While NFTs have been the latest "it" trend in the technology world, there has also been a lot of chatter and uptick around utilizing blockchain technology to form DAOs. DAO stands for Decentralized Autonomous Organization, and it is an organizational structure with no central leadership and a bottoms up governance model in which members all get to vote and rules are governed on chain.
DAO's have been in vogue recently given that they seemingly put power into the "users" hands since any user (represented as a token holder) gets to have a say in the future of the organization and can submit new ideas/rules for a vote by the group. In theory, it's a greta idea, giving people input into the organization they are a part of is healthy practice. But humans are complex creatures and a recent post by PJC Partner, Rob May, on the Inside AI blog really hit home for me that DAOs might not be the answer that we are looking for.
I have the full blog linked above, so for the sake of time we will cover a few key points here but please do check out the full post as it is very well thought out. In 2005, well before DAOs were even technically possible (at least with blockchain technology as we know it today) Rob setup a DAO experiment with a friend to settle a simple disagreement, can crowds make better decisions than individuals?
He and a colleague started a new business called "The Business Experiment" and allowed 1,000 people to sign up to be equal participants in TBE. The idea was simple, all decisions on the rules of the business or future decisions/changes in the business would need need a majority vote and using a token-like system, people would be compensated in equity proportional to their contribution and...well a few interesting things happened.
The second thing that happened at TBE is that we needed money to pay some basic expenses. So of course we voted on how to raise money, and the winning idea was to sell TBE branded merchandise. This was a clever and I figured with 1000 participants we could raise a decent amount just from our group. A graphic designer who was participating donated a free logo and we setup a website where people could buy TBE merchandise. We promoted it to the group, and we sold 3 items total - and one of those was a TBE coffee mug that I bought. So what people wanted was everyone else to pony up money for TBE, and not have to do it themselves. This type of free riding is going to happen in DAOs, and it isn't fixable by smart contracts or blockchain because you still have to have a human component.
I wish I could say this was surprising but we see this dynamic play out everyday in non-DAO settings. Humans talk a big game but most of us are risk adverse and DAOs will actually exacerbate this and if anything I could see a DAO world in which it actually enables us to not really "commit" to anything. Joining a DAO has a low barrier to entry so if you follow the power-law of distribution, DAOs will actually encourage the behavior of joining as many projects as you can and then sticking with the early winners and abandoning the other projects. Power law will tell you that DAOs will actually kill more projects than they will help succeed.
Ok, so humans can be flakey and risk-adverse, but this second event at TBE really highlighted the weakness of a DAO for me.
The final straw that made me shut down TBE was this... two programmers agreed to build the software for the winning idea. Their software would manage the process of small business owners tapping into the wisdom of crowds. They agreed to do it for a big chunk of equity points in TBE. And then, as the software came close to completion, they told me they had been thinking about it and were really on to something and didn't want to share it with the crowd but wanted to take it and start their own company. It's tough to see how a blockchain could have enforced this. If a smart contract held back payment as a result, these guys wouldn't have cared.
Well it's not really that mind blowing but human nature is human nature. If you were building something for a small piece and then realize, sh*t, this could be big and I built it so I want to own the majority of it. This is literally why startups exist, if you have a good idea for a company, go build it and execute on its mission and as founders you typically see the most upside. With a DAO, what is to stop savvy members who recognize an ideas potential earlier than the rest of the group from running off an executing on it on their own? If people can break ERC20 smart contracts like the ones commonly used with Ethereum NFTs, what it to stop them from breaking them here?
DAOs will have their place, I can see how for a community, where there is little financial incentives on the the line, they could flourish as a form or "membership" and with the function of continuous enhancement of the community for the benefit of all its members. As I read the blog from Rob it made me think of an Alter Einstein quote about humans:
Two things are infinite: the universe and human stupidity; and I'm not sure about the universe.
I'm not gonna call people stupid, but if we abstract this quote to todays technology and the current attention on DAOs. Humans are infinitely complex, people are messy, and large groups of people only increase these variables exponentially. Sure a DAO in theory gives everyone an equal voice, but they also allow for this complexity to disrupt an organization from achieving anything.
I'm a believer in blockchain technology. And DAOs have a future. But I think there future as a tool to build the companies of tomorrow is a bit murkier than most will have you believe, especially if you search #DAO on Twitter.