How blockchain solves the problem with corporations
DNA Chairman Scott Walker explains the inherent flaw in corporations and why he believes in the blockchain and decentralized applications
This is part of “The DNA of DNA” series where members of the DNA team explain their vision for DNA, the world’s premiere crypto venture fund, and blockchain. Stay in touch with DNA on Telegram or subscribe to our newsletter.
The problem with corporations
My experience in business is very simple. I’ve been investing in and operating my own companies for over 20 years. And the goal of a corporation is very simple; A corporation is designed to extract the maximum amount of profit to enrich the shareholders. And that’s all it really does.
And when you have an organization who’s goal is nothing more than extracting the maximum value for shareholders, problems develop like the ones we’ve seen with Facebook. A cool thing that was built for people to connect has kind of become an evil thing because their goal was strictly to enrich shareholders as much as possible. That’s actually the charter of almost every corporation on earth. Enrich shareholders at all costs.
When you have an organization who’s goal is nothing more than extracting the maximum value for shareholders, problems develop.
I’ve done that my whole life. Then I recognized that, by it’s very nature, a true blockchain is decentralized. If it’s not decentralized, it’s a database run by a corporation. And that really has nothing to do with what we’re about at DNA.
A system of conflict
Think about how a corporation is structured: You have the corporation itself, the shareholders of the corporation, the employees of the corporation, and the customers who stay there as guests. So, if the corporation is a hotel chain, say Holiday Inn Hotels, Holiday Inn Hotels is the corporation, the shareholders own the corporation, the employees run the operation, and the customers stay at the Holiday Inn Hotels.
However, every one of those groups are basically at odds with one another. The shareholders of the corporation, if given the choice, would fire all of the employees if that would increase corporate profits. So there’s an inherent conflict between shareholders and employees. And the more you pay employees, the less profits there are for the shareholders. Then you have customers. Shareholders want a customer to pay the most possible money, no matter what.
Everyone has competing interests. The shareholder isn’t looking out necessarily for the best interest of the customer or the employee. The employee is not looking out for the best interest of the customer.
And the customer dreams of a free hotel room. They don’t want to pay anything. They want the biggest rooms for the least amount of money. And they’ll come up with creative ways to try and fool an employee into giving them the best room that they possibly can for the least amount of money. So the customer is not incentivized to do what’s in the best interest of the employee or the corporation.
In every direction, the employees and customers and shareholders are at odds with each other. It’s a system based on conflict. And there’s an inherent conflict in all corporate structures between employees, shareholders, and customers.
There’s an inherent conflict in all corporate structures between employees, shareholders, and customers.
Blockchain to the rescue
Now instead of that system of conflict, visualize a blockchain startup called Blockchain Hotel World where customers, employees, and stakeholders are all incentivized with the same mechanism “tokens.” This is what we are seeing with Bitcoin, Ethereum, and other decentralized protocols.
With blockchain, customers, employees, and stakeholders are all incentivized with the same mechanism “tokens.”
Or take a company like Uber. You have those exact same conflicts. The customer wants to ride in the car for free, the driver wants to charge as much as possible, and Uber wants to eliminate the driver and keep all the profits for themselves.
But if we take that and spin it into a blockchain, we’ll write a smart contract. That smart contract is going to match up the customer with the driver. Whatever fee that’s agreed on for that particular ride is going to not be done for the profits of the shareholders of the corporation, it’s literally going to be for the user and the driver. Plus, everyone involved is incentivized by the value of the token used in that ecosystem. The coders who wrote the software, the drivers, the passengers, the mechanics — they are all incentivized by the value of that token.
The result is an inherently better system where everybody is incentivized in the same direction. “I’m going to tell my friends about it because if they use it, that means more people buying those tokens. That will increase the value of those tokens. I’m going to become more of a value add instead of simply trying to capture value for myself.”
The result is an inherently better system where everybody is incentivized in the same direction.
That’s why I believe in the blockchain and decentralized applications.
Finding the diamonds in the rough
At DNA, I help identify portfolio companies that are good investment candidates. I work with those portfolio companies to help them structure their token economics. My experience in the space is really helping teams come up with ways to build the decentralized structures for their businesses. Often, that means taking an existing centralized idea for business and envisioning how you can make that a decentralized community or entity. I like to look at it as changing the vision of entrepreneurs from that of a for-profit corporation to a decentralized organization where everybody in the organization is incentivized in the same way.
I like to look at it as changing the vision of entrepreneurs from that of a for-profit corporation to a decentralized organization where everybody in the organization is incentivized in the same way.
What I look for in portfolio companies
We’re very big believers in protocol layer companies. Naturally, the protocol layers know where much of the value is being captured. But we’re also very excited about interesting new technologies and decentralized applications that will lead to massive consumer adoptions. We’re big believers in protocols that can lead to competitors to Ethereum, like EOS.
And of course, there’s also the decentralized applications themselves. We like to look for what we call a lighthouse (i.e. some type of a massive, unfair advantage).
Also, some of the greatest experiences in my life involved getting an idea for a company and finding some business partners and early employees that share the vision. We created something out of what used to be nothing. It started as an idea and that idea turned into desks, chairs, and people. And the next thing you know, you’ve got an entire business wrapped around this idea. It’s a really cool feeling. I get a kick out of watching teams do that.
Some of the greatest experiences in my life involved getting an idea for a company and finding some business partners and early employees that share the vision. We created something out of what used to be nothing…I get a kick out of watching teams do that.
I like to see a team built from the ground up. Basically, they start as friends, they share the same vision, and they’re passionate about their goals. I love it when you see a team of 3, 10, or even 20 people all kind of working together, in sync, as friends.
My vision for the DNA team
At DNA, we believe that community is more important than short term profits. We believe that a successful project with a massive community has more value than an old-school corporation that merely earns profit.
We believe that a successful project with a massive community has more value than an old-school corporation that merely earns profit.
If you show me a company that makes widgets and sells them at a profit, I’ll be intrigued. But if you show me another company that’s created a strong community, whether it’s building widgets or doing something different, I’m definitely going to look to invest and partner and become as close to it as I can.
If you look at DNA compared to an old-school investment bank like Morgan Stanley or Goldman Sachs, I think we’re much bigger believers in community than we are in profit motive. And that’s not to say that building a large community around an enterprise, especially if you centralize that enterprise, isn’t going to be profitable. We believe that it will.
The DNA culture
The culture of DNA is based on the vision of Brock Pierce and myself and our faith that decentralized organizations are going to change the world. We believe every company on earth is going to wind up with a token. And each one will produce some kind of a solution around blockchains. Whether they’re using their own or creating something on top of an existing blockchain. We believe blockchain and decentralized organizations are the future. And we love the way that DNA is involved in that.
We believe every company on earth is going to wind up with a token.
DNA was started by Brock and myself. We’ve been around since the beginning. We launched the first ICO the world had ever seen, called MasterCoin, in 2013. We’ve been actively involved in creating things like Blockchain Capital, one of the first venture funds focused strictly on investing in blockchain startups. We probably have more experience and success than any other company in the space.
And when you look at the $9B+ dollars that have been raised in the ICO Market, the DNA partners and team have been actively invested co-founders or advisors to almost 60% of every dollar raised there in the last 2.5 years. That is a remarkable accomplishment. I think we lapped the field in terms of that experience. So, I think that’s our biggest differentiator.
When you look at the $9B+ dollars that have been raised in the ICO Market, the DNA partners and team have been actively invested co-founders or advisors to almost 60% of every dollar raised there in the last 2.5 years.
I believe that DNA will be the premier investment and consulting firm for decentralized companies. I think we’ll have a portfolio of some of the best and brightest companies in the world. And I’m hopeful that we’ll be continuing to work with exciting new technologies through our consulting division.
