hard problems, problems that current companies already solved more or less efficiently.

Current companies

Originally, when people worked mostly by themselves, or in small groups, (the baker, the butcher, the blacksmith, etc), the value of the labor of each worker was almost directly given by the value of the products he produced, obtained as the result of a negotiation between the worker and its clients.

As the complexity of the work that was needed to obtain a given product increased, larger groups of people, and longer times, were also needed to produce it. Today, these groups are called companies, and can reach millions of people in size.

When workers are part of a company, the value of the labor of each worker is not directly given by the value of its products, as these are internal products that are “consumed” (without having to pay for them) by his coworkers and are combined and accumulated until the external product is obtained and sold to the client.

The value of the labor is, therefore, indirectly obtained as the result of two steps (actually two negotiations): the old “client-worker“ negotiation is now “client-company“, while a new “company-worker“ negotiation appears.
The “company-worker“ negotiation is settled at very sporadic occasions through the negotiation of the worker’s salary.

Finally, for all of this to function correctly, each company needs a set of owners (shareholders), whose contributions are fundamental for its success. These are:

  • Agency: Shareholders represent the interests of “the company” in the two negotiations mentioned above. They are also fundamental to take decisions on the long-term course of the company.
  • Stake: Shareholders should tend to take efficient decisions as, otherwise, they will suffer personal losses.
  • Value anticipation: Shareholders cover the current expenses of the workers (through the workers salary) with money they expect to gain in the future (this effectively works also as an insurance covering the worker against company failures).
  • Value accumulation: Shareholders concentrate the value accumulated from previous successes so that large and difficult ventures can be attempted.

Decentralized Autonomous Companies

DAOs will have to provide sounding solutions for the problems that current companies, with their “client-company-shareholder-worker” structure, already solve.

Improving the system described above is hard. It is this system the one that has permitted the achievement of huge enterprises which resulted in a radical improvement in the quality of life of, practically, everybody.

The first problem DAOs need to face is to find a way to value the labor made by its contributors, proportionally retributing those who devote time and effort for the organization.

Organization-specific token to measure the value of labor

Instead of following the same approach of companies (wages), DAOs could use a dedicated organization token to keep track of the value added by each contributor. These tokens would be used to buy organization internal products.

In this scenario, the old “company-worker” wage negotiation, held in money, would be replaced by an “organization-contributor” negotiation held in tokens.

If these organization-specific tokens are only obtainable through contributions to the organization, and if they are not tradeable, they should tend to provide a good measure of the relative value added by each token holder to the organization.

Monetary profits of the organization, obtained by selling the external products could then be distributed, when they arrive, among token holders. If done correctly, the amount of money received by each contributor should end up being a good measurement of the value of its labor.

A few differences arises between this approach and that currently used by companies. One that should be mentioned is that the financial burden, usually created by labor costs, is excluded from the DAO financial needs, significantly alleviating them.

In a way, it’s like going back to the original way of measuring the value of labor, in which there is a direct link between the work performed and its value. Just that the work is valued in an organization-specific token.

Replacing the shareholder

With this organization-specific labor-valuing tokens in place, it’s now possible to review the contributions made by shareholders to companies, and to try to replace them in the framework of a DAO:

  • Agency: Without the shareholders, the contributors will need an efficient collective decision mechanism to solve the “agency” problem. It’s hard, but perhaps it could even outperform the shareholders, as more information would be available. Tokens could be used as weights for this voting mechanism.
  • Stake: Without a wage, workers will be the ones with stake in the company’s success. Moreover tokens could increase the commitment of the contributors to the organization success, exceeding the commitment now shown by workers to companies.
  • Value anticipation: This cannot be completely solved without an investor. However, since tokens should significantly alleviate the amount of financing needed, value anticipation would only be required to cover non-labor costs. Each worker would then have to finance him/herself until his contributions at one organization result in some income.
  • Value anticipation (insurance): Replacing shareholders money with tokens to pay for the internal products of the organization, effectively shifts the risk of failure from shareholders to workers. This is an issue. Workers could share and mitigate this risk by contributing to different organizations.
  • Value accumulation: Tokens are organization-specific, so they cannot be used to finance other ventures. This contribution, usually made by shareholders, remains unchanged. Nevertheless, for DAOs, and in combination of a collective decision mechanism, it may be possible that crowd funding initiatives prevail. Again, this would only be needed for non-labor costs.

This is what we are trying to do at www.collectiveone.org.