In today's post-industrial societies, one of the most pressing challenges we face is the issue of the aging population. The proportion of elderly individuals in these societies has been steadily increasing. This demographic shift poses significant challenges and implications for various societal institutions, including healthcare systems and social welfare programs, as they were originally designed back in the day when the demographics were different.
For today's working-age population, this presents a worrying prospect: the risk of not receiving the expected benefits from governmental social programs after retirement. On the flip side, private for-profit medical insurance companies have become profit-driven middlemen, taking substantial portions of employees' compensation value. Over time, their spending efficiency has dwindled, while marketing and administrative expenditures have soared.
So, the question arises: is there a viable alternative to these legacy institutions? Is there a way to enhance the effectiveness of social welfare and insurance programs while offering greater transparency and control to contributors and members?
Historically, benefit societies, organized independently of government or corporations, thrived worldwide. These cooperative societies provided an array of benefits to their members, including financial aid for education, unemployment, childbirth, medical expenses, retirement, and funerals. However, since the early twentieth century, the importance of such societies has declined, particularly in Europe and the US.
Another potential solution to address this challenge is the special-purpose family legal trust, which allows trustors (contributors) to pool funds for the benefit of others, particularly their kin. However, the high legal fees associated with creating and maintaining such entities limit their popularity primarily to wealthy families.
The emergence of web3 technologies has introduced innovative tools that empower individuals to create organizations governed by decentralized computer systems rather than traditional legal frameworks. This approach enables web3-native organizations to automate various operations, eliminating friction and intermediary fees associated with traditional legal systems. With web3 technology and smart contracts, the formation of organizations for any purpose has become faster and more cost-effective. However, the current landscape presents a steep learning curve, particularly for non-tech-savvy users. Additionally, making payments from the treasury of a web3-native organization, often referred to as a DAO (Decentralized Autonomous Organization), to a vendor with a regular bank account can be complex due to the conversion process from web3-native cryptocurrencies to fiat currencies. Nevertheless, this issue is expected to diminish as more vendors accept crypto payments.
DAOs or their lightweight counterpart, multi-signature wallets, offer the advantage of ease of operation in the web3 environment, especially when members span multiple states or countries. Smart contracts operate seamlessly 24/7, transcending geographical restrictions. However, a major hurdle lies in the current complexity of user interfaces, primarily designed for tech-savvy individuals, making them less accessible, especially to older generations. For web3 organizational frameworks to gain broader popularity, user interfaces and private key management software (crypto wallets) must be optimized for a wider audience, catering to specific use cases related to DAOs.
Nonetheless, certain fundamental principles of participation in the web3 space, particularly private key management, cannot be simplified without potential downsides. Therefore, the widespread adoption of concepts such as public/private keys and digital signatures may be another prerequisite for the proliferation of web3 organizations. It's worth noting that the adoption of web2 technology also required users to grasp new tech concepts like passwords and URLs. As such, the web3 tech and its basic concepts are expected to progress along the adoption curve as the industry continues to deliver value that improves the lives of a broader population.
Nevertheless, even at present, it is entirely possible to deploy and operate a DAO or multisig if at least one member possesses a foundational understanding of web3 and some relevant experience.
To illustrate the practical implementation of web3-native benefit societies, we have established an experimental emergency fund known as the Autonomous Family Reserve (AFR) for our kin. In the following sections, we will delve into the formation process and operations of this web3-native benefit society, using the AFR as a real-world example.
Within a family, financial disparities among members are commonplace. Some may lack disposable income due to various circumstances, while others are in a better position to contribute. Consequently, in the case of a family emergency fund like the AFR, initial deposits are often made on a charitable basis by those who can afford to do so. This aligns with the tradition in many families where working-age members financially assist other family members. Contributions to the family fund may be perceived as more efficient than direct financial aid, as the collective nature of the fund brings transparency to the utilization of the funds.
The next step involves establishing regulations, rules, and a voting process. These rules are crucial in guiding members with voting rights, determining which proposals align with the organization's purpose and which contradict it and should be rejected. Specifically, the rules should define membership criteria, payout conditions, and the process for amending the rules themselves. A basic setup may consist of a standard multi-signature account, such as a Safe contract, with a 2-out-of-3 structure and a concise organization charter outlining the purposes, rules, and regulations.
Once the initial funding is contributed by "benefactor" members, the smart contracts securing the AFR's funds can be deployed. This deployment task is typically performed by an "operator" member who serves as an internal expert and support specialist. These operators are required to learn the fundamentals of AFR operations, available tools, and interfaces for setting up an AFR. As user interfaces for AFR creation and management continue to advance, the operator's role may evolve, potentially reducing the burden on this type of member.
Subsequently, the founding members gradually onboard the rest of their extended family, one member at a time. AFR members collectively decide on the family boundaries through a vote, which may be based on factors like the city or country of residence of family members or the principle of blood proximity. In our case, the initial setup took approximately two hours, and onboarding the first family member who does not have a tech background required an additional two hours. In contrast, setting up a traditional family trust may take several days and require the involvement of a lawyer to complete properly.
The initial setup can evolve into a more complex structure, such as a 3-out-of-5 configuration or a full-fledged DAO featuring membership NFTs of various tiers and a team of contractors for maintenance purposes. Payout conditions can also be adjusted based on the collective experience of individual AFRs. Examples of payout purposes may include covering out-of-pocket emergency medical expenses, aiding members affected by humanitarian crises or natural disasters, or generating yield distributed to older adults as a supplement to pension payments.
We have already implemented a conceptual pilot with our family, and although it required some time to explain the necessary concepts using real-world analogies, we successfully onboarded even the eldest family members. Consequently, every member can actively participate in multi-signature wallet management and contribute to decision-making during our family reserve board meetings.
Social Recovery: Over the AFR's lifespan, some members may lose access to the private keys necessary for participating in its operations or may have their private keys exposed to third parties, necessitating replacement. Given that AFR members at the same time are members of an extended family, they can collectively validate an individual's identity and authorize a key replacement for the member. However, the threshold for such a procedure must be stringent to prevent false recoveries and the inadvertent exclusion of a member due to collusion by a small group.
Inheritance: A unique feature of the AFR is that members can bequeath their inheritance to the Autonomous Family Reserve rather than specific family members. This ensures that the estate benefits the entire kin rather than individuals and facilitates collaborative asset management, often leading to more prudent long-term planning.
Taxation: A significant inquiry revolves around the taxation of financial aid received by AFR beneficiaries. The tax implications may vary considerably based on the jurisdiction in which the beneficiaries reside. Further research is needed to explore ways to make the aid not taxable for the beneficiaries and contributions tax-deductible for AFR contributors.
User-Friendly Interfaces: Another crucial area is the development of user interfaces that are user-friendly, particularly for individuals lacking technical expertise. Simultaneously, these interfaces should be adaptable to the unique needs of specific AFRs and their members.
To address those questions, representatives of each AFR may establish local associations of AFRs to foster collaboration. These associations can serve as platforms for sharing best practices in navigating local tax regulations and exchanging optimized interfaces tailored to the specific needs of their respective locales.
In the face of the challenges posed by an aging population and the quest for alternatives to traditional institutions, web3 technology opens the door to innovative solutions like the Autonomous Family Reserve. With the right approach to education, user-friendly interfaces, and tax planning, the potential of web3 to revolutionize how we manage our collective finances is within reach, offering greater control, transparency, and resilience for families in an ever-evolving world.
If you have any feedback or want to learn more about how to set up AFR for your extended family, please let us know!