In the current economic system, where scarcity is central to the economic model, accumulating capital is a priority. And the most successful means invented for accumulating and deploying capital is the “stock company”. Stock companies make up most of the private sector.
But what happens when capital is no longer scarce? Do you need a corporation? Should I find something better than that?
Not many things are always rare. But if there is one, it is human interest. Decentralized Autonomous Organizations (DAOs) and cooperatives may be a much better vehicle for attracting attention and engagement.
How cooperatives work
Within DAOs, co-operatives and staking systems, significant decisions are made by members for their benefit and rewards for engagement are returned to members according to their degree of engagement and constructive participation.
There is a lively debate about the lack of clear and forward-looking rules for the crypto ecosystem to get back on track. Such rules are essential for attracting good participants.
Given that almost everything bad that happened in 2022 was already illegal, not many new rules would be needed. Diverting customer deposits without consent, inflating prices, and borrowing multiple times on the same asset are already illegal.
Thankfully, legal frameworks and organizational structures already exist that DAOs can use to establish their presence in the real world. It’s a “co-op”.
Co-operatives already have a long history. Joint-stock companies are larger, but the world’s top 300 cooperatives have combined revenues of over $1 trillion.
DAOs can compete with monopoly IT giants
A DAO, legally a “co-op”, is owned by its members. And unlike a corporation, each member has a vote on important decisions. However, profits are distributed among members according to their participation, so the most contributing members receive the most.
Co-ops can fix what I consider to be the biggest problem of the Web2 era. So-called monopolistic, predatory IT giants. Many Web2 company stories go something like this:
A smart entrepreneur comes up with an application that connects buyers and sellers in a digital marketplace. Invest heavily and many years into developing a digital infrastructure that coordinates information, products and payments across ecosystems. We will also invest in advanced analytics, reputation management systems, and growing community engagement.
These are all good things. Developing the infrastructure to make everything from online auctions to ride-sharing to shopping a frictionless digital experience required huge investments. The problem is its success.
Such a system resembles a natural monopoly. As it became more dominant, it raised prices and slowly but surely shifted its focus from adding value to extracting value from the ecosystem.
We need forward-looking policies and approaches. That future is the future of abundance.
If major IT companies are cooperatives
Imagine if all the tech giants were co-operatives instead of corporations. Imagine that, after returning a good return on the initial investment, the co-operative started to distribute the remaining profits to the network participants.
Sounds like a good idea, but if there’s a flaw in this vision of a prosperous future, it’s that we’re always getting closer to this ultimate goal, but never quite.
Good ideas need teams, investors, customers and profits.
Co-operatives may be a very good option. White paper released by law firm Orrick, Herringron & Sutcliffe examines whether cooperatives are the ideal legal model for DAOs, working with for-profit companies to accumulate capital and deliver returns to investors explains how it can be done.
Co-operatives can even buy shares and own outright commercial enterprises. It can provide a return on the sale of shares to commercial investors, reducing the pressure to constantly extract value from the community while preventing investors from having near-total control of the digital ecosystem.
From companies that have acquired the international certification B Corp, which is given to companies that are environmentally and socially conscious and have a high public interest, to cooperatives and DAOs, the future of business is to unleash the power of the community, accumulate interest and engagement, and use it for the public good. It is a future that is utilized for We need more policies and systems to make it possible.
Mr. Paul Brody: The global blockchain leader of EY (Ernst & Young).
｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Original: Policymakers Should Embrace DAOs in the New Future of Abundance