The Coming InDAOstrial Revolution

DAOs give humans a chance to build bigger, weirder things on totally radical timelines, just like the advent of the corporation paved the way for the Industrial Revolution.

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Updated Apr 9, 2024 at 11:37 p.m. UTC
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The invention of the joint-stock corporation in the 1600s was transformative for human organizing. Providing a structure for jointly working toward economic growth, corporations drove the subsequent Industrial Revolution and fundamentally shifted the arc of human expansion.

Today, it’s worth considering if cryptocurrency-based decentralized autonomous organizations, or DAOs, can drive an equally explosive innovation cycle over the next century.

Julie Fredrickson is a managing partner at Chaotic Capital. This article is a preview of the talk she will give on the Big Ideas stage at Consensus 2022 in Austin, Texas, next week. Follow her on Twitter: @AlmostMedia. Register for Consensus 2022 here.

What is a DAO?

Defined as organizations managed by votes on a blockchain, DAOs offer us a shift toward open and inclusionary legal entities for marshaling resources and energy across massively dispersed groups, raising the question: Could we be at the beginning of a multi-decade inDAOstrial revolution?

To understand why I think DAOs have such significant potential, it is helpful to dive into the history of the corporate form that helped lay the groundwork for the Industrial Revolution and, in particular, the role corporations played in the foundation of the first corporate country: America.

The American example

While I’m not a historian, I think one can make the case that America had corporate governance before we had a functional state. According to the "Brief History of the Corporate Form and Why It Matters" published by Fordham University’s School of Law, in America the corporation came before the colonial legislatures:

“Notable ‘joint-stock’ companies, such as the Virginia Company, helped expand British control of North America. In fact, the Virginia Company established the General Assembly, which was the first legislature in North America.”
Tyler Halloran, "A Brief History of the Corporate Form and Why it Matters"

Think about that for a moment. A monarchy set a corporate charter to extract commodities. At first blush it is normal colonial mercantilism. But that corporate organization helped lead to a 300-year experiment in democratic self-governance. DAOs driving a revolution suddenly doesn’t seem so far-fetched, does it? Our entire political way of life is downstream of a monarchal charter for a corporation’s property rights.

And this makes sense; after all, society is driven by how we organize and govern our resources and at what scale. When trying to build something more complex than an agricultural society, the ability to trust that your goals and investments will be executed, even if you are not personally overseeing them, is a key catalyst for all other technologies. The more efficient we are at marshaling and deploying resources at scale, the further we get as a civilization.

But even today, the corporation still relies heavily on trust. A country’s economic power is correlated to the strength and development of its legal and financial systems, which is why we’ve gone on to establish elaborate judicial processes to insure institutional trust as we moved away from “God-given” rights to a system governed by laws. The original version of this took several hundred years from commodity extraction to Silicon Valley. But now we are at an impasse when it comes to institutional trust and large-scale coordination.

DAOs and the network state

DAOs ask us to consider if it is possible to further abstract our trust away from fallible humans. The trustless nature of DAOs could help us unlock more sophisticated financing that enables ever-further scale and coordination. If the corporation created America, can the DAO lead to the formation of other new nation-states? Could it lead to the creation of a network state wherein a social network eventually coalesces into a physical state?

According to angel investor Balaji Srinivasan, “a network state is … an archipelago of digitally-linked, interconnected enclaves,” meaning a nation-state could be made up of globally scattered, networked real estate operated and owned by a group of citizens using the DAO structure for governance. The closest metaphor we have currently are corporate campuses or co-working locations.

Imagine a network state made up of independent and supporting sub-DAOs that together provide interlocking economies. Some DAOs are responsible for infrastructure. Others are for services like police or firemen. Maybe several network states share key services, perhaps even allowing an oligopoly for key social needs like health care. The more something needs extensive scale to succeed, the more large-scale trustless collaborative behavior gets rewarded. I don’t doubt we can create some truly dystopian nightmares in this type of experiment, but wouldn’t it be wild if DAOs are what gets us health care for all?

Decentralized autonomous organizations offer us a new path for how we can pool different kinds of resources including, but not limited to, virtual ones. DAOs give humans a chance to build bigger, weirder things on totally radical timelines just like the advent of the corporation paved the way for the Industrial Revolution. It is a new way of looking at wealth, power and cultural mores.

DAOs and social change

A society-level trustless entity means no more kings or “great men'' who safeguard corporate charters. We’d be trusting a series of legal codes and judicial norms that happen to be legible as executable computer code. A smart contract is still a contract. It is just a (theoretically) more efficient, self-executing version of standard corporate governance norms.

This vision is still aspirational because unlike with standard corporate governance, best practices are still being established. You can see these growing pains going back to The DAO, which famously resulted in a hard fork of Ethereum in 2016 to overcome an attack on the smart contract. America now has several centuries of corporate law to help resolve disputes whereas DAOs haven’t quite reached the decade mark yet. There is much work to be done on best practices.

I recently watched “The Gilded Age” television series because I’m a sucker for set pieces, but what I found was a story about changing expectations of who decides how we organize civilization's spoils. The real-life Gilded Age marked the apex of the Industrial Revolution and provides an instructive history for those curious about how innovation cycles play out. This is a tale that gets retold but with new tools at each new innovation cycle in our history. I believe we are still in the “installation” phase of economic historian Carlotta Perez's Technical Surge Cycle. If we are lucky, the current crypto bear market might be the crash that puts us on the path to deployment and eventually maturity.

Carlotta Perez's framework of tech cycles (from Fred Wilson's blog "A VC")
Carlotta Perez's framework of tech cycles (from Fred Wilson's blog "A VC")

Perhaps DAOs have the chance to unlock new norms that are just as unsettling and ultimately wealth-creating as anything we saw in the Gilded Age and Industrial Revolution. They say history doesn’t repeat but it rhymes. I don’t doubt the changes we see to cultural norms over the next century will be every bit as revolutionary as the founding of America.

We are at a turning point for how to properly organize individuals, and citizens. It's entirely possible something as arcane and mundane as automated corporate governance might be the fulcrum on which the next revolution turns.

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Julie Fredrickson is a managing partner at Chaotic Capital.

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