This post is an updated version of Long Bet #897.

The Bet

By 2032, decentralized autonomous organizations (DAOs) and other digitally-constituted organizations will organize more assets and production than traditional, legally-constituted corporations.

Why?

Legally-constituted corporations are long-standing vehicles for producing commercial goods and services, and they are incredibly effective at doing so. Despite tremendous hype, today’s DAOs are generally less competitive and less efficient at producing goods and services than comparable corporations. But there are several ways that DAOs could disrupt the thousand-year-old corporate model. In order from most to least evidenced:

1. Scaling funding. One demonstrated feature of DAOs is their ability to obtain funds incredibly quickly. DAOs might demonstrate a comparative advantage in raising and deploying capital given their native proximity to crypto assets such as tokens, NFTs, and various financial instruments coming from decentralized finance. DAO-based fundraising might also be especially appropriate for fast-moving software projects.

2. Evading regulation. Operating on decentralized infrastructure allows (some) DAOs and blockchain operators to evade regulation within certain legal jurisdictions, e.g. U.S. securities laws or European data regulations, even when relevant persons in the DAO may reside or do business in those jurisdictions. This clearly endows DAOs with certain advantages compared to traditional entities.

3. [*] Easy to start. Registering a company requires interacting with legal authorities, possibly in multiple jurisdictions. Starting a DAO can be as easy as filling out an online form, making them a better fit for projects that are just beginning.

4. [*] Digital jurisdiction. Blockchain-based forms of contract enforcement and alternative dispute resolution might advance to the point where companies will prefer to operate in a digital jurisdiction rather than a traditional legal jurisdiction. This is most likely to happen when the legal jurisdiction in question has low capacity or is inefficient in some way (e.g. due to corruption or lack of institutional investment), or when a company needs to operate globally across multiple jurisdictions.

5. Scaling contribution. Building a product or service requires sourcing and hiring people. Open-source software has already demonstrated the ability of protocols such as git to organize contributors at large scales. DAOs, through tokens, community ownership, and other incentive mechanisms, can support scaling of contributors and mitigate some of the problems with open-source and other forms of peer production.

6. [*] Community ownership. DAOs, as variations of online communities, offer better support for large-scale community ownership and governance. In turn, community ownership might enable faster growth and better alignment between firms and their users, locking in network effects.

7. [*] Digital public goods. DAOs might be a more efficient vehicle than traditional corporations for funding, building, and protecting public goods for the entire DAO ecosystem, leading to more investment in shared infrastructure, a more interoperable institutional and technical stack, and a cheaper, more efficient ecosystem of services than that available to traditional companies.

8. [*] Consuming shared infrastructure. DAOs may not only promote relatively more investment in shared infrastructure and research but, as technical constructs, may benefit more directly and more quickly from improvements in infrastructure and research.

9. Tech-based network effects. DAOs, as net-native organizations, can more efficiently exploit network effects enabled by technology and the internet.

10. Investment management. Investment DAOs and DeFi DAOs might become more efficient patterns for allocating, managing, and thus growing the value of governed assets than traditional banks or private equity firms. In this view, DAOs will become holding entities for traditional corporations.

11. Digital governance. Corporate governance in the form of shareholder meetings, boards of directors, and corporate charters has flaws. Digital technology already complements and automates many of these processes. DAOs represent a transition from regimes where rights are recognized and enforced through legal and formal processes to a regime where rights are recognized and enforced through code, and might provide significant efficiency gains.

12. [*] Scaling decision-making. Building and running a company requires complex decision-making at many levels, and the vast majority of corporations make these decisions through a hierarchy. DAOs are piloting decentralized forms of decision-making that, in principle, could be better suited to different business models.

13. [*] Incentives provided by states. DAOs can be mapped to both typical corporate entities such as LLCs as well as new legal entities. Those new legal entities may entail comparative legal and tax advantages for DAOs as well as other benefits for the governments and courts that adopt them.

14. Long-term economic trends. The economy might rebalance into industries and arenas (e.g. the metaverse) where DAOs have a comparative advantage against traditional companies.

[*] indicates hypotheses with the potential to dramatically increase the competitiveness of DAOs, especially in the long-term.

A DAO is defined here as an organization whose governance is organized primarily through a smart contract, typically hosted on a blockchain. A digitally-constituted organization is an organization whose governance is organized primarily through computational artifacts such as software, hardware, and/or protocols (e.g. the Bitcoin and Ethereum networks, even though they are not DAOs, can be classified as digitally-constituted organizations). In all likelihood, before we see a transition from legally-constituted corporations to full-fledged DAOs, we will see a wide range of organizations whose governance is both legally- and digitally-constituted.

End-date

Apr. 28, 2032

This post is an updated version of Long Bet #897.

The Bet

By 2032, decentralized autonomous organizations (DAOs) and other digitally-constituted organizations will organize more assets and production than traditional, legally-constituted corporations.

Why?

Legally-constituted corporations are long-standing vehicles for producing commercial goods and services, and they are incredibly effective at doing so. Despite tremendous hype, today’s DAOs are generally less competitive and less efficient at producing goods and services than comparable corporations. But there are several ways that DAOs could disrupt the thousand-year-old corporate model. In order from most to least evidenced:

1. Scaling funding. One demonstrated feature of DAOs is their ability to obtain funds incredibly quickly. DAOs might demonstrate a comparative advantage in raising and deploying capital given their native proximity to crypto assets such as tokens, NFTs, and various financial instruments coming from decentralized finance. DAO-based fundraising might also be especially appropriate for fast-moving software projects.

2. Evading regulation. Operating on decentralized infrastructure allows (some) DAOs and blockchain operators to evade regulation within certain legal jurisdictions, e.g. U.S. securities laws or European data regulations, even when relevant persons in the DAO may reside or do business in those jurisdictions. This clearly endows DAOs with certain advantages compared to traditional entities.

3. [*] Easy to start. Registering a company requires interacting with legal authorities, possibly in multiple jurisdictions. Starting a DAO can be as easy as filling out an online form, making them a better fit for projects that are just beginning.

4. [*] Digital jurisdiction. Blockchain-based forms of contract enforcement and alternative dispute resolution might advance to the point where companies will prefer to operate in a digital jurisdiction rather than a traditional legal jurisdiction. This is most likely to happen when the legal jurisdiction in question has low capacity or is inefficient in some way (e.g. due to corruption or lack of institutional investment), or when a company needs to operate globally across multiple jurisdictions.

5. Scaling contribution. Building a product or service requires sourcing and hiring people. Open-source software has already demonstrated the ability of protocols such as git to organize contributors at large scales. DAOs, through tokens, community ownership, and other incentive mechanisms, can support scaling of contributors and mitigate some of the problems with open-source and other forms of peer production.

6. [*] Community ownership. DAOs, as variations of online communities, offer better support for large-scale community ownership and governance. In turn, community ownership might enable faster growth and better alignment between firms and their users, locking in network effects.

7. [*] Digital public goods. DAOs might be a more efficient vehicle than traditional corporations for funding, building, and protecting public goods for the entire DAO ecosystem, leading to more investment in shared infrastructure, a more interoperable institutional and technical stack, and a cheaper, more efficient ecosystem of services than that available to traditional companies.

8. [*] Consuming shared infrastructure. DAOs may not only promote relatively more investment in shared infrastructure and research but, as technical constructs, may benefit more directly and more quickly from improvements in infrastructure and research.

9. Tech-based network effects. DAOs, as net-native organizations, can more efficiently exploit network effects enabled by technology and the internet.

10. Investment management. Investment DAOs and DeFi DAOs might become more efficient patterns for allocating, managing, and thus growing the value of governed assets than traditional banks or private equity firms. In this view, DAOs will become holding entities for traditional corporations.

11. Digital governance. Corporate governance in the form of shareholder meetings, boards of directors, and corporate charters has flaws. Digital technology already complements and automates many of these processes. DAOs represent a transition from regimes where rights are recognized and enforced through legal and formal processes to a regime where rights are recognized and enforced through code, and might provide significant efficiency gains.

12. [*] Scaling decision-making. Building and running a company requires complex decision-making at many levels, and the vast majority of corporations make these decisions through a hierarchy. DAOs are piloting decentralized forms of decision-making that, in principle, could be better suited to different business models.

13. [*] Incentives provided by states. DAOs can be mapped to both typical corporate entities such as LLCs as well as new legal entities. Those new legal entities may entail comparative legal and tax advantages for DAOs as well as other benefits for the governments and courts that adopt them.

14. Long-term economic trends. The economy might rebalance into industries and arenas (e.g. the metaverse) where DAOs have a comparative advantage against traditional companies.

[*] indicates hypotheses with the potential to dramatically increase the competitiveness of DAOs, especially in the long-term.

A DAO is defined here as an organization whose governance is organized primarily through a smart contract, typically hosted on a blockchain. A digitally-constituted organization is an organization whose governance is organized primarily through computational artifacts such as software, hardware, and/or protocols (e.g. the Bitcoin and Ethereum networks, even though they are not DAOs, can be classified as digitally-constituted organizations). In all likelihood, before we see a transition from legally-constituted corporations to full-fledged DAOs, we will see a wide range of organizations whose governance is both legally- and digitally-constituted.

End-date

Apr. 28, 2032