It’s been a while since I wrote the first Crypto Leftist Heuristics article – book promotion is taking more of my time than I naively thought it would! For this one I thought I’d focus on Decentralized Autonomous Organizations (DAOs) since I’ve had some conversations with some newbies recently to help them make sense of it. DAOs seem like one of the concepts that have most captured the imaginations of the more progressive-minded individuals who have taken a peek behind the veil of crypto and found something good in it. There are plenty of thinkers and researchers who have noted similarities between DAOs and democratically run organizations like cooperatives [1] [2], including myself.
While I agree that DAOs are one of the more interesting concepts the crypto world has to offer, there are plenty of misunderstandings around them, even among those I’ve met who work in a DAO themselves. This can lead to unrealistic expectations about DAOs which can then make people jaded about what they can and cannot do. So, I’ve wanted to write down these heuristics to help you identify the good, the bad, and the ugly about DAOs as I’ve seen them.
The definition of a DAO is always slippery because there is a contradiction in what the original term meant and what people are actually calling DAOs.
The original term for a DAO was actually Decentralized Autonomous Corporation (DAC), first used informally on online forums in the context of the potential to use blockchains to run automated businesses. That was until 2013 when Vitalik Buterin, co-founder of Bitcoin Magazine and Ethereum, proposed to use the term “organization” instead of “corporation” in order to not be pigeon-holed to one type of organization.
According to this paper by Samer Hassan and Primavera De Filippi,
“DACs were described as a new corporate governance form, using tokenised tradable shares as a means of providing dividends to shareholders. Such corporations were described as ‘incorruptible’, running ‘without any human involvement’ and with ‘publicly auditable’ bylaws as ‘open source software distributed across the computers of their stakeholders’ (S. Larimer, 2013). According to this definition, anyone could become a stakeholder in a DAC by simply ‘buying stock in the company or being paid in that stock to provide services for the company’. As a result, the owners of a DAC stock would be entitled to ‘a share of its profits, participation in its growth, and/or a say in how it is run’. (ibid). Such a definition reflects the maximalist view of many blockchain advocates considering that ‘DACs don’t need regulation’ because ‘you don’t want to regulate them, and happily you can’t.’”
Scouring the internet for more information on DAOs today you’ll likely see descriptions of them varying from “a DAO is a group chat with a joint bank account” to “a DAO requires on-chain voting through tokens” to “there’s always been DAOs throughout history and blockchain is not necessary”. While this can be frustrating to those trying to wrap their heads around them, this also means that there is an opening for us to define it ourselves. Empowering for some and daunting for others.
At the moment, an organization calling itself a DAO signals affiliation with crypto / web3 more so than saying anything about the organizational structure within it.
If you come across an organization with “DAO” attached to the end of it, this should not signal that the organization is either decentralized or autonomous based on how you would likely define those terms for yourself. I’ve met more than one DAO with only one member in it. That isn’t to say that there aren’t any decent examples of DAOs today but that there is still a need for you to do your due diligence. Many DAOs are seemingly permanently stuck in the process of “progressive decentralization”.
Be aware of decentralization and cooperative washing. Decentralized tech is not decentralized politics or organizing!
People are interested in DAOs in large part because DAOs represent the potential to decentralize the most centralized aspect of most people’s life– the need to go to work at a centrally owned and governed workplace. This combined with the libertarian origins has created some pretty weird claims by the elite class. In his book Blockchain Revolution, Canadian entrepreneur Don Tapscott asks the question, ‘Why do you need a $60 billion company called Uber?’ when most of the processes centralized by Uber could be automated, reducing the costs for upkeep of the platform and making it easier for drivers to create their own platforms? Reading between the lines, it seems strange for a capitalist to be advocating for essentially worker-owned platform cooperatives which they cannot profit from if the workers own them.
I have a lot of trouble with the term “decentralization” because it often doesn’t have much meaning behind it without context. What exactly are we decentralizing and how? It’s a kind of term thrown around for the reader to fill in the blanks of what they would ideally like the world to be – we all feel that we are trapped within a system which has centralized mechanisms that keep us within it and from keeping itself from being changed. I think this is why it isn’t hard to find that the majority of venture capital backed web3 startups claim to be “decentralized” when the only thing decentralized about them is the fact they use a blockchain’s technically decentralized infrastructure. They are, however, not owned in a decentralized way. Be vigilant about the DAOs that you wish to take part in and question these things from the start.
Free markets are not decentralized.
This one might be a spicy take for the more market oriented people out there, but adding a market based mechanism for allowing a liquid form of token ownership should not be the criterion by which we decide if something is decentralized or not. Markets under capitalism are essentially centralization machines for capital. Markets, even more so in crypto as the default, are generally a game of accumulation where accumulating becomes easier as you accumulate more. Earning 5% on one million yields significantly more than earning the same rate on one thousand. This is why we see “whales” (those with significantly more crypto wealth than everyone else) able to manipulate entire markets for themselves. Especially at this point, the crypto space needs different mechanisms to coordinate, maybe like solidarity primitives.
Know the difference between on and off-chain governance.
In order to have an organization you need to have a system of governance and different DAOs have different approaches to this. One of the main things to look out for and understand is whether the DAO is governing itself via off-chain mechanisms. Snapshot, for instance, allows you to sign a message for your vote, meaning you don’t pay for transaction fees vs. on-chain mechanisms (i.e., smart contract based governance) where you do need to pay a transaction fee in order to vote. This is not to say that either is better, but they have trade offs. Knowing the medium in which you are engaging in discrete governance decisions is important to understand, especially as a participant.
Off-chain governance mechanisms seem to make sense when there is some amount of trust involved, if the question being asked is to get an idea of the current feeling within the group, or if an on-chain equivalent would be too expensive or complex to administer. The potential downside is that those who actually have on-chain power of the DAO are able to not go through with the results of the vote, theoretically decreasing their legitimacy. On-chain governance puts the group’s feet to the fire as the result of the vote could be automatically executed depending on the design of the smart contract. This also means that a bug in the smart contract could lead to pretty bad situation if significant funds are involved as part of the proposal.
I hope these heuristics have helped you understand the concept and current existing reality of DAOs. As well I hope this helps those who may feel conflicted about these different organizational structures understand that joining a DAO and joining a union or cooperative are not mutually exclusive. If you want to learn more in depth about DAOs and how they relate to cooperatives and political theory in more detail, I may be terribly biased, but I’d recommend checking out my recent book Blockchain Radicals: How Capitalist Ruined Capitalist and How to Fix It. The book has plenty for those who are just starting out as well as those who are already deeply involved in the crypto ecosystem.
Or additionally if you want to go and start experiencing what is it like being in a DAO, check out TBS DAO, a DAO for patrons of the podcast who want to actively learn to use crypto tools for organizing. Membership to the DAO is for those who purchase the NFT subscription to the podcast which then gives you voting rights on what to do with a portion of the revenue and much more!
Very big thank you again to @MonolithBrah for helping edit this piece.
