This blog post is Part 3 in a series about platform cooperatives and blockchain. Read the series introduction here.
In this blog post, I want to consider the 7 cooperative principles as defined by the International Cooperative Alliance (ICA) and whether it is possible to stay true to these principles within a blockchain-based platform cooperative. A recent article by Andi Argast considered this exact question in the context of DAOs, and there will be considerable overlap in the ideas I am putting forth below. I intend to note where my views match or differ from Argast's post.
For the purposes of this analysis, the dual-token model as described in Part 2 will be assumed. For example purposes, the use case of a ride-sharing app will continue to be used.
Cooperatives are voluntary organisations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.
As pointed out in Argast's post, one of the biggest barriers to open membership for blockchain-based apps is the required technical knowledge about computer security and various new tools. For a platform cooperative that aims to offer open membership, the product dApp itself should prioritize an easy user experience (UX). The "play to earn" apps cited before in Part 2, like Axie Infinity or StepN, offer a good example to follow. They can be downloaded and installed via App Stores like normal mobile phone apps, and the user doesn't even need to know they are creating and using a non-custodial blockchain wallet. Best practice security like two-factor authentication is the default, so user's wallets are protected. Furthermore, the apps include tutorials about how to save your recovery phrase and that you should never share it with anyone, which is in line with the 5th cooperative principle of education (see below).
An area where the StepN app does not prioritize usability is adding funds or payment methods to the app. They instead direct people to centralized exchanges like Binance, asking the users to buy Solana or similar cryptocurrencies on their own. The Eva driver coop app offers a better method to handle this, operating with the EOS blockchain but still accepting regular credit card based payments. Banxa is one example of a service that allows receiving normal payments in a dApp.
By combining these approaches, users could install and use the app just as if it was like Uber. It is worth noting that this approach would be leaking some value (in the form of transaction fees) to financial intermediaries like Visa and Stripe, losing out on some of the purported benefits of blockchain.
To address the issue of membership itself, this is where the value accrual method of the governance token comes in. By offering governance tokens to any person that uses the platform properly, they can become members. No racial, gender, or other demographics would affect this. There wouldn't be any need for a separate financial investment like buying shares, which should make this open to all economic classes. This would grant anyone able to use the service a way to become a member, fulfilling the principle of open membership.
Cooperatives are democratic organisations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary cooperatives members have equal voting rights (one member, one vote) and cooperatives at other levels are also organised in a democratic manner.
Governance would happen on decentralized voting platforms utilizing the governance token. The primary goal of the dual token model proposed in Part 2 was to ensure that member voting could not be affected by the financial side of the business, whether that be the initial token sale, large airdrops to early users, or wealthy "whales" purchasing the tokens on the open market. Since the governance and the fundraising tokens are completely separate, someone accruing disproportionate percentages of the fundraising token would not be able to affect the voting. The governance tokens would accrue only to people using the platform properly, and would not be tradeable.
There is a wide spectrum of decentralized voting tools and mechanisms depending on the exact goals. By combining the typical one-token-one-vote with quadratic voting, the one-member-one-vote ideal described in the principle can be approximated.
If precise one-member-one-vote mechanics were desired, one simple approach would be to leverage off-chain identity. For a relatively simple way this can be handled, look at the way the Ethereum Name Service allows linking Twitter handles to an Ethereum name. It requires someone to post a tweet with a random message (which proves ownership of the Twitter account), and then use their private key to sign a message with that same random message (which proves ownership of the blockchain wallet and establishes a link to the Twitter identity).
Ultimately, achieving one-member-one-vote mechanics on the blockchain combines two active areas of research: 1) Sybil resistance, 2) on-chain identity. Both areas are ripe with experiments, such as on-chain tools like Proof of Humanity, or hybrid tools like BrightID and Gitcoin Passport. The nascent idea of soulbound tokens also promises to address these challenges. This will always include a trade-off with privacy and anonymity, but such concerns may not be relevant for a platform coop that intends to build a real community of care and justice.
Members contribute equitably to, and democratically control, the capital of their cooperative. At least part of that capital is usually the common property of the cooperative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their cooperative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the cooperative; and supporting other activities approved by the membership.
All income into the platform would be held on the blockchain, controlled by the governance which only members would have voting access to. Members would vote on exactly how that income is distributed back to the dual token holders. The use of blockchain-based value accounting would allow automated, unbiased, and transparent distribution to members.
As an example for a ride-sharing app, the actual income would be coming from the riders and flowing into a blockchain treasury. Members would vote on the parameters of the smart contract that would distribute those funds to drivers and other stakeholders. This would undoubtedly be one of the hotly debated areas of this platform coop, where members would have to decide a proper balance between fairly compensating drivers and distributing surplus to other ends.
The dual token model described in Part 2 does mean that the tokens themselves could not be used for compensating members, due to the strict separation of governance and finances. The governance token itself would have no market value since it is not tradeable, and the fundraising token could not be directly minted or distributed by governance votes. Therefore, the main lever of governance would be distributing the income coming into the platform, which would ideally not be in volatile tokens but in stablecoins that could effectively be treated just like regular fiat currency in a cooperative's bank account. This should be the case if the advice of Principle 1 above was followed, as most users would be paying with regular credit cards rather than cryptocurrency methods.
Cooperatives are autonomous, self-help organisations controlled by their members. If they enter into agreements with other organisations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy.
The use of the dual token model will ensure that financial speculators do not gain any governance rights over the cooperative, but only receive profit-sharing that may have a limited lifetime or ceiling. In this way, the cooperative can raise money without losing out on their independence. All of the considerations from Principle 2 above are relevant here as well.
Cooperatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their co-operatives. They inform the general public - particularly young people and opinion leaders - about the nature and benefits of co-operation.
The use of a blockchain will give a platform coop's dApp a level of trusted transparency that would be difficult to otherwise achieve. Depending on the implementation, all of the value accrual for both the governance and fundraising tokens could be viewable to anyone. It would be easy to trace how a certain member got their voting rights and which votes they have cast. Each successful vote would lead to smart contract executions and effects that would be forever viewable on the ledger.
As described under Principle 1, technical barriers to entry for blockchain remain a major challenge. Education would therefore be critical, and dApps should take this principle very seriously. The app should include tutorials on best practices around private key security, as well as explanations for any new concepts.
To further promote the cooperative spirit, the platform cooperative should also consider documenting in open source all its governance processes so everyone can understand it and learn from it. This would be critical especially as these platform coops try to compete with capitalist alternatives. For example, if a platform coop ride-sharing app choses fair wages for its drivers, it may cost a bit more than some competing platforms. It would be important to educate riders about the reasons for the price difference, and also help them understand the overall benefits to the community which would come from these fairer wages.
Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.
Argast's post points out that while blockchain technology theoretically enables interoperability with its permissionless and "composable" designs, this does not often lead to cooperation. In fact, the composable designs often lead to hyper-competitive behavior. One real world example is the Curve Wars, where various protocols compete for a limited amount of user-provided liquidity on the Curve DEX by literally bribing users. Another risk to note here is that smart contract composability also leads to interconnected risks. An example is when the Abracadabra protocol created a popular strategy of leveraging UST in a yield farming loop, without providing any value back to the source protocol. LUNA/UST later imploded for other reasons, but exiters from Abracadabra did cause a de-peg earlier in UST's history. Overall, many blockchain ecosystems are both unregulated and based on economic incentives, which leads to vampire attacks and similar behavior that is anything but cooperative.
As introduced in Part 1 of this blog series, Cosmos-based blockchains offer a potential solution here. Perhaps the biggest benefit is that a platform coop building with the Cosmos SDK can make their own blockchain, where they retain full control over not just the token designs but all parts of the stack. This contributes to Principle 4 (Autonomy and independence), but also means the blockchain can remain separate from the competitive, libertarian, capitalist values that permeate most public blockchains. A platform coop could create a blockchain that is built to solve the challenges common to all platform coops, and then make this blockchain available to values-aligned collaborators. One example of how Cosmos is already used to create values-aligned communities is the Kujira blockchain, which only permits dApps that share their values around "grown-up DeFi".
The use of a Cosmos-based blockchain also comes with the built-in ability for interoperability across blockchains called IBC, so if other platform coops didn't want to directly deploy their dApps on the same blockchain, they could at least share tokens. Aside from the obvious case of sharing money between coops using IBC, the future experimental use of soulbound tokens (SBTs) could help improve the Sybil resistance and identity properties for all coops involved. Additionally, the chain would be interoperable with countless adjacent blockchains offering their own infrastructure. For example, any Cosmos chain can tap into the Axelar network to access stable coins pegged to fiat currencies like the US dollar, which would facilitate the UX of accepting normal credit card payments. IBC also allows specifying exactly which tokens are allowed to enter in and out of a blockchain, which could insulate a platform cooperative from the rest of the highly volatile cryptocurrency space.
Additional methods of cooperating among cooperatives could include open sourcing any novel smart contracts and supporting code, e.g. the dual token model and any particularities around minting and voting mechanisms. Direct mutual aid to other cooperatives could also be built into the treasury management, voted on by members.
Cooperatives work for the sustainable development of their communities through policies approved by their members.
Being a multi-stakeholder cooperative with real users from the community as voting members, the community needs would be democratically represented. The presence of the platform coop should also help to create more high-paying, stable, high-dignity jobs in the communities in which they operate.
Furthermore, any federation process of expanding to new geographic locations should include requirements about education and giving back to those locales. One direct financial example is that members could vote to contribute 10% of profits to the local cities where they operate.
I hope this article was useful to aid in the imagination of building platform cooperatives on the blockchain. Blockchain technology is not a perfect solution and is not expected to be desirable for all cooperatives, but for those cooperatives that need novel ways to fundraise while also building digitally native communities, blockchain technology can help scale the trust and mission beyond local spaces while remaining true to the 7 cooperative principles.