I talked about crypto and NFTs, perhaps the most exciting things are DAOs.
Decentralized Autonomous Organizations.
Okay, what are these? Tbh, I’m still having trouble understanding and there’s not really that great of an explainer, here’s the best two IMO:
https://adamd.mirror.xyz/tap-94pfnB_WvMT6W8odoYe5xiMD00WDFNouTytEHN0
The problem is right now, DAOs could really be anything, as some people put it, “It’s a solution looking for a problem.”
So I’m going to describe a particular version of them to try and nail down a cogent explanation.
Because I do think there is something here…
Essentially they are a new way to form an organization. People don’t see new organizations as true innovations. But joint stock companies and LLCs facilitated many new endeavors. And many Economic Historians think the limited organizational forms dictated by Islamic inheritance law hindered middle eastern development post 1000 AD.
Okay but enough economic history, let’s get to the DAO.
Imagine an organization where we could automate the giving of shares.
Right now, shares are assigned ahead of time, you join a company and your stock options are agreed upon. Same with founding, a company is founded and the percentages are agreed upon ahead of time.
With DAOs, the shares can be automatically granted in real time for doing something of value to the organization. Come up with a piece of code that fixes a problem for the company and boom, more shares for you.
DAOs do this with tokens. Usually a DAO has a specific token associated with it.
So imagine we start a DAO, the original members will have some tokens. The tokens then give you voting rights. And then we can award tokens for doing certain tasks related to the goal of the DAO.
Let’s give a specific example of something I’m super familiar with.
Channel 101 is a monthly film festival. People submit films and 5 are chosen by a committee and screened along with new films from the previous month’s top 5 vote getters. So each month 10 shorts are screened: 5 from returning creators and 5 from new creators. I’ve been a part of it off and on for 15 years. People come and go, there’s drama, there’s status, skills are learned, careers are made, hearts are broken… it’s like any other community.
Let’s do a more sophisticated version of it as a DAO. The Channel 101 DAO!
This DAO’s purpose: produce high quality shorts and media.
A group starts this DAO and gives tokens to each of the founding members.
Anyone can submit a film as long as they pay a fee. The money (it would be crypto) goes into the Channel 101 DAO’s treasury.
Existing members of the DAO (people with tokens) review the submissions and vote. To incentivize token holders to view and vote, tokens are awarded to members for viewing and voting. 10 are chosen.
The 10 creators whose films are chosen are automatically awarded tokens.
The 10 films are screened at a private live screening or a twitch stream. Only token holders are allowed at the screening, or other people who pay a fee (this money goes into the DAO’s treasury)
The audience votes and the top 5 are released to the public.
The DAO then releases NFTs based on each of the top 5 films. Creators receive all the proceeds of these NFT sales, with any subsequent sales netting them residuals.
At the end of the year, additional tokens could be awarded to the best film, best director, etc.
What to do with the Channel 101 treasury? Well, members could propose more ambitious projects and members could vote on which ones to pursue.
Basically it could be a production company owned and operated by creators, where anyone could join. It automatically would produce content and reward the creators.
Advantages over current Channel 101
Members of the community are incentivized to stick around. If I’m successful and own a bunch of Channel 101 tokens, I want those to go up in value.
In Channel 101 now, it’s all volunteer work, no one makes a living from it. With the DAO, it could be possible to make a living just doing Channel101.
People leave Channel 101 to go work in Hollywood all the time, these people make it big but always remember 101 fondly as a place of complete freedom. With the DAO, they don’t have to leave, they can keep making what they want.
Downsides
It’s a community based on volunteer and DIY, bringing money into it would probably mess everything up
Status is now codified in token ownership. Would probably lead to weird dynamics.
Some rich person could theoretically buy up tokens and take control of the org, this one you could probably sidestep though with some bylaws
Right now maybe you’re wondering how does the blockchain/crypto/web3 even come into this, couldn’t you do this now or 5 years ago?
Yes, you could. Blockchain/web3 enthusiasts will tell you that using Blockchain technology makes all this easier. Everything can be automated with smart contracts and since it’s on the Blockchain, it’s transparent. They’re probably right, and while everything seems clunky to me in web3 right now, I assume the user experience will get better and at some point in the next 2 years, it will be pretty easy to set up a DAO (similar to how it was once really hard to make a webpage and now it’s a pretty seamless experience).
Although I should note, some smart people think the Blockchain will always be too clunky and slow.
Okay, so that’s how web3 might work in the case of a filmmaking collective/TV network.
Let’s zoom out and discuss a few points–
Socialism?
DAOs look a lot like worker collectives. The people who produce the value are the owners of the org. This will likely appeal to young people who love socialism (although in talking to the youths, many of them don’t understand the meaning of the terms Capitalism and Socialism, but anyways…). So you’ll likely get a lot of fervor around DAOs from young idealists. However–
The 80-20 rule
DAOs seem egalitarian, but will be very unequal. One theory for the rise in inequality is the 80-20 rule. That theory is that in any organization, 20 percent of the workers do 80 percent of the work. This rings true in my experience within organizations. At Channel 101, 20 percent of the filmmakers made 80 percent of the films people loved. When I wrote for a TV show, 20 percent of the writing staff wrote 80 (maybe 90) percent of what actually made it into scripts. As a professor, 20 percent of the professors are actually ones you’d want to take, 50 percent are replacement level, and 30 percent are ones you’d want to actively avoid (I will say, my department might skew more towards profs you’d want to take). Back to inequality, in the past 30 years or so, companies have gotten much better at knowing which employees are the 20 percent and rewarding them accordingly. Couple that with the decline of unions and you get a divergence of wages between the 80 percent who do 20 percent of the work and the 20 percent who do 80 percent of the work. Essentially, all workers are not created equal, if firms are better able to identify the superstars and workers lose the ability to set a wage together, the superstars will get paid a lot more. Okay, that’s the 80-20 theory of rising wage inequality. Back to DAOs–
I would think a DAO would supercharge this. One of the appeals is aligning compensation with value creation. Rewarding the workers who actually create the value. So it would seem to me that DAOs would have a few power members that effectively dominate the rest (all of us think we are in the 20, but what if we found out that we’re really a member of the 80?).
But…
Maybe the DAO would only consist of the top 20 percent. Just a bunch of superstars collaborating. This option wouldn’t be so bad. Also, it might actually not be that bad to be a part of the 80, if everything is transparent. It’s hard for me to complain about a coworker making more than me, if that is more concretely tied to value creation. If my university came to me and said, you make half of this person’s salary because all the students want to take her class over your’s and subsequent tests show that the student’s learn more in her classes, well it’s hard for me to argue. So maybe it wouldn’t be so terrible–
3) But what is value?
A lot of value is hard to quantify. One of the amazing things about the pandemic is working from home and seeing what my wife actually does for work. She is a manager of a team and a lot of her day is motivating people. Making people feel like they matter, listening, offering advice and recognizing someone’s humanity. In Office Space, this is caricatured as a people person.
But feeling valued and feeling like what you’re doing matters is the most important aspect of a job. How do we assign value to these real people skills?
In a DAO I’m not sure how this works, DAO’s are usually all remote and how do we reward the connectors? The people that make being part of a group fun. The people that aren’t the most productive, but the people that just brighten your day.
Which is why–
I don’t think DAOs will replace corporations or even be a majority of organizations anytime soon. They would seem to work best for projects where talent is dispersed throughout the world and the talent is very skilled. They will be a good way for very talented people to organize quickly to execute a project and be sure they are fairly rewarded.
Two other places they will be useful is
Creative projects. They would allow artists to formalize a collective. I predict they will be major players in Art, Entertainment, Video Games and Journalism, just like NFTs.
Pooling money. They could also be very useful for diffuse ownership with lots of small stakeholders. For instance, fans could pool together and buy and then manage a sports team, which will probably happen within 2 years. Here the value is moving ownership of some item or entity from a couple of really rich people to lots of normal people. Imagine how fun it would be to be able to vote on decisions your favorite team makes.
My Personal Experience with DAOs
A few weeks ago, the Constitution DAO was established, the idea was to raise a ton of money to buy a copy of the constitution at auction. For a history buff like me, it all seemed pretty cool. So I donated about 300 bucks, in return I got about 72000 people tokens. These tokens would allow me to participate and vote on what we’d do with the constitution once it was acquired. Where to display it etc. Theoretically, if I convinced enough people token holders, I could have had the constitution swing by my house. The goal was to raise 20 million, the DAO blew through that and got to somewhere north of 40 mil. The auction day came and I eagerly watched the auction online, it happened to coincide with a day I was giving a midterm. As my students struggle with an exam on the provision of public goods and government interventions, I, their professor, was about to own the constitution.
A bidding war ensued between a young woman (assumed to be a representative of the DAO) and an elderly gentleman. The discord chat was on fire as was the YouTube live comments. Each bid from the young woman was greeted with cheers from the chat. The constitution was about to be ours. Finally after bid after bid, the elderly man folds, the young woman had won. We did it. “We're all gonna make it (WAGMI)”, the universal cry of web3 rang from twitter to discord.
Then… it is revealed, the young woman wasn’t bidding for the DAO, she was bidding for a hedge fund billionaire.
Did the DAO even bid? Who was our rep? I never found out. Long confusing messages from the admins appear in the discord. We can get our money back (of course this is web3, so each transaction has massive fees, to donate and then retrieve 300 dollars will cost me 80 bucks in transaction fees).
Seems like a microcosm of web3, everyone paid a ton of money for a brief high just to fail. The only people who did well were the Ethereum miners.
But then a weird thing happens, the people tokens go to the moon, they are all of a sudden worth 30x your money, my $300 is theoretically worth $9000.
Why? How? Who knows?
Another microcosm of web3, even when it fails, it shows it is the future.
One problem…
I have been unable to retrieve my initial Ethereum donation or my people tokens, they seem forever stuck on the intermediary website, Juicebox. I try to claim my tokens, it gets sent to the blockchain and never processes, I try to just get my Ethereum back, it gets sent to the blockchain and never processes.
Yet another microcosm of web3, everyone seems to have gotten rich off it, but me.
Some final unconnected points on Web3
One of my golden rules is never trust a man who is too unnaturally handsome. Dudes who are just naturally handsome are fine, like most actors are just handsome and it’s impossible to hide. I live in LA and most of these actors could wear a hoodie, not shower and look great. What I’m talking about are men who work really hard to be extra handsome, who clearly really care about their appearance. If someone has 5 percent body fat, perfect hair and dresses well, they’re probably a sociopath or at a minimum a raging narcissist. NOT ALL unnaturally handsome men are like this, of course. And I know you shouldn’t judge a book by its cover, but most books with dragons on the cover have dragons in them, and most men (especially over 40) with low carb jawlines and tailored shirts are narcissists.
And every video, every podcast with a web3 evangelist, they all look like Christian Bale in American Psycho (I’ve seen Christian Bale in person btw at his kid’s soccer game, totally normal looking fellow, and would absolutely look like a slob next to these web3 bros).
These people scream, “Do not trust me.”
So many people are in this space just to make a quick buck, that it is inevitable that there is a massive crash. Like I’ve emphasized, seek out the real value.
Tyler Cowen, who is my favorite public intellectual, thinks Web3 is the future because of all the talent being attracted to it. Young smart people are flocking to the space. Smart people I know who do an investigation of the space get obsessed with it. Conversely, people I know who never accomplished anything but love to criticize everything are the most dismissive of the space. These are the “just a jpeg” people or the energy scolds– the people who will chastise you for using a plastic straw but do not bat an eye to fly to New York for a Yung Gravy concert.
My point is— the doers are all attracted to the space. And doers will inevitably do something. So why are all the doers attracted? I think part of it is the underlying tech of the blockchain. But part of it is that the other avenues of society are stifling right now. I can’t imagine how toxic and unappealing academia must appear to a young thinker, it's a space where you really can’t even ask interesting questions anymore without fear of retribution. And in the start up world, where is the appeal? The tech journalists all seem to hate tech. Start up founder after start up founder is assailed and derided. When Edison was living, he was revered and celebrated. And yeah, maybe he shouldn’t have been, but that’s not the point, the point is if I’m a young Edison, why would I want to invent something now if everyone is going to crap on me? The press is just going to slander me and someone will find some tweet from when I was 14 that proves I’m the monster they imagine, because why? I got rich off an invention people liked.
Web3 is a place where a doer can just make something. They can be anonymous and they don’t have to worry about tripping over any of the wires that have been set by activists, journalists and bureaucrats. In web3, they can just be themselves. To paraphrase Larry David, ”I hate people, but I love humankind.” Well, I can’t wait to see what humankind accomplishes in web3.