What DAOs Teach Us

Don’t invest in something you don’t understand.

That’s one of the most enduring – and soundest –  investment principles.

Incomprehension has kept me sceptical of crypto currencies. So has a concern for energy conservation:  The Economist tells us Bitcoin uses more energy than Chile.

DAOs – Digital Autonomous Organisations – might be different,

Two words stand out for me in the descriptions of DAOs that I have read.

Both are appealing .

One is ‘collective’

The other  is decentralised.

Collective organisation

We need to find ways to empower people associated with complex organisations and systems to have a say.  Only last week I drew attention to Merryn Somerset Webb’s book ‘Share Power’. She shows how citizen investors might better influence the priorities of the  institutions which handle their savings.  

Are DAOs a way of giving people this say?

My nephew Bernard Goyder alerted me to one hopeful example.  (As well as being a talented musician, Bernard writes for Risk.net.) It’s from RA,co, a newsletter for people in electronic music, festivals, clubs and promoters.   

This world is dominated by offerings whose popularity is guaranteed. Those appealing to  minority interests get fewer invitations.  

Collectively-owned units known as Decentralized Autonomous Organisations (DAOs) are entering the nightlife realm by throwing their own parties, sourcing line-ups from members to better represent local talents, marginalised creatives and niche genres. These blockchain networks eventually want to operate their own venues, as gentrification and an overall increase in operating costs push independent bars, clubs and arts spaces out of business.

Decentralisation

DAOs are also enhancing decentralisation. Minority customers can shape their own programmes. Members suggest events and the  ‘core curation team’ can organise them with confidence in the level of demand.

SODAA is ‘a music and arts venue. funded and operated by its community, where every member is involved’:

‘Most venues operate in a hierarchical way which excludes the majority of the workforce from benefitting from their labour….Too much focus on DJs eclipses the importance of behind-the-scenes roles…By offering each member a voice in management decisions, autonomy in working practises and artistic curation, we want to position them at a more equal level.’

SODAA also aims to avoid the tyranny of the majority:

’…Plural voting allows voters to express the intensity of their preferences, allocating voice credits on things that matter to them….This way you get a more nuanced view of voters’ intentions and you also make sure that a less ‘popular’ notion or idea can still get enough votes to be implemented’.

The tribal crudity of the UK’s EU referendum decision suggests that there have to be better ways of reaching vital decisions in our democracy.

What about the business world? Last week Bloomberg columnist Matt Levine described a DAO as being like a corporation except that:

  1. Instead of having annual meetings with highly circumscribed ways for shareholders to submit non-binding proposals to management, the DAO has a continuous Discord chat where shareholders can submit proposals anytime they want, and the shareholder vote on those proposals is at least kind of binding on management.
  2. All the shareholders are really into crypto.

Levine explores tensions between DAOs and conventional shareholder law:  

A DAO can enter into a contract, meaning that the managers of its legal entity can sign a contract binding that legal entity to do something, and then someone in the Discord chat can say “nah I don’t like that contract,” and then the Discord chat can vote to reject it….Under traditional legal principles, if the officers of a legal entity sign a contract binding that legal entity to do something, a later vote by a Discord chat to reject the contract doesn’t carry much weight. But I think a lot of people who are really into crypto would disagree.

Perhaps this exposes the real fault line that separates DAOs from the conventional sphere of business contracts.

I put all this to a sophisticated developer and trader who knows the crypto world..

‘There is one thing that confuses me. I understand that to qualify as a DAO, an organisation’s structure and governance must exist on the blockchain.[i]

Could one have all the benefits of decentralisation and collective influence without all the nonsense of crypto currency?

His answer was, essentially, ‘No’, The innovation  that we have seen with DAOs has only happened thanks to ‘Code-as-Law’ a world with its own controls, but not subject to law or the established rules of the state. It is ‘censorship resistant’. Creative people can say and do wild things while still held accountable by the holders of tokens. Could I ever imagine a group of lawyers innovating like this? So to him it is all about crypto. A Wild West of creativity free from the shackles of legal compliance.  

Yet Bernard Goyder disagreed. He believes that  you can have the benefits of collective organization without needing to rely on crypto, just as you can have a co-op in something other than groceries. You need some kind of blockchain to manage the system, but that’s just a database structure. 

Surely this is worth a try. The pioneer who shows us how to have all the blockchain benefits of decentralisation and transparency without the dodgy downside of crypto currency transactions will deserve a Nobel Prize.

That could be a serious advance in improving governance and redressing inequality.

Mark Goyder is Founder of Tomorrow Company and Senior Advisor to the Board intelligence Think Tank. He is the author, with Ong Boon Hwee, of Entrusted –  Stewardship for Responsible Wealth Creation, published by World Scientific in 2020.


[i] For the uninitiated Blockchain is a type of shared database that differs from a typical database in the way that it stores information; blockchains store data in blocks that are then linked together via cryptography, in chronological order. Different types of information can be stored on a blockchain, but the most common use so far has been as a ledger for transactions. 

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