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ShapeShift, DAOs and the Future of Work

The ShapeShift exchange recently became a decentralized autonomous organization, and DAOs are common in DeFi. Are they the startups of the future?

Aug 18, 2021 at 1:32 p.m. UTC
Updated Sep 14, 2021 at 1:41 p.m. UTC

Erik Voorhees got back into DJing during COVID-19. With bars and restaurants shut down, his pod of friends threw parties in the forest, with the 37-year-old cryptocurrency entrepreneur manning the DJ deck. It turns out he’s been an on-again, off-again amateur DJ since he was 15, mostly progressive house music.

“Did you go by DJ ShapeShift?" I ask over drinks at a downtown Denver bar. "There are worse DJ names.”

“No,” he laughs. “There are better DJ names.”

Voorhees looks fit. Relaxed. Happy. This is a very different encounter from the last time I saw the CEO of ShapeShift, a crypto exchange, back in February 2020, just a few weeks before the onset of COVID-19. That was a different world. A different ShapeShift. Different Voorhees. Back then, I visited him in his ShapeShift headquarters. They were nice digs. They had posh conference rooms, snazzy artwork on the walls and views of the Rocky Mountains.  

There’s a reason we’re meeting at a bar: That office is no more. It was shut down. While it’s true the pandemic has forced much of the globe to work remotely, with ShapeShift the change is different. The team took a more radical step: They did not just shutter the office, they are working to dissolve the very company from existence.  

“Today, we announced that ShapeShift is decentralizing,” proclaimed Voorhees on July 14, explaining the company would transition into a decentralized autonomous organization, or DAO. Starting in January 2022, the company will cease to exist. “After this transformation, there is no corp. No CEO. No board,” Voorhees tweeted. “No shareholders. No employees. No banks. No office. No statist OSHA posters.”

ShapeShift is hardly the first DAO; they’re popping up everywhere. The long and growing list includes UniSwap, Maker DAO, ThorChain, Yearn, SushiSwap, OneHive and DXDao. Many of them are decentralized exchanges, such as Compound. Some are on-chain venture capital DAOs, like Flamingo, an online community that bands together to purchase non-fungible tokens (NFT). And there are some goofy ones, like a DAO called “Krauss,” which is trying to buy an National Basketball Association franchise. Its Twitter page boldly asserts, “Players don’t win championships, DAOs do.” 

These DAOs are spreading, growing, multiplying. According to the website DeepDAO, which collects and aggregates stats for the industry, as of Aug. 7, 2020, there were a total of 2,200 DAO members or token holders. 

Today? 714,000. 

Last August, the total value of those DAOs was $63 million, according to the same source. Now it is $7.3 billion. 

They have yet to fetch much attention from the mainstream press, but many blockchain insiders have been bullish on DAOs for years, even when they were just wispy ideas. Perhaps now their time has come. Could DAOs be the next NFTs? 

Back to Voorhees. Something sets him, and ShapeShift, apart from the rest of these DAOs. This is an actual pre-existing company. To my knowledge, no other traditional company – one with employees, W-2s, cubicles, fax machines, janitors – has ever tried to transform itself into a DAO. There seems to be no precedent in the history of business.  

Then there’s the case of Voorhees himself, who is something of a living link between OG Bitcoin and this new chapter of decentralization. He’s been in the mix for most of crypto. After living in New Hampshire to work on the Free State Project – a group of radical libertarians (“some of them are very obnoxious, some are brilliant”) – he jumped into bitcoin in May of 2011, where he met Charlie Shrem and was hired as the #3 employee of BitInstant, the ill-fated exchange backed by the Winkklevii. Then the falling out. Then the lawsuits. 

The KYC providers were making more money per customer than we were. This is absurd.

He launched the online game Satoshi Dice, which, at one point, had more transactions than all other activity on Bitcoin combined. You can still see the online forum where Voorhees announced SatoshiDice, way back in 2012. In that thread he joked, “Little do you know ... I poison the [b]itcoins that people win from the site. Then, once the owner is dead, I collect them back. This is my revenue model, and I think it's pretty sound.” This was an era where jokes were still possible. Simpler times. 

But the switch to DAO is not a joke. It’s a high-stakes gamble that could have consequences for all of crypto. So I’m here at the bar to ask Voorhees two simple questions: Why? And then, But no, really, why? 

Over our afternoon drinks, Voorhees begins to unspool, in detail, the ideological and pragmatic reasons he’s making the shift. (We’ll get to those.) But at its core, you almost sense there’s something deeper at play, and something more personal: a kind of atonement.

Let’s go back to the beginning. In the first incarnation of ShapeShift, which Voorhees founded in 2014, you could easily swap one token for another without giving any of your personal data. For legal and regulatory reasons, in 2018, they were forced to adopt know-your-customer (KYC) rules. Most users hated it. Even Voorhees hated it. As he revealed to me last year, this gutted the company and purged 95% of his users. And as he tells me now, “It felt like suffocation.”

He hated collecting the customer data. He hated paying money to store it. You almost feel that he hated this particular shape he had shifted into. But if he wanted to run a grown-up company, he felt he had little choice. “We can’t just not follow the law,” says Voorhees. “I’m not going to take that risk. I will bend rules, but I’m not going to break clear laws.”  

And he admits that the company has “certainly been struggling for a few years.” At times it felt hopeless. In the darkest twist, Voorhees realized he was losing money per customer, because “the KYC providers were making more money per customer than we were. This is absurd.” 

Voorhees looks at me. “I just sort of snapped,” he says. “I’m, like, what am I doing? I’m not proud of what we are building here. I’m not proud of spying on innocent people for the State.” 

For years he had played by the rules, he ran the shop the way a proper CEO should, and he had been rewarded with headaches. In some ways the solution became obvious. If you feel choked and suffocated by the rules, what’s the logical – if audacious – option?

Voorhees looks at me. “You change the rules of the game.” 

i. The new rules

The idea took flight during the pandemic. Like most of the world, ShapeShift went remote in March of 2020. And like much of the world, the team was surprised at how productive they could be when working on their own schedules, in their own homes. They seemed to work better when … decentralized. Voorhees had plenty of time to think, to reflect, even to soul-search. 

He became obsessed with decentralized finance (DeFi). Voorhees was particularly inspired by Uniswap, which he felt had “the same magic of the early ShapeShift.” He loved that it had “no intermediary, super-low friction and they weren’t doing KYC.” Uniswap had a centralized company, but a decentralized protocol. And it was not lost on Voorhees that Uniswap had “vastly greater volumes than what ShapeShift was doing, even matching Coinbase on some days.” And perhaps most important of all, Uniswap seemed free of crushing regulatory requirements. Could ShapeShift go that route?

As Voorhees warmed to the idea of decentralizing the ShapeShift exchange (which he announced on April 15, 2021, tax day, not a coincidence), he began to muse about going a massive step further – decentralizing the entire organization. It felt right. It felt like a return to his ideals. The way Voorhees sees it, the ethos of crypto boils down to five principles: decentralized, immutable, borderless, censorship-resistant, and transparent. “A centralized company can’t be very aligned with those things,” he tells me. “It’s bound to a jurisdiction. It generally will only offer services to certain countries. … It’s generally close sourced.” 

He invokes the example of Coinbase. “I don’t want to hate on Coinbase,” he is quick to clarify. “I’m a huge fan of Coinbase. It’s the most important company in all of crypto.” And yet. “At the same time, I don’t know what their slogan is today, but it’s probably something like ‘Borderless finance for the world.’ And they can’t be. They can’t be borderless finance for the world. They have to link to a bank account.” While he respects its intention, he predicts “they’ll be pulled further and further towards acting like a bank. You can’t escape the gravity of a star, if you get too close to it.”

These are the ideological reasons. But as any disillusioned Marxist will tell you, ideology alone will only get you so far. They have pragmatic reasons for the switch. For this we can turn to ShapeShift’s co-founder and chief operating officer, a man who publicly goes by the name of “Jon ShapeShift.” (He does not use his full name for “OpSec reasons.”)

Jon tells me the reborn organization will be faster, leaner, more freewheeling. He was tired of getting lapped by the new DeFi protocols. “With our centralized resources, it was just impossible to ever keep up,” he says. “No matter how many engineers we added, no matter how much money we raised,” the bureaucracy inherent in centralized companies meant “you can only do so many things well at once.” Everything needs to go through product checks, legal checks, engineering checks, so many checks and checks. 

In a DAO? 

The way Jon views the new model, maybe one team will want to experiment with an integration between, say, ShapeShift and OpenSea, and another team will want to try something else, like a partnership with Yearn. They can do both simultaneously. No red tape. No paperwork from the lawyers. “Instead of us, as a centralized entity, having to constantly choose and prioritize, meaning that some cans are always kicked down the road, there can be much more progress in many directions at once,” says Jon, who sees the DAO-ization as “just a logical competitive move.”

In a way, this takes the ideas of “free market economics” to the bleeding edge: the idea that even for-profit companies are too bloated and bureaucratic to compete. This is Voorhees’ vision: no more conference rooms, no more pointless meetings, no more corporate infrastructure. All of that would be gone. All that remains is the actual work of DeFi.

Still, I’m baffled by how all of this can actually function. Companies have boring but important things like HR departments, IT support, accounting, even lawyers. Who does all this stuff? I ask this of Voorhees. 

“Who will provide the janitorial services? Well, there won’t be an office,” he says, arguing that many of the things that companies do are simply to support the company. He has a point. When you shutter the office cafeteria, you don’t need to panic about finding a new cook. Or take accounting. “A great deal of the accounting doesn’t need to happen anymore,” says Voorhees. “The DAO doesn’t file taxes. It can’t.” So all of that mucky tax preparation work? Poof. Gone. Plus, Voorhees says that since the DAO is on a blockchain, “it’s audited every second.”  Voorhees seems thrilled by this new minimalism, like a man who cleaned out his garage and marvels at all the new space. 

ii. 'So you’re getting fired?'

But Voorhees wasn’t cleaning out a garage. He was running an honest-to-God company, and that meant he had responsibilities. “I had to make sure I wasn’t screwing over any of my three constituencies: users, employees and shareholders,” Voorhees tells me. 

I was especially curious about the employees. There are around 65 in total. Many (presumably) depend upon ShapeShift for paychecks, health care, rent and mortgage payments. So how does one make this overhaul, exactly, and do it in a way that’s not, well, being a dick?  

Voorhees softened the blow by giving the employees between four and six months’ notice, an extra two months’ severance, and most notably, a stream of FOX tokens (released every 15 seconds, via smart contract) to all employees. “At current prices,” he says, “all of them are getting more income per month than they did under their salary. Significantly more.” (Unless, of course, the price happens to tumble.) 

Voorhees didn’t just give FOX tokens to employees, he doled them out to the community. ShapeShift claims to have executed “the largest airdrop in crypto history” to over 1 million ShapeShift customers and DeFi enthusiasts. Thousands of users on DeFi platforms like Gitcoin, SushiSwap and Yearn woke up to suddenly find FOX tokens in their wallet. It seems like a savvy play. Nick Hotz, an analyst at Arca who studies DAOs, says the move gives “financial upside to the users, and expands the community of stakeholders.” The tokens themselves became more interesting, as now they let you vote on the project’s governance. The tokens also became more valuable, at least for the moment – the price has more than doubled since the news of the DAO.

Here’s how the DAO will actually work. First off, it will not be a purely “flat” organization. “We’re not completely getting rid of the hierarchy,” says Willy Ogorzaly, who sketched out much of the plan. Ogorzaly is an employee at ShapeShift – its principal product manager. He talks fast, he has a cheerful energy and he loves DAOs. Walking me through an organizational chart on our Zoom call, he explains that different “work streams” will function like departments in a company – Product, Marketing, Partnerships and so on.

Token holders will vote on how much money to allocate to each work stream, and then the work stream leaders are empowered to spend that capital. So if the Product work stream, for example, is allotted $1 million, it might choose to spend the wad on a team of part-time contractors, or maybe it’ll outsource to another company, or it might even pay salaries to actual employees. 

This surprised me. I had assumed a DAO would be a death blow to regular employment, but Jon and Ogorzaly say that traditional “jobs” are still possible within the DAO ecosystem. They imagine that some people will work as part-time contributors, some will hop on for discreet projects and some might even be hired as employees. (Ogorzaly is excited about another Denver-based crypto project, Opolis, that enables DAO workers to receive a W-2 and get paid in fiat.) 

The DAO won’t be able to do everything at the jump. ShapeShift is creating a Foundation, funded by the treasury, that will handle all the headaches the DAO simply isn’t yet ready to crack. It’ll deal with the maintenance of the actual domain ShapeShift.com, for example. It’ll steward all the code that is still closed-sourced (it eventually plans to open source everything). And it’ll manage the servers, which it eventually plans to dump. No current executives (not even Voorhees) will be allowed on the Foundation, as Jon says that the team, which he guesses will be fewer than 10 people, “should really be viewed more as a support function, not running the show.” The Foundation’s ultimate goal is to unwind itself from existence, eventually turning everything over to the DAO.

Voorhees is going to be the leader of ShapeShift no matter what the f**k he does.

Not all ShapeShift employees are on board. “I don’t want to sugarcoat it,” says Voorhees. “Some of them will like it. Some won’t.” But much of the ShapeShift rank and file, says Ogorzaly, had long been true believers of the decentralized crypto ethos, and many were lukewarm, at best, about the last few years of centralized KYC. “When I heard the news that we were decentralizing and getting back to that crypto ethos, I couldn’t be more excited,” he says with pep in his voice. 

For Ogorzaly, the DAO is Christmas morning. But he admits that his family and friends struggled to understand what this strange announcement meant, and whether it was good or bad news.  His friends asked him, “So you’re getting fired?” He would respond, “Well not really. But sort of.”   

And what will these devs and engineers be doing, exactly? How will ShapeShift make money? This is no longer up to Erik Voorhees. This will be up to the FOX token holders. One thing the community will decide, for example, is whether to start charging fees. (Currently there are none.) “I would personally vote ‘no’ on that,” says Ogorzaly. He’d rather see ShapeShift focus on affiliate revenue programs, and serve as the interface for projects like OpenSea. Even the fact that Ogorzaly could say this to a reporter, on the record, is striking. Can you imagine a senior VP at Facebook, say, cheerfully going on the record about how she hopes Zuck will change the business model? 

That sort of transparency is the “no closed doors” ethos of DAOs.  In a way it’s even inspiring, a way of empowering the community, a way to bring out the best of the hive mind. Aaron Wright, CEO of OpenLaw and a legal expert in DAOs, offers an optimistic comparison: Wikipedia. It’s decentralized, it’s community-run and it works. He notes that while massive tech companies “have run into issues as they’ve grown larger and increasingly important, Wikipedia hasn’t run into the same issues. And I think that’s in part to its community-first approach.” Wright is bullish on DAOs. He predicts that “in the long run, if these DAOs are given a long enough leash,” they will eventually emerge as “more stable and better run.” 

Maybe this will be true. But they also come with a few non-trivial asterisks. 

iii. Voice from The DAO

You’d be hard-pressed to find a stauncher advocate of DAOs than Griff Green. He worked as the community manager of the very first DAO, simply called “The DAO,” the disastrous experiment that was hacked for $50 million and threatened the very existence of Ethereum. For the crypto trivia buffs: Green tells me that The DAO was eventually supposed to name itself, and that “The DAO” was a placeholder name. “It was a working f**king title,” he says with a laugh. “The DAO was going to name itself once it existed. But various things got in the way.”  

These days, Green describes himself as a “serial non-profit DAO founder,” launching DAOs like Giveth, The Commons Stack and DAppNode. He’s a believer in DAOs, maybe the believer in DAOs. And even Green acknowledges some challenges that many overlook. “DAOs are hard work,” he says, “And we often forget about the cultural build and the work it takes to create a really solid culture.” 

Anyone who has ever held a desk job – or even seen an episode of "The Office" – snickers at things like “company values” or “mission statements.” But that stuff matters. “If you look at other organizations, they have HR. They have systems in place, It’s like, ‘Who organizes the f**king work board? Who’s doing that? Where’s that coming from?’”

DAOs often struggle with conflict resolution, says Green, as “Holy f**k, you know how easy it is to avoid-avoid-avoid?” Then there’s the problem with retention. While Green believes the DAO can be the “gig economy dream,” it’s also true that people tend to accumulate institutional and domain-specific knowledge, and if contributors dip in and out of the DAO that churn can have a cost. 

Or what about leadership? The allure of DAOs is they let ideas flourish from the bottom up, incentivizing all to create. But without a CEO at the top, there’s no space for the singular vision of a Steve Jobs, a Cathie Wood or an Elon Musk, whom Voorhees views as “the only god-like hero I’ve ever had.” Could a DAO have created the iPhone? Could a DAO inspire a journey to Mars? 

Willy Ogorzaly

Jon acknowledges this as a potential limitation. “That’s definitely part of the trade-off,” he says.  “I don’t think we have wool over our eyes. We don’t think everything will be better, and we have to be okay with trade-offs.” However, he’s not particularly troubled about how this will affect ShapeShift, as “Erik … was never this hard-driving CEO, in the Steve Jobs style. … That just wasn’t really our culture.” He also points to a decentralized project that thrives without a CEO: Bitcoin. 

There’s also this. It might be naive to think that a DAO is truly leaderless, even if it lacks a nominal CEO. Green makes the following prediction: “Voorhees is going to be the leader of ShapeShift no matter what the f**k he does.”

iv. The struggle

For today, at least, ShapeShift still has its leader at the top of the org chart. And that leader is ecstatic about slipping the noose of KYC and regulations. Voorhees, finally, is about to be free. No more storing of customer data he doesn’t want to store, no more legal headaches, no more of the “suffocating.” Starting in January, ShapeShift will no longer be responsible for these things. Or is it that simple?

Uniswap, the very example that Voorhees used as an unregulated DeFi role model, recently restricted access to certain tokens, citing regulatory concerns. A debate looms. How the regulators will treat DAOs is still a bit up in the air, says Wright, the legal expert. “What are the interests of the DAOs going to be classified as?” he asks. “Are they securities, or are they commodities?” 

Back in 2017, Wright noted, the U.S. Securities and Exchange Commission "looked at this in the context of The DAO itself, and they said, ‘Look, there’s not that many owners of this DAO, number one; and number two, there seems to be folks in charge of this DAO.’ And because of this combination, the interests themselves are securities.” And if all of that reads as mumbo jumbo, Wright’s point is this: “We don’t have clear answers yet.” 

Wright even helped draft a new law in Wyoming, which lets DAOs effectively register as an LLC, which would cap exposure to legal liability. ShapeShift is not going that route. “The DAO won’t be registering anywhere,” Voorhees later told me in a follow-up email. “There would be no reason or benefit to do that. Registration = not decentralized.” Time will tell if he is right. 

And finally, we need to acknowledge the cynic’s take. A skeptic might wonder if the dissolution is a way for ShapeShift – lagging behind the big boys of Coinbase, Uniswap, Binance, et al. – to gracefully exit the stage. Is this just a crypto way of declaring bankruptcy, but with gusto? 

I bluntly ask this of Voorhees. 

“I guess I would say, look at the incentives,” he says. “All of the insiders have their [FOX] tokens locked up over three years. So if this was that, it would all kind of fall apart over the coming months.” The executives have skin in the game. He has skin in the game. “We wanted to get ourselves, as executives, as employees and as shareholders, all aligned on the same incentives – of this working long term.” 

Not only does Voorhees think this will work long term, but he suspects DAOs will be the future of organizations – even replacing corporations. “I think it can be a model for non-crypto companies,” he says. But okay, maybe not all companies. He concedes it would be a poor fit for local shops like restaurants, dry cleaners or barbers. And for a DAO to catch fire, he says it needs to have an exciting brand or a compelling story, otherwise a community is unlikely to get engaged. Or as Voorhees puts it, “a urinal manufacturer is not, necessarily, going to inspire a community.”

A Urinal DAO would make a fine story in The Onion, and that reminds me, actually, of an old article from The Onion. It’s from way back in 2002 but suddenly it feels relevant. At the time, the biggest seller of computers was Dell. “Corporation Reaches Goal, Shuts Down,” The Onion headline read. “We did it,” CEO Michael Dell said in the mock article. “Back when I started this company, I vowed that I would not rest until we revolutionized the way computers are sold. Well, at long last, that day is here. Bye.” With his goal accomplished, Michael Dell cleaned out his office and dismissed all the employees, delighted to be shutting down. 

This Onion piece stuck with me for nearly two decades because I found it hilarious that a company would gleefully shut itself down because of some principle. Voorhees is doing just that, or at least a twisted version of that. And he doesn’t have any illusions that it will be easy, simple or painless. Which is fine by him. He seems drawn to the struggle. 

“Meaning in life tends to come from struggles,” says Voorhees. “When I got into bitcoin, I saw it as the greatest struggle I could ever participate in: the struggle of bitcoin against fiat currency and the banking establishment.” He vows not to walk away from that fight. “We don’t win until bitcoin has taken over the global monetary system. That’s when I retire.”

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