“We are responsible to one another. And that responsibility is our freedom.”
Ursula Le Guin, The Dispossessed
The world is changed.
Time spent on the Internet is a predominant element of life. Individuals and organizations alike are staking claims to the “Metaverse” like some kind of technological Land Rush of 1889. One of the biggest companies on the planet is focused on immersing us even deeper into their programmed providence.
Social life is now defined in the digital world.
As we transition from the old to the new, from traditions of hierarchy and control to systems of open participation and coordination, we have an opportunity to reconsider and redefine the values we want imbued in our future. Thus, we must establish a foundation of collective social expectations on which to build our digital lives.
A new moral order.
Meanwhile, decentralized autonomous organizations (DAOs) have emerged as a key piece of Web 3 infrastructure. A novel way of allocating financial and human capital, DAOs promise a necessary divergence from today’s walled-gardens and rampant inequality. I believe that the way we define DAOs, their purpose and responsibilities, will greatly impact our future.
This essay is meant to be the beginning of a conversation - a necessary conversation to have with each other and ourselves during this period of rapid expansion, innovation, and monetization of Web 3. I do not intend to be prescriptive or all-encompassing in my analysis of the social life of DAOs, but rather serve as a springboard of contemplation and discussion.
It is long overdue for all of us to more consciously contribute to the production of our digital world. My desire is that we pause for a moment to think about the future we want to build, and the people we want to build it for, as we continue to shape our new reality.
The Promise of DAOs
Due to the combination of the Internet’s information abundance and the strong influence of network effects, scarce human attention naturally channels into the hands of a few actors. However, as the digital world increasingly dominates our lives, the current centralized power structure should not be allowed to continue.
The DAO model allows humans to freely self-organize over the Internet, financially and operationally, in order to achieve shared goals. By enabling a community of developers, users, and investors to direct collective capital and labor towards projects it believes in, as well as monetize and distribute the ensuing success, DAOs transform aggregated individual values into tangible outcomes.
Thus, the new trust environments of cryptoeconomic systems have unlocked the potential value of local participatory governance in the digital world. DAOs, as the primary organizational structure enabled by cryptocurrency and blockchain technology, leverage novel incentive mechanisms within well-defined community boundaries to combat the problem of voter apathy and the perception of meaningless participation. Members are more motivated to contribute due to financial compensation alongside the perceived social rewards, while the transparency enabled by such technology helps prevent manipulation, corruption, and self-dealing. These characteristics help promote local identity, pride, and focus, marking DAOs as more worthy of attention and creating the sense of an “imagined community.” And though not all DAOs will be value-added for society, this allows for civil debate and representation on the Internet, laying the foundations of digital citizenship.
The key difference between DAOs and traditional organizations is the emphasis on coordination over control. Through DAOs, individuals are free to form communities around their beliefs and values, enter and exit at will, and are incentivized to contribute.
In addition, due to the interoperability of blockchain-based applications, these communities can impact others in both a constructive and competitive way, resulting in the possibility of composable localism on the Internet - the ability of bounded digital communities to build and innovate with each other. This property of DAOs is essential to competing with the incumbent leviathans of human governance in the physical world (such as the State). DAO-enabled localism encourages the efficiency and dynamism seemingly lacking in meatspace, where composability is achieved via state-level governments wrapped inside a national government. As such, DAOs will be able to organize, change, and adapt at a pace that is more reflective of today’s problems, as well as displace some of our current structures of coordination.
I believe that DAOs can spark a revolutionary transformation towards a more open, inclusive digital society. However, since DAOs are an amalgamation of members’ diverse values executed by code, their foundation - the values of individual members - must promote a high level of social awareness and accountability. As these communities become more numerous and more powerful, DAOs have the opportunity, as well as the responsibility, to create a new socioeconomic system that benefits the widest set of people.
The Responsibility of DAOs
Currently, the majority of the Internet operates on modern day “digital serfdom.” That is, people who participate in and contribute to communities on the Internet do so on the digital property of a few entities. While these individuals create value for their digital lords, and may even receive some compensation for their work, they never have the chance to profit from that value accrual, or to influence the decisions made around the platform. In other words, they have no opportunity to accumulate capital or exercise governance power. Further, the fruits of their labor are hardly theirs, as these returns are generally correlated to follower counts and engagement not easily transported across different platforms. This has resulted in the emergence of digital rentiership, whereby the digital lords are capable of extracting value by virtue of their dominant ownership and control over assets.
DAOs can alter the course of digital history.
DAOs grant individuals the ability to both accumulate financial capital and own social capital on the Internet. This enables anyone to benefit from the upside of their work, as well as transfer their reputation freely between projects. And so it is the responsibility of DAOs to reduce digital rentiership and free the people from the chains of digital serfdom.
The following is an explanation of the three properties of a “responsible” DAO that I believe are crucial for this mission:
Transparency: Make decision-making processes and financial information easily available for all DAO and non-DAO actors.
This property of DAOs represents a true departure from traditional corporations and financial institutions, where decisions are not just made behind closed doors but remain obfuscated, and where financial information (of publicly traded companies) is only released quarterly. Blockchain-based applications and communities, on the other hand, share a common backend, which enables all motivated participants to view real-time transaction data. This also allows for radical accountability, with all decision makers being held responsible for their decisions.
One issue that remains is accessibility. DAOs must strive to make all available information accessible to build trust, lower barriers to entry, and reduce knowledge asymmetries. To this end, in a report about Uniswap’s off-chain governance processes, Other Internet reported: “Transparency is not as important as discoverability and accessibility…For decentralization to succeed, channels and opportunities to facilitate participation and share knowledge must be created, promoted, and actively maintained.” Transparency plus accessibility does not only enable real-time reporting, but can help motivate participation and generate bottoms-up governance leaders.
Minimal-Extraction: Distribute value to those who create it, allowing every contributor to share in a DAO’s success.
This comes from the concept presented by Chris Burniske regarding protocols extracting profits from the exchange they coordinate. However, in this context, a DAO should ensure that it extracts a minimal amount of the capital, both financial and social, produced by its members. This will help combat profligate digital rentiership - the excessive amount of money, reputation, and data extracted by powerful Internet platforms.
DAOs can and will be profit-seeking businesses, but they should not generate profit for the benefit of a narrow faction of stakeholders. Instead, they should open up the opportunities to share in DAO profits to all individuals productively adding to that profit. Paralleling Burniske’s argument, this does not mean that DAOs should capture minimal value. Rather, a DAO’s value will represent the sum total of all value owned by its participants, whether that value takes the form of a token or not. As a result, members are more free to enter and exit, and still retain the capital they produced while contributing to the DAO.
Diversity: Incorporate different perspectives to produce goods, services, and knowledge that encompasses as heterogenous a community as possible.
While this has obvious social benefits, in my opinion, this approach is key to how DAOs can overtake corporations as the dominant structure of organization of capital and labor. Traditional institutions are guarded silos of talent and information. As a result, their potential, as well as society’s potential, will always be capped. If DAOs commit to remaining open to the different ideas, beliefs, and values of all current and potential participants, they will inevitably drive greater innovation and growth. This entails allowing individuals to come and go as they please (no more being tied to digital land) and creating an environment where all points of view can be heard and considered.
However, as I have written about before, the decentralized governance processes of today’s early DAOs struggle to find the signal from the noise. With so many voices competing for attention, it can be difficult to address the most value-add contributions. And so, instead of opening access to everyone, DAOs should weigh reputation and effort, which are both important for value creation. Nevertheless, only by continuing to welcome and leverage the widest range of ideas available to them, will DAOs be able to create the greatest amount of utility for the most people and drive the most value for their participants and members.
Conclusion
The introduction of Web 3 - the model of collective ownership and local governance on the Internet - is our chance to start over. And not just with regards to web infrastructure. This is our chance to rethink and reshape the socioeconomic systems of our digital future.
Today, profits have become the sole focus of individual labor, coming at the expense of the critical issues facing humanity. This is short term thinking, as people chase the next earnings report or funding raise. The innovation of DAOs provides an opportunity to completely change the way we define and monetize success, allowing us to think more long term. DAOs are a flexible platform to express ideas, network with similar-minded people, and organize around beliefs and values. And while profit-seeking can be used as motivation, it is my hope that other incentive structures, and other ideas of worth, will garner greater significance.
In his landmark study of opportunism and restraint on Wall Street, Mitchel Abolafia argues that human nature is context dependent. While it is true that human beings are all susceptible to economic self-interest, Abolafia states, “How self-interest is translated in particular situations is a product of social interaction and the context in which it occurs.” Abolafia proves that social controls, such as reputation networks, norms, and values can inhibit completely self-interested acts. I believe that it is possible to change the ways decisions are made, humans are organized, and social prosperity is achieved, by relying more on social pressures rather than financial incentives.
If DAOs, and crypto as a whole, are to champion a new socioeconomic system, we need to design and support alternative “levers of influence” - mechanisms that help shape human behavior. Rather than governance that relies on hierarchy and power, leverage a bottoms-up community; augment purely financial incentives with social reputation. The goal is to create an open system for everyone to contribute and build wealth - a system that relies upon the collective intelligence of a diverse set of stakeholders. In order to do that, we need to build DAOs on the principles of transparency, minimal-extraction, and diversity.
The digital world is still very young and we are still trying to figure out how to best act within it. Let us not waste this opportunity. In the end, we are responsible for each other, but we can use that responsibility in order to solve problems, address opportunities, and create a future that is truly free.