The buzz around cryptocurrencies and NFTs is partly rooted in the belief that they’re early manifestations of what people are calling Web3, a next phase of the internet based on blockchain technology.
While it’s still very early, decentralized autonomous organizations—known as DAOs—are one Web3 creation that has potentially interesting implications for how work and business are organized. To better understand why, we recently spoke with Aaron Wright, the chief executive of Tribute Labs, which provides support and infrastructure for DAOs, and a professor on leave from his post at Cardozo Law School in New York. Here is a transcript of our conversation, edited for clarity:
How could crypto potentially change our work and workplaces?
Blockchain technology is known today because of platforms like Bitcoin, which enable the peer-to-peer transfer of assets. On more advanced blockchains, like Ethereum, you can transfer assets, create other forms of assets, and also record votes as a point of coordination. These second-order technical characteristics are leading people to explore how to build flatter, more loose, and more flexible organizations to perform a whole bunch of different functions—whether that's working together to provide a service, working together to make a profit or a return on investment, or working together in different capacities—but doing so in a way that's a little less hierarchical than today's organizations (i.e. there's not necessarily a defined leadership team, a CEO, a board of directors, or other folks who are deputized to lead the organization).
They tend to be organized around particular topics. One way to think about this concept and the concepts referred to as a DAO, is almost like a message board, Facebook group, or a subreddit that has a bank account. People that are passionate about a particular topic get together, have a shared bank account where they can pool their resources, and work together for some productive purpose.
So a DAO is a replacement or an alternative to what we think of as a corporation today?
I don't think anything's binary. It's not like corporations will stop being useful in many settings, but DAOs are an alternative way to explore flatter organizational structures. DAOs hold out the promise of organizations that are not as centrally run and maintained, and that don't necessarily have folks that are working for them full time. They're ideally not really constrained by location. People who participate are scattered all across the globe and all interactions are digitally native, whether that's communication or how to work together, and that drills all the way down into how to get paid and how to pay others using digital assets, including cryptocurrencies. In many ways, it's a supplement [to corporations], but at the same time, it's the tip of the spear of what the future of organizations could look like—flatter, more flexible, a little less well defined, and digital first instead of a digital transformation.
Are there good examples of DAOs that demonstrate how this works and point to the potential as an alternative for business or work?
We're seeing DAOs emerge in three or four discrete categories or buckets.
One is people are forming DAOs to work together to support different open-source software projects. It's a modern riff on a software foundation, like the Linux Foundation, the Wikimedia Foundation, or other software foundations we've seen in the past where people that are interested in governing how that software works are able to do so in a very flexible way. That's usually the users of the platform, the creators of the platform, folks that may have supported the creation of the platform, or other folks that are just passionate about a particular project.
The second category is making investments together. Today, if you are trying to make an investment, you deputize an expert, a general partner or a set of general partners, and their associates to take your capital and generate a return for you. What we're seeing is that people are pooling their capital together and working together in a hive mind of sorts to make investment decisions. They're abstracting away the need to have a general partner, more actively managing their own assets, and leaning on a broader group of people to make decisions. It's like the wisdom of a smaller crowd instead of the wisdom of a broad crowd, which is pretty interesting.
There are services-based DAOs that are emerging. Some examples are DAOs that are formed to help people find software development work or other forms of work and services that they might provide. It acts as a unified brand in order to get work that you may be interested in doing on a more contract basis. It has echoes of platforms like Uber or other service-based platforms you saw in Web2, but at the same time, it's not run by a small group of executives and their investors. It's more like a co-op model.
We're also seeing DAOs being formed to purchase specific assets. For example, there's ConstitutionDAO, which was trying to obtain a copy of the Constitution. There's another one that's trying to purchase a golf course. It could be a sports team. People are trying to pool together capital in order to acquire something. That's another kind of DAO we're seeing.
Are services DAOs instructive for how workplaces could evolve?
I help support a network of 10 DAOs that are all, broadly, investment DAOs. What we're seeing is that the members of these DAOs who have put up their own capital have stopped working at their jobs. They were initially doing this part-time for one of their jobs. They're working for the DAO. They're helping to collect information and to push decisions along to help generate return for themselves and the other folks that are in the DAO, but they're not employed by the DAO. They're not employed by anybody. There's no contract—they can float in and out whenever they want. There's really nobody who they're accountable to.
Even though it's super fluid, it works. You want to take a three-month vacation and check out? Nobody is going to tell you you can't. If you want to lock back in and go nuts for a couple weeks working 80 to 100 hours, there's plenty of things that you can hop into on a voluntary basis. In my mind, that is actually what these DAOs may enable. It's very voluntary. Instead of being in a servitude-based relationship, like an employer-employee relationship, it's a much more voluntary relationship where you're providing the services when you want to provide the services, on your own time and without even the formality of different employment or independent contractor relationships being formed, which I think is pretty fascinating.
Given the nature of that relationship, how are people incentivized or compensated for working more or less, and how does the organization ensure that it has the staffing and focus to meet timelines on a project or commit to some business goal?
There's no additional compensation that's being provided outside of the shared interest in the pool of assets that's being generated. That's enough of an incentive to make this mechanic work. I don't know if that would work for all forms of work, but it's definitely manifesting in the investment outside. Instead of being hired by a fund to be a general partner and work full-time, people are doing it part-time or whenever they want. The returns are sufficient that they can support their lifestyle, so nothing more is needed. It's about the closest thing you get to unwork, or some futuristic concept like that. It's purely voluntary, no additional compensation is needed. It's aligning incentives and giving people the flexibility to share their input, knowledge, and wisdom when they feel like it. When you have a broad enough group of people that are aligned from an incentive perspective, that seems to work pretty well.
In that DAO context, is work different otherwise? Do you still have meetings with your collaborators? Does anything about the nature of the work itself change as well?
A little bit. It's more digital first, so there's more communication on things like Discord or other services in order to coordinate. There are also calls that we have for our DAOs, both across the DAO, if it's thinking about an investment opportunity, or within teams, if there's a team behind it. There are core things that people may be interested in, but it's all voluntary. People show up if they want. If they don't feel like it, they'll delegate the authority to attend to a third party. As a result, you have a mix of flexible conditions. It's all done without any video, which I think is also interesting.
No video is a big difference from most companies these days, given their reliance on Zoom...
It's taking the world where it is, which is global, remote, and a little bit more loosely coupled than I think we'd like to admit. With those assumptions, we're still making it work and kind of tapping into expertise not based in a major city or even in the US, but across the globe. Particularly for investments, a lot of our members are in countries that may not have access to the same amounts of capital we have in the US. Nevertheless, they're incredibly talented. They're either super forecasters or people that really have a feel for things. They just wouldn't get jobs at some of these institutions for a variety of reasons.
How does governance work? Does it use crypto tokens?
Not all DAOs have tokens. Some do. Oftentimes, it's based on either your ownership interest, which can be represented as a token. If you have 1% of the ownership interest in the DAO, you'll have 1% of the voting weight. But people are experimenting with lots of different forms of governance. I don't think there are any clear answers yet. At least in our DAOs, we operate via rough consensus. It's a little bit like blockchains or the internet itself. Instead of requiring quorums or a specified number of people to sign off, we just open up votes. If people are paying attention, they can weigh in. If more people want to move forward with a proposal than don't want to move forward with the proposal, it moves forward. There's a default to action, and it assumes that not everybody will be paying attention. You're trusting the will of the group to make good decisions.
How granular are the decisions being voted on, if you think about applying this to a workplace or an organization?
They're pretty granular. One DAO that we help support is called Flamingo DAO. It's been working with artists to help them sell their works through a platform that we call Flamingo Flutter. Members are weighing in on whether they want to work with specific artists and timelines for a whole bunch of different things, so it works with pretty fine-grained granularity.
What are the open questions or the weaknesses that need to be addressed for this to be more broadly available or utilized for organizing work?
We're in the top of the first inning when it comes to DAOs, so people are exploring the possibilities to create less hierarchical organizations that are flatter, more voluntary, and more participatory in nature. That's exciting, but there's still a lot of work that needs to be done on the tooling side. To your question on governance, people are experimenting with different means and modes of governance, but I don't think anybody has nailed that completely yet. I'm sure there's a lot to learn there. Then obviously, because it's involving crypto and blockchain technology, there are always lingering regulatory questions that limit the opportunity for growth.
Most people would love to work at their leisure for organizations that are doing things that they're passionate about on a part-time or full-time basis, depending on their interest—without the bureaucratic oversight that we have in today's working organizations. There are still questions about if you own an interest in an organization, what is that? What types of rules and regulations apply there, whether it's securities laws or something else? Those are still open questions.
So that would be a challenge if you had a profit-making organization where that's not resolved...
Yes. Most organizations are profit-making. It's not necessarily a bad thing, and if the profit is being distributed fairly to workers, you would think that people would be broadly supportive.
What is the state of regulation around this?
There's nothing precluding you from forming a DAO. You're pretty much forming a subspecies of a general partnership, or you can anchor it in a limited liability company. There are models that could be more not for profit, in terms of their structure. There's nothing in the US that precludes you from doing that when setting up an organization. It just limits the number of people that can participate and raises questions about what their interests are. Ultimately, courts and the SEC have to resolve some of these questions, and that just takes time. It's going to be a 10- to 20-year process, so lots of people are experimenting. I'm sure some people will push the envelope and operate in a gray area. That will hopefully create new boundaries and areas for clarification.
Work is how a lot of people get their healthcare and other related benefits. How would you think about that in the context of a DAO?
Depending on how the DAO is structured, there's nothing really precluding certain DAOs from providing benefits to its members, especially if they're anchored in a US legal entity. Partnerships would be able to do that, or an LLC would be able to do that. We've also seen the rise of early examples of organizations aiming to provide benefits to workers, akin to what we've seen with independent contractors, certain unions, or other structures that have provided benefits to members of the organization. We don't have a complete answer yet, but I imagine there are at least a couple paths to solving those questions in the
US workplaces are wrestling with inclusion and diversity. Given that crypto, at least historically, has been a more male area, what is the state of DAOs in those areas?
It's obviously going to depend on each DAO, and I'm sure many DAOs are sensitive to those issues, just like other organizations would be. I would say the one difference is that you don't have to ask anybody to join a lot of these DAOs. There's either a minimum capital contribution that you have to provide, or it's much more open-ended. You hop in to join and offer to help out. It's a little bit like a not for profit in the sense that you can just volunteer and help out. That could turn into earning more of a say in how the DAO operates or getting paid for your work etc. Since there's less gatekeepers on the way in, I'd imagine that in the long run, as the technology matures and the ecosystem goes more mainstream, it probably will not have to wrestle with the same questions to the same degree. There's nobody that's in charge to say, 'No, you can't do this. You can't join.'
Presumably if you pop in and join and offer to help out, then it's a vote or a decision of the DAO to offer you ownership for compensation for your work at some point?
It depends. People are exploring different models. In some, you have to provide a minimum amount of capital to join, and it's on a first-come-first-served basis. That's how our DAOs tend to operate. In others, you claim tokens and then participate, so there's a much smaller upfront cost. Others are a blend. Maybe you join, start offering to help out, and then you receive grants or allocations of digital assets to perform the work that you want to do. It's a little all over the map.
What is the best way to explain what the structure of a DAO is?
A subreddit with a bank account is probably the best way to describe it. It's the same core concept. People are interested in and passionate about a particular topic, and they work together with other people who are also passionate about the topic. At the same time, they have a core bank account to which interested people can contribute, and they can pool assets that they earn based on the services they provide. Oftentimes, they have a very democratic, participatory structure on top, like on Reddit, where people are voting or chatting about different things. Instead of shitposting and firing people up, which you see in message boards, you can actually do things that are more productive when you add in an economic incentive. You can say, 'Hey, let's spend this capital to support a member of our community who's doing a great thing' or 'Hey, let's grant this to a developer to build something that would enhance our community.'
And the reason that they use the blockchain is because that effectively provides the rules or the contracts governing the DAO?
It keeps the funds safe. You can use smart contracts to put the assets in a vault, and they'll stay there unless lots and lots of different people within the group want to move those assets out. Because of that, you can deposit assets and know that they're likely not going to get robbed by a malicious actor. It creates the thin layer of trust that you need to work together. That's one use of the blockchain. The second one is that it's great for voting. You can sign a transaction, basically like putting a pen to paper, but digitally. You can prove that people voted without fraud or other malicious activity, and that's also helpful too. With blockchain, you have pretty trustworthy voting mechanics and trustworthy mechanics around keeping assets safe. Those two pieces create the level of trust that allows you and me to work together on a topic we're both passionate about, even though we may have just met.
How does a DAO compare more specifically to a cooperative?
There are a lot of analogies to a cooperative, but even with co-ops, there tends to be a bit more centralized leadership. There will be a board that's in charge of the co-op. Usually, DAOs don't have boards. There's more of an emphasis on making sure that it's widely owned and that there isn't centralized leadership. Another way to describe it is that DAOs have more of a swarm-like structure than a hierarchical structure
At the same time, the US is the McDonald's of legal entities with its different forms of structures, so you can pick and choose different modes that may work for your organization. The shape of what these look like will probably borrow from things like co-ops, not-for-profits, or other organizations as they mature and take a more coherent form.
Are there reasons to believe that DAOs are fairer and/or that they produce better work than traditional structures?
Time will tell, but at least in the DAOs that we participate in and support, which are more focused on investment, it seems like you get better decision making by having a broader group of people that are aligned both financially and around a particular topic. People have been obsessed with this notion of the wisdom of crowds, but it may work better in these slightly smaller communities that are not open-ended crowds. Instead, groups of 50 to several thousand people may be able to make better decisions than experts, especially when they have a financial incentive to do so. There's ample evidence in the crypto ecosystem of that. Silicon Valley is the wonder of the world in many ways, but when it comes to crypto, it doesn't perform as well as it has in other sectors, in part because it's getting beat by the crowd.
A revelation during the pandemic is that people have worked multiple jobs, enabled by remote work. One thing that might attract people to DAO- type work is that it allows you to have multiple jobs...
...and be promiscuous with your work. We're definitely seeing that with the folks I was describing before, who have quit their jobs. Now they're providing their services to different DAOs full-time. They're pretty promiscuous with their work. They may be working for nine or 10 different DAOs and plug in on specific functions, which could be design, governance, or other areas of focus where they may have some expertise. It makes sense that people may like that, especially as we increasingly live in an economy that's hard to stay focused in. Lots of people have a hard time focused on one job for a while. They get bored. They're no longer challenged. With DAOs, they can plug in where they feel like they can add the most value. If you're a self motivator, then there's plenty of opportunities for you to hop in.
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