Tokenomics, DAO, human coordination explorer
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Tokenomics, DAO, human coordination explorer
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Much has been written about the future of work from the perspective of large corporations; attracting, training, enabling and inspiring workers in a digital, remote-first world, etc., etc. The thesis of this write-up is that this type of analysis is the proverbial tip of the iceberg and that it misses the deeply subversive trends challenging the foundations of current systems of economic production. While these systems will not change overnight, we argue that new forms of human coordination, like Open Source Software, have already taken hold in certain areas and that they will significantly challenge the status quo of labor dynamics. Specifically, we believe that blockchain technology, web3 governance mechanisms and new forms of collective ownership embodied in DAOs (Decentralized Autonomous Organizations) will accelerate the adoption of these new forms of human coordination and alter the landscape of the Future of Work.
At a very basic level, producing goods and services requires the coordination of capital and labor. Companies emerged formally in the 1600’s to accomplish just that. The question of “what” to produce was left to management and the execution was organized around hierarchies and layers of employees.
Ronald Coase, in his seminal “The Nature of the Firm” in 1937, observed that efficient markets should, in theory, obviate the need for firms to exist; everyone should be a freelancer and the market should match skills, effort and economic benefits efficiently via the price mechanism. That of course didn’t happen. And he concluded that it was, generally speaking, transaction costs that prevented this from occurring - contracting each specific task a firm has to carry out, dealing with disputes, etc. is not feasible.
Hence, today, we generally think about the coordination problem of “what to produce” as a question answered by firms or by markets. In firms, production is directed by managers. In markets, the price mechanism is the signal. In turn the labor market has evolved to mirror this arrangement; some people choose to work for companies of different sizes, while others decide to work independently. In both mechanisms, labor markets participants require a transactional exchange of pay per production (e.g., a salary).
What follows is a deep dive into the events, patterns and emergent system structures that have influenced the evolution of new economic production and coordination mechanisms and how Web 3.0 space supercharges them.
In the last few years there have been observable changes in terms of how work gets carried out within the production systems mentioned earlier; the great resignation, remote work, the emergence of the creator economy are some of these visible changes. It is only natural to see these changes and ask how current companies can adapt to “the new normal” and engender belonging, loyalty and ultimately, maintain or increase productivity when employees have fewer social and emotional attachments to their work environments. Unfortunately, this type of analysis focuses on a narrow set of observations and symptoms and misses the deeper structural changes.
Beyond the shock that was COVID in the last few years, persistent patterns have been influencing fermenting a new batch economic production systems and human coordination:
Better tech at cheaper prices has dramatically reduced barriers to entry (e.g., video production).
MOOCs, YouTube, Stack Overflow and others have made learning on-demand accessible virtually to anyone in the world.
Distribution costs have decreased dramatically with the advent of social media platforms.
Finding and connecting with people with similar interests all over the world is now commonplace, which has led to the emergence of large and niche communities on topics ranging from cooking, to gaming to amateur R&D.
The development of blockchain and payment systems that simplify cross-border payments.
All of these have enhanced the ability of individuals to meet, exchange ideas and coordinate work in a much more decentralized and emergent manner.
Whereas the majority of economic activity today gravitates around the Firm, new forms of human coordination and the increased ability to earn a living in peer-to-peer business models (e.g., influencers) are shifting the center of gravity away from them.
Even more interestingly, a new system of production has emerged over the last few decades that challenges basic assumptions about how and why individuals work: Open Source Software (OSS). OSS has given rise to projects like Linux, which are broadly used by major technology companies today (e.g., Apple). Unlike previous models of production where agents/individuals receive a payment for their efforts, OSS contributors do not get paid at all, yet dedicate massive amounts of time and effort organizing and creating software that is free to use, modify, re-arrange and improve by anyone. The fact that there are no property rights (another radical departure from the existing status quo) allows for this recombination and extension to take place.
These contributors, instead of receiving payment are motivated by intrinsic/hedonistic reasons (e.g., they do it because they like it and/or they accrue reputation) and in some cases indirect appropriation (e.g., they start consulting for companies who want to use the open source project). Admittedly, benefiting financially from these types of efforts is more challenging, and, hence, only a small, yet highly qualified fraction of the overall population participates in these projects.
Regardless of this limitation, it is unquestionable that a new production system that has created incredible amounts of positive externalities and technological development exists outside the boundaries of firms and markets.
Web3 super-charges the OSS production model in two key aspects. First, it allows for a more direct and transparent way for individual contributors to capture the value of their efforts with the introduction of various forms of tokens (governance, utility, etc.). This in turn makes this type of work more appealing to people not traditionally found in the OSS camp (i.e., non-developers). Now musicians, producers, community managers and others can partake in this type of work and projects. All this while remaining open to contributions and participation - by and large there are no gatekeepers if one wants to contribute to a project.
Secondly, web 3.0 dramatically reduces the transaction costs Coase mentions in his study of the firm. When these systems and organizations are built with decentralized-first principles - work is split in manageable chunks (e.g., bounties, dework.xyz), there are few/no middle men, and dispute resolution mechanisms are implemented (e.g., kleros.io) - transaction costs fall dramatically.
Once those mechanisms solidify in the next few years, the second and third order implications of this evolution become truly interesting and most disruptive to existing modes of production. The open nature of these projects - not only in terms of code, but also of association - means that the talent pool of qualified individuals to work on a specific project is vastly greater than any one company’s. At the same time, one person can simultaneously contribute to 3 different projects “full time” (true story) because they can leverage their work, with modifications to a number of projects/communities; there are no NDAs and property rights are not blockers to collaboration in open source projects.
To sum up, web3 technology enables new forms of human coordination by providing mechanisms of value capture and distribution that have never existed.
The reader may have noticed that despite “DAO” being in the title, we only now get to talk specifically about what it is. The choice of placement is intentional; DAOs emerged, in our appreciation, from the trends, patterns and systems mentioned earlier and are the embodiment of organizational structures that will be commonplace for the majority of people in the workforce. Without this context, DAOs can appear to be a fad for those observing from afar. Hopefully, we have made a case that indicates this is not the case. So what are they?
As the name implies, DAOs are decentralized organizations that have some very unique properties:
Membership is composed of an internet community that rallies around a specific set of objectives (e.g., Regenerative Finance, Investment)
There is a group of core contributors/founders and community managers that are at least partially dedicated to ensure the success of the project.
Ownership is distributed among a community of contributors and supporters.
Generally, the DAO has a treasury/funds to carry its mission.
Governance and decision-making is carried via votes from the community
Membership is optional and fluid - members can come and go and dial contributions up or down.
When work needs to be completed, individuals self-select into the task at hand - match-making happens in real time.
There are few, if any hierarchies.
Work tends to be organized around projects with specific start/end dates and milestones.
While there are core commonalities, DAOs can be very different in terms of the objectives they choose to pursue and the communities that join them.
For further breakdown of the different types of DAOs shown above, see here.
As mentioned earlier these organizations are not a panacea and the tooling and processes to run them effectively are still being developed. That being said, and for the purpose of contrasting DAOs with traditional companies there are three projects providing DAO tooling that are worth mentioning:
“DAO-native solution to contributor rewards, feedback, and all things people.”
Members of a project team give each other tokens to represent the perceived contribution to the overall project. These tokens eventually represent the split of the monetary reward for each team member.
“Web3-native project management with token payments, credentialing, bounties”
Leverages Kanban-like UI to post tasks open to community contribution, and the corresponding payment for the work. Payment in crypto can be done when task is completed
“Payroll & Benefits Built For You”
Tax and HR benefits for individuals working in the web3 space
Companies in their current form are not going away any time soon, if ever. At the same time ignoring the rise of Web 3.0 and DAOs should not be ignored or dismissed off-hand. The key takeaway for companies looking into Web 3.0 is that mental models that have served well for decades need to be upgraded to account for patterns and system structures that are not visible to the naked eye, if one is not immersed in web 3.0. The infographic below summarizes key differences in points of view between these two worlds.
For people new to the Web 3.0 space and DAOs, we hope this can be food for thought grounded on some specific observations. For those already in the space, we hope this provides some context as to the emergence of DAOs. For both camps, we hope this can be a grounding point from which to engage in deeper and broader conversations about DAOs and the future of work.
Much has been written about the future of work from the perspective of large corporations; attracting, training, enabling and inspiring workers in a digital, remote-first world, etc., etc. The thesis of this write-up is that this type of analysis is the proverbial tip of the iceberg and that it misses the deeply subversive trends challenging the foundations of current systems of economic production. While these systems will not change overnight, we argue that new forms of human coordination, like Open Source Software, have already taken hold in certain areas and that they will significantly challenge the status quo of labor dynamics. Specifically, we believe that blockchain technology, web3 governance mechanisms and new forms of collective ownership embodied in DAOs (Decentralized Autonomous Organizations) will accelerate the adoption of these new forms of human coordination and alter the landscape of the Future of Work.
At a very basic level, producing goods and services requires the coordination of capital and labor. Companies emerged formally in the 1600’s to accomplish just that. The question of “what” to produce was left to management and the execution was organized around hierarchies and layers of employees.
Ronald Coase, in his seminal “The Nature of the Firm” in 1937, observed that efficient markets should, in theory, obviate the need for firms to exist; everyone should be a freelancer and the market should match skills, effort and economic benefits efficiently via the price mechanism. That of course didn’t happen. And he concluded that it was, generally speaking, transaction costs that prevented this from occurring - contracting each specific task a firm has to carry out, dealing with disputes, etc. is not feasible.
Hence, today, we generally think about the coordination problem of “what to produce” as a question answered by firms or by markets. In firms, production is directed by managers. In markets, the price mechanism is the signal. In turn the labor market has evolved to mirror this arrangement; some people choose to work for companies of different sizes, while others decide to work independently. In both mechanisms, labor markets participants require a transactional exchange of pay per production (e.g., a salary).
What follows is a deep dive into the events, patterns and emergent system structures that have influenced the evolution of new economic production and coordination mechanisms and how Web 3.0 space supercharges them.
In the last few years there have been observable changes in terms of how work gets carried out within the production systems mentioned earlier; the great resignation, remote work, the emergence of the creator economy are some of these visible changes. It is only natural to see these changes and ask how current companies can adapt to “the new normal” and engender belonging, loyalty and ultimately, maintain or increase productivity when employees have fewer social and emotional attachments to their work environments. Unfortunately, this type of analysis focuses on a narrow set of observations and symptoms and misses the deeper structural changes.
Beyond the shock that was COVID in the last few years, persistent patterns have been influencing fermenting a new batch economic production systems and human coordination:
Better tech at cheaper prices has dramatically reduced barriers to entry (e.g., video production).
MOOCs, YouTube, Stack Overflow and others have made learning on-demand accessible virtually to anyone in the world.
Distribution costs have decreased dramatically with the advent of social media platforms.
Finding and connecting with people with similar interests all over the world is now commonplace, which has led to the emergence of large and niche communities on topics ranging from cooking, to gaming to amateur R&D.
The development of blockchain and payment systems that simplify cross-border payments.
All of these have enhanced the ability of individuals to meet, exchange ideas and coordinate work in a much more decentralized and emergent manner.
Whereas the majority of economic activity today gravitates around the Firm, new forms of human coordination and the increased ability to earn a living in peer-to-peer business models (e.g., influencers) are shifting the center of gravity away from them.
Even more interestingly, a new system of production has emerged over the last few decades that challenges basic assumptions about how and why individuals work: Open Source Software (OSS). OSS has given rise to projects like Linux, which are broadly used by major technology companies today (e.g., Apple). Unlike previous models of production where agents/individuals receive a payment for their efforts, OSS contributors do not get paid at all, yet dedicate massive amounts of time and effort organizing and creating software that is free to use, modify, re-arrange and improve by anyone. The fact that there are no property rights (another radical departure from the existing status quo) allows for this recombination and extension to take place.
These contributors, instead of receiving payment are motivated by intrinsic/hedonistic reasons (e.g., they do it because they like it and/or they accrue reputation) and in some cases indirect appropriation (e.g., they start consulting for companies who want to use the open source project). Admittedly, benefiting financially from these types of efforts is more challenging, and, hence, only a small, yet highly qualified fraction of the overall population participates in these projects.
Regardless of this limitation, it is unquestionable that a new production system that has created incredible amounts of positive externalities and technological development exists outside the boundaries of firms and markets.
Web3 super-charges the OSS production model in two key aspects. First, it allows for a more direct and transparent way for individual contributors to capture the value of their efforts with the introduction of various forms of tokens (governance, utility, etc.). This in turn makes this type of work more appealing to people not traditionally found in the OSS camp (i.e., non-developers). Now musicians, producers, community managers and others can partake in this type of work and projects. All this while remaining open to contributions and participation - by and large there are no gatekeepers if one wants to contribute to a project.
Secondly, web 3.0 dramatically reduces the transaction costs Coase mentions in his study of the firm. When these systems and organizations are built with decentralized-first principles - work is split in manageable chunks (e.g., bounties, dework.xyz), there are few/no middle men, and dispute resolution mechanisms are implemented (e.g., kleros.io) - transaction costs fall dramatically.
Once those mechanisms solidify in the next few years, the second and third order implications of this evolution become truly interesting and most disruptive to existing modes of production. The open nature of these projects - not only in terms of code, but also of association - means that the talent pool of qualified individuals to work on a specific project is vastly greater than any one company’s. At the same time, one person can simultaneously contribute to 3 different projects “full time” (true story) because they can leverage their work, with modifications to a number of projects/communities; there are no NDAs and property rights are not blockers to collaboration in open source projects.
To sum up, web3 technology enables new forms of human coordination by providing mechanisms of value capture and distribution that have never existed.
The reader may have noticed that despite “DAO” being in the title, we only now get to talk specifically about what it is. The choice of placement is intentional; DAOs emerged, in our appreciation, from the trends, patterns and systems mentioned earlier and are the embodiment of organizational structures that will be commonplace for the majority of people in the workforce. Without this context, DAOs can appear to be a fad for those observing from afar. Hopefully, we have made a case that indicates this is not the case. So what are they?
As the name implies, DAOs are decentralized organizations that have some very unique properties:
Membership is composed of an internet community that rallies around a specific set of objectives (e.g., Regenerative Finance, Investment)
There is a group of core contributors/founders and community managers that are at least partially dedicated to ensure the success of the project.
Ownership is distributed among a community of contributors and supporters.
Generally, the DAO has a treasury/funds to carry its mission.
Governance and decision-making is carried via votes from the community
Membership is optional and fluid - members can come and go and dial contributions up or down.
When work needs to be completed, individuals self-select into the task at hand - match-making happens in real time.
There are few, if any hierarchies.
Work tends to be organized around projects with specific start/end dates and milestones.
While there are core commonalities, DAOs can be very different in terms of the objectives they choose to pursue and the communities that join them.
For further breakdown of the different types of DAOs shown above, see here.
As mentioned earlier these organizations are not a panacea and the tooling and processes to run them effectively are still being developed. That being said, and for the purpose of contrasting DAOs with traditional companies there are three projects providing DAO tooling that are worth mentioning:
“DAO-native solution to contributor rewards, feedback, and all things people.”
Members of a project team give each other tokens to represent the perceived contribution to the overall project. These tokens eventually represent the split of the monetary reward for each team member.
“Web3-native project management with token payments, credentialing, bounties”
Leverages Kanban-like UI to post tasks open to community contribution, and the corresponding payment for the work. Payment in crypto can be done when task is completed
“Payroll & Benefits Built For You”
Tax and HR benefits for individuals working in the web3 space
Companies in their current form are not going away any time soon, if ever. At the same time ignoring the rise of Web 3.0 and DAOs should not be ignored or dismissed off-hand. The key takeaway for companies looking into Web 3.0 is that mental models that have served well for decades need to be upgraded to account for patterns and system structures that are not visible to the naked eye, if one is not immersed in web 3.0. The infographic below summarizes key differences in points of view between these two worlds.
For people new to the Web 3.0 space and DAOs, we hope this can be food for thought grounded on some specific observations. For those already in the space, we hope this provides some context as to the emergence of DAOs. For both camps, we hope this can be a grounding point from which to engage in deeper and broader conversations about DAOs and the future of work.
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