Co-Ops: The Grandparent of DAOs

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Distributed Autonomous Organizations are novel but not new.

By Arianne Flemming and Jelena Djuric, Operations at Informal Systems

Initiated by a few Twitter users with a substantial follower base, a group of internet strangers came together last November attempting to purchase a rare copy of the US Constitution in an auction organized by Sotheby’s. A fully autonomous collective, ConstitutionDAO saw people gather around a shared cause. Most members have never met one another or don’t even know who they are. They have come together from all over the world in the mission to buy the Constitution. 

ConstitutionDAO went viral immediately and became a cultural phenomenon. The group broke records for the most crowdfunded in less than 72 hours and eventually collected +$40M USD from +8,000 members. The money was managed by a multi-signature crypto wallet with 13 signers (some of them represented anonymously). Even though the group failed to purchase the Constitution, it transformed into a cultural touchpoint showcasing the power of mission-driven community-led organizations and what they can achieve in a short period. Based on the confidence created by trustless blockchain, people who have never met can self-organize, engage through orchestrated efforts, and successfully conduct remarkable projects. This is all determined by each and every one of the participants, giving real sway to the collective so they feel engaged and part of a community striving to reach a goal bigger than itself. 

The decentralized autonomous organization (DAO) model has established a novel mode of participation in online communities. The Web was supposed to usher in a renaissance of organizing people and creative talent. But accompanying this revolution was increased surveillance, data harvesting, and precarious labor.

For all its disruption, the one thing Silicon Valley has not touched is the ownership and governance structure of a typical shareholder-oriented capitalist firm. In the current socio-political climate, exacerbated by pandemic-induced structural issues, trust is increasingly difficult to verify. Against a backdrop of workplace walkouts, toxic culture, and unethical corporate practices, more and more organizations are looking for alternatives to capitalist-driven organizations that are becoming increasingly unstable and untenable. The cultural onboarding of DAOs has revitalized the conversations around the future of work and how organizations can rebalance power structures between capital and labor, creating something sustainable and nurturing long-term employment. 

DAOs are en vogue; the promise and ethos of DAOs are novel but not new. Over 200 years before their transfer onto the blockchain in the form of DAOs, cooperatives have solved governance problems in a democratic and accessible way. Globally and historically practiced structures for corporations, largely ignored by Silicon Valley and technology enthusiasts to date, co-ops are an autonomous association of people united voluntarily to meet common economic, social, and cultural aspirations through a jointly-owned and democratically-controlled enterprise. According to the International Cooperative Alliance, 280 million people are members of cooperatives. The top 300 cooperatives collectively generate $2.1 Trillion in annual turnover. 12% of the world’s population is employed directly by cooperatives. The Mondragon Corporation in the Basque region of Spain has been in active operation since 1956. It’s one of the most successful cooperatives in history. 

Little of the operational aspects of what we now call a DAO is new. DAOs don’t need to reinvent the wheel; they can improve on the work already done. Existing cooperatives are useful case studies for DAOs and places to draw inspiration and experience, having stood the test of stable time. What is different is the complete digitization of the cooperative organization, now called platform cooperatives, and the application of blockchain for governance, and cryptocurrency for monetary activities. These are the novel aspects and growth accelerants. The relative ease of use and digitization of trust creates a unique kind of organization when properly leveraged. There are long-standing cooperative business models to learn from and build upon. Most importantly, if you want to build or get involved in a DAO, you should seek to operate within the seven internationally recognized cooperative principles; self-help, self-responsibility, democracy, equality, equity, and solidarity.

While there are many exciting aspects to this technology, DAO projects have mostly focused on speculative assets and tokenization, and run the risk of reproducing many of the power dynamics of the normative systems they aim to disrupt and decentralize. Technology enables affordances or the qualities that define its possible uses. Its outcomes are determined at the design level by architects — coders, designers, and researchers — most often according to the will of investors. It may be created to serve those interests, but it can also simply be appropriated and turned to the benefit of the powerful. A clear example is the Internet itself, once thought to be a free zone for libertarians, complete with its own manifestos and utopian ideals. Then came Web 2.0, and with it, a reshuffling of the power balance. 

DAOs and the blockchain will disrupt our economic realities but are still limited by several key factors. Navigating the proliferation of nascent technologies is difficult. As we become increasingly reliant on technology to fix our problems, we must be conscious not to put the cart before the horse. Before imposing technical solutions to challenges, we must consider the human and political structures we are dealing with. After that is accomplished, we may begin to incorporate technology into problem-solving practices. Uses of blockchain and DAOs do nothing to address the basic structural realities; in fact, they may even reinforce them. Technology doesn’t develop itself, it’s built by people and companies with specific worldviews and intentions which underline the aims of the code. There is a very real danger that the future of these DAOs will reproduce and amplify existing inequalities and power dynamics. Early investors, with their associated privileges, and highly tech-literate individuals, are given an undue advantage. The promise of decentralization fails as the networks and implementations form centrally around those investors. 

Raising political and historical awareness of the cooperative movements that prefigured the dynamics of decentralization is paramount for the success of DAOs. We are at an epoch in history where human potential can shine in ways never possible before due to the advancement of technologies like blockchains and organizational systems like cooperative governance models. We need to start thinking about alternative futures — ones that could be progressive, cooperative, and collectively emancipatory, and not just the next, more stifling iteration of capitalism. We need to ask: if new tech platforms and protocols are designed to facilitate commoning, what sort of systems are possible? DAOs aim to rebalance power structures between capital and labor. Let’s learn from the co-op to create something sustainable and non-extractive; something that nurtures long-term employment and real wealth creation through R&D, entrepreneurship, and innovation. 

Informal Systems is a cooperatively owned and governed organization with the mission to build the tools that facilitate verifiable and trustworthy relationships between protocols and people. Informal Systems envisions a sustainable future of cooperatively owned and governed, open-source, distributed organizations running on reliable distributed systems. Headquartered in Toronto, with offices in Vienna, Lausanne, and Berlin, the Informal Systems team is comprised of world-class researchers and engineers with expertise in distributed systems and formal verification. It is a core contributor to the Cosmos Network and works on bold problems at the intersection of formal verification and high-value distributed infrastructure that powers the Cosmos Network, the Internet of Blockchains.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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