TL;DR: blockchains offer the potential to align incentives and activities to coordinate large-scale group activities at far lower costs than traditional firms. The market is heating up and I like DAOStack’s vision (disclosure: advisor).
Let’s get the hard part out of the way first. I’m an advisor to DAOStack.
Reason #1: The Opportunity- “Decentralized ERP”
Over a year ago, I wrote about Decentralization and the End of Employees. At that point, I didn’t really know much about the emerging DAO (Decentralized Autonomous Organization) market other than the fiasco that was “The DAO” (talk about tough branding challenges).
Since then, I’ve gone in pretty deep to explain the concepts of a DAO and key players like Aragon, Colony, and District0x.
Quoting myself
DAOs solve some pretty interesting problems. In today’s centralized organizations, it is difficult and expensive to get large groups of people to work well together to complete a task. Traditionally, only governments, the military, and global corporations have the money, people, and infrastructure to take on huge projects.
Numerous studies explain the various challenges of coordinating large groups. These include motivation cost (aka “social loafing”), relational loss (you feel less connected), and coordination cost (keeping three people up to speed is a lot cheaper than keeping 3,000 people up to speed).
DAO platforms promise to reduce these costs by enabling the coordination of ever more complex activities among participants. In so doing, they could erode the competitive advantage of a traditional, hierarchical, centralized organization.
DAOs work by turning the current rules that govern businesses into software code, reducing friction in operation. Even better, because they are software, they can be upgraded, modified, and instituted much faster and at lower cost than a traditional reorganization or restructuring.
I often call this market “decentralized ERP” or “decentralized SAP because they will challenge the value that is currently locked in the back-office coordination systems that are omni-present throughout the centralized world.
This is at least a $300 billion market, probably more.
Reason #2: The Team
Nothing happens without a great team behind it and, so far, I have been very impressed with the quality of the folks in the DAOStack project.
Lets’ start with how I met the founder, Matan Field, because it goes to the quality of the advisors (myself excluded, of course) who surround this project.
I was introduced to Matan by Primavera de Filippi, a world-renowned thought-leader on blockchains and decentralization, and a permanent researcher at the Berkman-Klein Center of Harvard. Primavera authored one of the best entries to Blockchains in the Mainstream and her TEDx talk has been viewed over 20k times. Her thinking has informed my own about as much as anyone else in the world.
Primavera and Matan had collaboraed on Backfeed, a pre-cursor to DAOStack, where you can see the origins of the idea. Matan, himself, had launched LaZooz which is basically a decentralized Uber and while it doesn’t have global traction, what you can see in it is a guy who “gets” crypto and decentralization at a very high level and has done so for a while now.
The reason he “gets” it is because he is a Ph.D. in Theoretical and Mathematical Physics which covers things like string theory (whatever that is, right?) The key takeaway is that Matan understands how particles interact with each other, how the rules that govern their interactions can have unintended consequences, and how to think at a very granular, component-based level. You will see how this plays out in the tech section. To get a sense of Matan’s vision, you can look at his presentation from ETHDenver or his AMA session.
Another world-class advisor they have is Jordan Greenhall who, in addition to being a Harvard Law grad, made significant contributions at MP3.com (we forget how big a deal that way) and DIVX. I watched this interview/presentation by Jordan about his involvement with DAOStack and was blown away by the level at which he thinks.
I could go on. Adam Levi, the CTO, wrote one of the best pieces I have ever read about the death of fiat and the future of crypto, which inspired this blog post on Bitcoin as a trojan horse and Josh and Nathalia are the kinds of passionate, dedicated community and marketing leads that a project needs to be successful.
Reason#3: Technology
This is where you start to see Matan’s vision come to fruition.
I highly recommend you read the whitepaper, but what they are doing is abstracting the different layers of governance into modules so that organization-building becomes “plug and play.”
Matan will often say that DAOStack is “WordPress for DAOs” meaning that you will have a set of reusable components that you can use to form your new organization.
At the base layer, you have Arc which is basically an operating system for decentralized organizations. The next layer, the ArcHives, is a set of modules that you can use to create the type of organization you want replete with the type of incentives you want to align the community so that individual benefits and organizational growth work in concert with each other.
Say, for example, you want an organization that has 11 representatives who must compete for the the votes of all of the other members of the community to be a “council.” Those 11 people could be the ultimate decision makers on the direction of the organization. However, if you don’t like how your representative is voting, you can remove your vote and assign it to another person. If enough people do that, the council member is replaced by an alternative, in real-time with limited friction. Better than waiting 4 years or 2 years or whatever.
Alternatively, say you want an organization that takes a random sample of people from the community for each vote and polls them on what to do, kind of like the way ancient Athens used to operate, you could do that as well.
The point is, anyone can create a governance structure that defines rules for how a decision is made and then you, as the innovator, can pick the one you like–or create your own, but the set up is ridiculously cheap…which spurs innovation.
Then, another layer, Arc.js, exists for developers to create applications that leverage these rules and finally Alchemy, which enables community members to interact with the organization, performing tasks and submitting proposals.
This type of flexibility is going to allow organizations to experiment with the best set of components to both meet their needs and deliver value to their members and customers.
And here’s the Easter Egg of this post….the first DAO is expected to go live on the Ethereum mainnet in Q2 of this year.
Many experts in the field (and I don’t dismiss them lightly) think that “the tech is immature” and they may very well be right, but if there’s one thing I have learned in crypto over the past year is “don’t underestimate the speed at which things will happen.”
Reason #4: The Token (GEN)
One part of the economy includes the fact that every time a module is used or installed (in the same way that you might pay for a WordPress plug-in today) you would send a small payment to the creator of the module. So, you are better off because you can use “off-the-shelf” organization building components and developers have an incentive to build customizable modules since they will get a recurring revenue payment stream (in the protocol’s native token, GEN).
Having a GEN token does more than give you the ability to buy components, it gives you the right to vote on the direction of the protocol itself. After all, the more your organization depends on DAOStack, the more say you should have in the future development.
But wait, there’s more. It also gives you the right to submit proposals for how you can contribute value back to the eco-system.
What is potentially very neat about the token economics is that as DAOs on the platform are configured, they connect with each other. What this means is that it’s not just network effects that kick in, it’s “networks of network effects.” To leverage the components from other members of the eco-system, you’ll need GEN tokens. It’s as if everyone who wanted to use WordPress plug-ins needed a WordPress token to buy them. (Come to think of it, they should do that)
If you look at their site, you’ll see that DAOStack is integrating with some high-profile projects such as Gnosis and Endor, which is a nice validation of their vision.
Reason #5: Governance
This part should probably be reason #1 because it’s the most important, but it’s here because it’s one of the toughest concepts to understand (for me, as well, so don’t worry!).
DAOStack is really the only platform out there (as far as I can tell) that is built from the ground-up with an architectural vision to support large-scale decentralized decision-making.
The key thing that you have to understand about the innovation of this approach is that it is trying to find the balance between two competing parameters.
Scale– how many decisions can be made
Resilience– how decentralized the organization is so that the “tyranny of the majority” is prevented
If you have a decentralized network, it is very resilient and protects individuals but coordinating people using only influence and no authority is time-consuming and expensive.
Large organizations can make a lot of decisions and execute effectively, but traditionally, there has been a hierarchy, chain of command, decision criteria, and ultimately, it all rolls up to one person (President, King/Queen, General, CEO, etc.)
How do you both?
Let’s pull the transcript from Matan’s recent Ask-Me-Anything (AMA) on the topic.
ANY decentralized governance system (DGS) has a real, inevitable tension between scale (number of decisions to process at a given time) and resilience (decisions are made in line with majority “truth”/will, as weighted by voting power).
To solve for scale a DGS has to allow for decisions to be obtained without ABSOLUTE majority, where absolute means with regard to all voting power (rather than with regard only to those who voted — called relative majority).
But to maintain resilience, those “edge decisions” must be GUARANTEED to be in line with the majority.
We call this effect “holographic consensus”, where under some special conditions any decision obtained, by arbitrarily small group, would reflect perfectly the opinion and knowledge of the majority.
This resembles the effect of a hologram, wherein every piece of the hologram actually contains the information of the entire image.
allow some decisions to be obtained via relative majority, without any quorum needed;
protect the collective attention by limiting the number of those proposals;
make this protection dynamic (so that more proposals can penetrate the collective attention if there’s more security in place; and vice versa, drive more security when more proposals penetrate the collective attention);
filter those proposals that have good odds to be approved;
crypto-economically monetize and incentivize for the finding and signaling of mismatches between active proposals status quo and the DAO predicted truth (the would-be decision once everyone look at it). This would be the critical element.
Yeah, it’s a lot, but this stuff IS doable in a blockchain-based world. These types of organizations, in my opinion, are inevitable and these are exactly the types of questions that have to be answered.
It’s a DAO future, we’re all just living in it
I get the fact that this stuff seems super sci-fi and futuristic and I will admit that I don’t fully understand it all, but conceptually it makes a ton of sense to me.
More importantly, by incentivizing collaboration at large scale, we have the opportunity to create a future where people aren’t competing for resources in a dog-eat-dog world, but instead cooperating to achieve desirable community outcomes while simultaneously raising the standard of living for individuals.
DISCLAIMER: this is NOT investment advice. You should review any and all crypto startups seriously and recognize that they are all high risk.