Since 2021 there has been an influx of interest in the formulation of DAOs (Decentralized Autonomous Organizations) as means of running organized activities, especially online. DAOs have been around since the ETH ecosystem introduced smart contracts (they have been experimenting with the concept for many years at this point), but in 2020-2021 we’ve seen an exponential interest in the idea as the barriers of entry became low enough that basically anyone with access to an internet connection could start one right away. (And many of them have, as most crypto folks know.)

But what makes a DAO work isn’t the code itself - it’s the participation and organizational structure that comes out of the “community” itself. I put “community” in quotes because that word has become a catch-all phrase that includes many different types of organizational types -- many of them with diverging methods and goals. Because a DAO is basically a smart contract that runs autonomously on the blockchain (that people agree to subscribe to) how it actually works in practice can take on many different forms. To name a few, a DAO can be created to organize:

• For-Profit Companies (Corporations)
• Non-Profit Companies (Corporations)
• Government Organizations
• Activist Organizations
• Military Organizations/Clubs
• Charity Organizations
• Professional/Social Organizations
• School/Student Organizations
• Union Organizations
• Artist Collectives
• Worker Co-Ops
• Family, Hobbyist, and Other Private Groups

…and the list goes on and on. DAOs are whatever you want it to be - only that it happens to be on Web3. In the near future, people will probably prefix the “type” of DAO they’re building as people start to get more specific about the type of organization they’re actually a part of. (The term DAO in it of itself, in other words, doesn’t really mean much.)

Worker-Owned Companies and Why it’s Invisible on Web2

Right now the main “battle” that goes on in public discourse (at least in the United States) tends to be for-profit corporations vs government/non-profit/activist organizations - most likely as a response to rising inequality and the “winner-take-all” models of Web2 that we see today. While arguments between these tribes have turned into a cash farm for social media companies capitalizing on society’s political polarization, it tends not to bode well for the world’s long-term health.

Political seats may change here and there election after election, but the situation on the ground never seems to get any better no matter who’s in charge. Isn’t there a better way?

Turns out there is: Worker-Owned Co-Ops (the “hippy” version) or Employee-Owned Companies (the “corporate” version) may be the ideal model for the formulation of many DAOs we see today, especially among NFT related projects. EOCs are an organizational type that often gets overlooked amidst the political polarization today, but in theory, it’s a hybrid model that combines best of both worlds -- the ability to turn a profit while also allowing the workers themselves to maintain control over the organization itself. Worker-owned companies tend to operate more democratically than its corporate counterparts, has less income disparity between the CEO and lowest-paid worker, less prone to hostile takeovers, and usually has much higher worker retention and satisfaction rates as well.

The architecture firm Gensler is often touted as the poster-child for this model -- they are the most successful architecture firm in the world by far -- no other company or organization comes even close to rivaling their success. So we know that these models have been proven that they could be made to work -- why don’t we see examples of this brought up more often in talks about Web3, however?

I do think that a lot of it has to do with the model that Web2 perpetuates -- often unconsciously -- into social media and into the world as a whole. Web2/VC/startup culture in the last decade or so has popularized the idea of “total founder control” (e.g. Mark Zuckerberg) where the company board basically has no power over the CEO -- for better or worse. While there’s some merit to the “Move Fast and Break Things” mantra, in the last few years we’ve seen the type of damage that sort of mindset can have when that slogan is applied to the whims of a single individual.

Web3, of course, is a reaction to all of the above and is an active rejection of the way tech products have been done before. It’s interesting to note that Bitcoin (Satoshi Nakamoto literally disappeared), Ethereum (Vitalik Buterin handed over his executive functions to Ming Chan, then later to Aya Miyaguchi), and Dogecoin (Jackson Palmer went into hiding, citing that he prefers the “quiet life”; Billy Markus is still around but is no longer directly involved) all have founders who stepped down from their founder roles, willingly and voluntarily. In a way, the success of these coins are living proofs that the market itself demands decentralization in the way that it operates, both in front and in the back.

If EOCs are such a good idea, why don’t we see more people talking about it on social media? While I would probably argue that EOCs are superior to traditional corporate structures in almost every way possible, that’s probably exactly the sort of thing that a centralized, Web2 company doesn’t want you to know. A successful co-op model is the biggest threat to the existence of a centralized, founder-owned hierarchical model, after all. But EOCs are exactly the sort of thing that Web3 advocates can and should be working on right now, really.

Employee Stock Ownership Plans (ESOPs) and DAOs

Employee Stock Ownership Plans, sometimes called ESOPs, are the bread-and-butter of making EOCs work - there are many different ways EOCs can be formulated, but anything that calls itself employee-owned should have some basic fundamentals in place:

• Every employee should have a stake in the company by default (even the lowest paid worker).
• Major decisions are voted on, and there is a clear process of which shareholders can get directly involved with the process should they wish.
• Leadership positions are delegated, and there should be some means of holding them accountable when necessary.

Hearing Web3 advocates talk about these things is interesting since there are already companies out there walking the walk (and being very, very successful) while most of the existing DAOs in the crypto space right now have very little structure, if any. But to create a DAO that resembles an EOC, all you’d have to really do is to swap stocks with tokens, employee IDs with wallets, ballots with smart contract voting, and you’re already mostly there. (User identification is the “big” problem DAOs are trying to solve for right now, to be fair.)

Right now many DAOs are created spontaneously as attachments to someone’s NFT project, but lacks a roadmap or long-term plan of what it actually plans to do -- and what sort of benefits it can give to its users and participants. The danger in that is that when you don’t have a clearly detailed plan, the natural tendency is to revert back to what you’re comfortable with -- either the Web2 model of trying to run everything yourself (ironic centralization), or an imitation of the public/non-profit models that we already know doesn’t work (ineffectual decentralization). Personally I think that rather than trying to come up with something completely new from scratch, the easier thing to do is to take lesser known ideas like EOCs and Sortition models and apply them directly to DAOs since we already know that they can be made to work.

Either way, I think that Web3 advocates would probably do themselves a favor by thinking more outside of the box in regards to what sort of models they can experiment with, since now is probably the best time to do it while the industry is still young. The worst thing we could do here, in my opinion, is to recreate what we already know doesn’t work in Web2 and go through the same problems all over again -- then regret not having taking that step outside later on. But we first have to deprogram ourselves of the top-down models that has seeped into our consciousness very deeply, one day at a time. It might really be humanity’s only hope at this point, in a way.