Policymakers Should Embrace DAOs in the New Future of Abundance

Whereas corporations accumulate capital, decentralized autonomous organizations accumulate engagement and focus on returning benefits to all participants.

AccessTimeIconFeb 10, 2023 at 7:35 p.m. UTC

When scarcity is the dominant economic model, accumulation of capital is the priority: This is the status quo for now. Within our current model the most successful tool ever invented to accumulate and deploy capital is the joint stock company. And joint stock companies, corporations, represent most of the private sector. But what happens if capital is not scarce anymore? Do we need corporations or should we be looking for something different and better?

There are not many things that will always be scarce, but human attention is at the top of the list. Decentralized autonomous organizations (DAO) and co-operatives might be much better vehicles for accumulating attention and engagement. In DAOs, co-operatives and staking systems, critical decisions are made by the members for the benefit of the members, and the rewards for engagement flow back to the members in proportion to their engagement and in alignment with their constructive participation.

Paul Brody is EY's global blockchain leader and a CoinDesk columnist.

There has been much discussion about the shortage of clear, positive rules that would pave the way for the crypto ecosystem to return to growth. These are essential to bringing in good actors. We do not need a lot of new rules about what isn’t allowed because nearly all the bad things that happened in 2022 were already illegal. Borrowing customer deposits without consent? Not legal. Pumping and dumping tokens? Not legal. Borrowing multiple times against the same asset? Not legal.

The good news is that there already exists a legal framework and organization structure that DAOs can use to establish their real-world credentials: the co-operative. co-operatives (co-ops) have been around for a long time. And while the traditional corporate sector is about five to seven times larger, the world’s top 300 co-ops still represent more than a trillion dollars in revenue combined.

DAOs and co-ops counter predatory digital monopolies

Co-ops are member-owned and, unlike corporations, key decisions are made on a one-member, one-vote system. Profits are distributed to members based on participation, however, so those contributing the most also earn the biggest benefits.

Co-ops fix what I see as the single biggest problem in the Web 2.0 era: the creation of so-called predatory digital monopolies. The story of many Web 2 businesses goes like this: Clever entrepreneur comes up with an application that connects buyers and sellers in a digital marketplace. They invest heavily and for years in developing the digital infrastructure that coordinates information, products and payments across an ecosystem. They invest in sophisticated analytics, reputation management systems and community engagement growth.

All those things are good. And no one can deny that enormous investments have been required to build the infrastructure that makes everything from online auctions to ridesharing to consumer shopping into frictionless digital experiences. The problems come with success because these systems resemble natural monopolies. As they become dominant, they start to raise prices and slowly but surely shift from adding value to an ecosystem to extracting value from that ecosystem.

We need policies and approaches that anticipate our future. And that future is one of abundance.

Now imagine if all these big companies were co-ops instead of corporations. Imagine if, having paid back the initial investments with a good return, these co-operatives started distributing back the excess profits to the network participants.

This sounds great, but if there is a defect in the vision of future abundance it is that we are always approaching this end state, never arriving. Some things, like real estate and human attention, will probably never be unlimited. A marginal cost of zero is not the same as an average cost of zero. Interest rates at zero do not mean that you can walk into a bank and walk out with a pile of money for any reason in any amount. Good ideas will still need teams and investors and customers and profits.

The good news is that co-operatives may be a very good fit here. A recent white paper by law firm Orrick, Herrington & Sutcliffe explores if co-ops are an ideal legal model for DAOs, and it also outlines how co-ops can work with for-profit enterprises to accumulate capital and provide investors with exits. Co-operatives can buy shares and even wholly own for-profit enterprises. They can also sell those shares to give for-profit investors an exit without leaving them in near complete control of a digital ecosystem while alleviating pressure to perpetually extract more value from a community.

From B Corporations to co-ops to DAOs, the future of the enterprise is the future of harnessing the power of communities, accumulating attention and engagement, and putting that to work for the public good. We need more policies and systems that make that possible.

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Paul Brody

Paul Brody is Global Blockchain Leader for EY (Ernst & Young). Under his leadership, EY is established a global presence in the blockchain space with a particular focus on public blockchains, assurance, and business application development in the Ethereum ecosystem.

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