By Jeremy Epstein for Venture Beat
Back in May, I wrote about the concept of DAOs, decentralized autonomous organizations capable of running themselves thanks to blockchain technology — no CEO or C-Suite needed. At the time I was writing, there were a few people in the blockchain community testing out the idea but no strong efforts underway. That was six months ago.
As anyone in the crypto space will tell you, six months is a really long time. Today, a market for DAO platforms is emerging, complete with teams, funding, development, and initial implementations.
This is a category worth paying close attention to because it represents the much larger, more powerful shift that blockchains enable. The Bitcoin and alt-coin bull market are fun to watch, but it’s the new business models — and even societal models — that crypto enables that will be the real disruption.
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. Traditionlly, 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.
The reduced coordination costs will have two sets of implications.
First, they will enable an entirely new set of “blockchain-native” organizations to emerge that have a cost structure advantage over traditional, centralized organizations.
Second, they could eventually disrupt the $42 billion enterprise resource planning (ERP) industry, where giants like SAP (20 percent), Oracle (13.9 percent) and Microsoft (9.4 percent) reign supreme, and disintermediate other markets, including lawyers and accountants who are normally involved in a corporate setup process.
A startup might normally need days or week to draft legal documents, assign option or share ownership, begin fundraising, and set up business rules for coordinating efforts internally and externally. With a DAO, you can implement all of that over a working lunch.
Emerging players in the DAO market
Aragon’s vision is to make new company setup a plug-and-play experience. It offers any would-be entrepreneur the ability to set up company ownership (via tokens), issue tokens, and raise funds for a project in a matter of minutes. And you can set rules for the new company’s governance by creating rules for which tokens have voting rights and what percentage of tokens need to vote on a motion, project, or rule for it to become law. You can also set rules for token vesting schedules.
Holders of your new company’s token — presumably your employees and investors — stand to benefit financially as the new entity gains traction. Whereas the value created by companies that run SAP accrues to SAP, here the value goes to the token holders who have a direct interest in improving the functionality and efficiency of your company.
You can play around with the Aragon software (available for Windows, Mac, and Linux as well as a web version). The alpha runs on Kovan (and Ropsten) TestNets, and a new version is coming soon, according to the project team.
District0x actually leverages Aragon as a base governance feature and then adds extra capabilities to help decentralized businesses create and manage a marketplace. These capabilities includes posting and listing, search and filtering, ranking and reputation, and payments and invoicing, all of which enable entrepreneurs to quickly spin up decentralized marketplaces. And we’re already seeing some of these marketplaces emerge.
Ethlance , for example, is a decentralized take on Upwork, and NameBazaar is a decentralized marketplace for buying and selling domain names on the Ethereum network. You will need MetaMask to use these, but you can go in there, find contractors on Ethlance or .ens names on NameBazaar, set up contracts and complete transactions. No intermediaries. Secured by the blockchain.
So, while the challenge of customer-acquisition still exists for DAO startups, you don’t need to spend a lot of time creating the code that would allow you to create a decentralized version of AirBnB or Uber, etc. The combination of District0x and Aragon commoditizes the back-end technical, legal, and operational infrastructure of some of today’s most valuable “sharing economy” platforms.
Anyone wanting to participate in these District0x marketplaces (called “districts”) will need a DNT token (the market cap is $27 million at the time of writing). That gives you the right to vote on the evolution of the marketplace (imagine you get to tell Uber what to do as opposed to the other way around) as well as benefit from the value accrued as these marketplaces grow.
Colony takes a bit of a different approach, focusing primarily on a problem we have all experienced in a group: The wrong people get the rewards because bosses don’t have full visibility and politics are at play.
As Colony’s founders explain on their blog, “Instead of being monitored and evaluated by someone higher up the hierarchy, any individual’s merit within a colony is calculated through systematic peer review of completed work and represented numerically on the blockchain.” (A “colony” is what the company calls any DAO built on its platform.)
When you contribute more to a project, you are rewarded with tokens from others in the project. So the number of tokens you hold reflects your overall reputation. As your reputation grows (and, remember, this isn’t an ephemeral concept in Colony, it is a quantifiable one), so does your influence in the form of voting on projects.
Nick Neuman has a great in-depth review of Colony, if you are interested in learning more.
One other player to watch is DAOstack, founded by Matan Field, who has a deep history in the blockchain space, having founded Backfeed and LaZooz. Notable thinker Primavera De Filippi is an advisor, so for that reason alone, this project is worth taking seriously.
DAOstack is for large-scale organizations rather than startups and is focused on a heavily modular approach. It seeks to build a “WordPress for DAOs.” Imagine a set of governance plug-ins that can be used and reused depending on what type of entity you want to create. Whereas Aragon is about using blockchains to automate or “smart contract-ify” existing organizational structures, the DAOstack team is focused on giving people the ability to mix and match the best elements of organizational and governance structures to create entirely new forms that work together. It’s like Lego for organizations.
The big DAO promise: Business at higher agility and speed
In the late ’90s, the Internet changed business. We also saw a new set of businesses emerge at that time that were only possible because of the arrival of that new technology. With the benefit of hindsight, it is clear that there was a difference between Barnes & Noble putting up a website and Amazon being a “digital native” organization, even if it was not obvious at the time.
With DAOs, we are witnessing the birth of entirely new way of coordinating, aligning, and rewarding work. The blockchain-native entities built on platforms like Aragon, Colony, District0x, DAOStack, and the competitors that are bound to follow are going to pose a threat to incumbents who cannot react as quickly. More importantly, they will enable entirely new types of organizations that will change the world just as Facebook, Amazon, and Google did the last time around.
Jeremy Epstein is CEO of Never Stop Marketing and author of The CMO Primer for the Blockchain World. He currently works with startups in the blockchain and decentralization space, including OpenBazaar, IOTA, and Zcash.