DAOs | the future of organisations?

Tracey: [00:00:20] Welcome to the crypto curious podcast designed to help you navigate the dynamic world of cryptocurrency. Hello, my name is Tracey, and I'm joined by my mates, Blake and Craig. Hey, guys. 

Craig: [00:00:31] Hey, Tracey. Excited for this one.

Tracey: [00:00:34] I'm trying to bring that excitement to this one because I feel it's a heavy one, but it is an important one. And last week we discussed Web 3.0. I we all love this subject and truth be told, it could have been a two or even three part podcast. And one aspect that we wanted to come back to discuss further was that of Dow's decentralised autonomous organisations. It's even hard to get through that. Is this the final frontier of financial freedom? Possibly. So that's where it will do a bit of a deep dive today. And as we introduce and break down the concept of Dollars, we should remind ourselves where this crypto journey started. So crypto currency was created to provide an alternative to the current financial system. That's why this gets a bit heavy, I guess. And with the boom of DeFi and DAOs, it seems we're getting closer to that vision know day to day and month to month. So what's your thoughts on this, guys? 

Blake: [00:01:36] Yeah, it's fascinating to watch, and it's really creating an environment of rapid innovation, and it's moving. It's hard to keep up with. But you know, today we're here to talk about some of the fundamental ideas that we'll see, you know, express themselves over the coming years. 

Craig: [00:01:51] And I think what's interesting about this space, which we'll get into, is it's becoming a lot more inclusive, whereas, you know, anyone can really get involved in their favourite project and we'll go into how and why you can do that. But it's really creating an alternative way of organisation, really, and it's super interesting to see how projects are doing it better than others. And, you know, in their own little way. 

Tracey: [00:02:16] And I think what happens here, too, is that we're sitting here in a podcast talking about crypto, and we stumble upon different subjects. And all of a sudden we're talking about dals and the way companies work. And now we're talking about deep diving into decentralised autonomous organisations. And that's something that I haven't really talked about or looked into before. But it's really interesting and it is heavy. But I enjoy it, and it's not something that you know a lot of people would normally delve into, but it's it's key to what's going on. 

Craig: [00:02:46] Yeah, it's a bit of a rabbit hole like we started with bitcoin 10 years ago. Now we're talking about overthrowing current organisational structures. And it's a it's crazy.

Tracey: [00:02:59] Yeah. Yeah. OK, so let's dive in, Blake. I'll get you to maybe explain a little bit more about what a DAO actually is. 

Blake: [00:03:06] Yeah. So a down is a governance system with the purpose of allowing strangers to work together who don't know each other or necessarily trust each other. And a DAO Helps People is a system to help people work collaboratively towards common goals or a vision in a fully decentralised way, and does have qualities such as voting mechanisms kind of similar to a shareholder vote. And there's also incentive mechanisms to reward those people that participate in the Dow kind of like employees get paid, but you know, it's done in a totally new way. And cryptos have seen the rise of many novel community led governance structures over the years. And some of these towns have billions of dollars sitting in their treasury, doing amazing things, really building the future, and this would be allocated in accordance with their community governance. 

Craig: [00:04:02] It's madness like there's billions of dollars in a Treasury from a Dell, which anonymous people are all voting on, what to spend on what to do next. And it's like if you told someone that 20 years ago they'd be like, What? Blake, would you say? It's sort of replacing the current company structure of board of directors, particular shareholder votes like how would you, how would you say that sort of comparing to that way of working? 

Blake: [00:04:28] So the answer is it doesn't compete with traditional companies. It provides an alternative model for people to organise themselves on the internet. Legally, they're in a bit of a dubious place because often you know this response, there's responsibilities that companies have where whereas Dollars a fully decentralised and often, you know, people participating them anonymous so they don't quite fit into the regulatory regime, and there's a lot of work happening in the background to find a legal stance for them. 

Tracey: [00:05:01] So. Before we go in to look at how exactly does work, let's have a look at the biggest projects in the crypto space right now that a Dollars. 

Craig: [00:05:09] Yeah, sort of. Two that come to mind are both Ethereum based projects, ones called MakerDAO, which is a an Ethereum DeFi project. Another one is called SushiSwap, which is a decentralised exchange similar to Uniswap. And you know, these devs hold their Treasury in Ethereum's smart contracts rather than giving it to a trusted individual. And these obviously, these smart contracts have rules, have laws against them where they can only spend if a proposal has been passed by. The Dow and Ethereum itself is governed by a Dell, which is called the Ethereum Foundation. And they vote on new projects, they vote on new advancements and in prioritising of development work. So there's actually 

Tracey: [00:05:59] a lot as we go down the list that a lot of the coins in the top 100 that kind of classify as a DAO. So like what? What's not a DAO was a few examples there. 

Blake: [00:06:08] Yeah, that's a good question, sir. Firstly, projects like Ripple, like Binance, they're not down their companies. We sent with our board of directors with a c r, and it's really a top down process of decision making, whereas Dowsett, your community led and the decision making is bottom up. But yeah, it's really important to note that it's very difficult for Dollars to start as Dallas because this inherent centralisation when you know a couple of guys start a project like Ripple, like Binance, it's going to start off inevitably as a centralised entity. But then over time, these projects really work hard to make sure that they're they're moving to a fully decentralised model. And often this can take years to ensure that the right governance structures or decision making structures are in place.

Craig: [00:06:59] There's also sort of a case of, you know, Ripple and Binance have already registered themselves as a company with their jurisdiction, so they can't even become Dollars if they wanted to. 

Blake: [00:07:09] It'd be a lot of work.

Craig: [00:07:10] Yeah, it's also important to note that, you know, these regulators and lawmakers are finding it very difficult to regulate devs because often these projects are fully decentralised and anonymous. Pseudonyms on Twitter and Discord. They don't necessarily have an ABN or ICANN. They're a bunch of random avatars on Discord who are collaborating to build products. And this is turning into a bit of a nightmare for regulators. But it's probably important to know like, how did this come about? Like, why do we want dals? Why do we need theirs? What's the, you know, what's the problem we're trying to solve here? 

Blake: [00:07:47] Like it does solve a classic theoretical problem called the the Byzantine General Problem, and this is solved by blockchains and then DAOs utilise that. So the Byzantine general problem is an ancient problem, which describes the difficulty of decentralised parties arriving at consensus or agreements without relying upon a trusted party or having to trust one another. And in a network where no member can verify the identity of the other members, how can they collectively agree on a particular point of truth? And the story goes that four Byzantine generals had surrounded a city and they all had their own battalions, and they must collectively decide when to attack. If all the generals attacked at the same time, then they would win. But if they attacked at different times, they would probably lose, and the generals had no secure communication between one another. So then if a message got intercepted, they might attack at the wrong time and then lose the war. So how can the generals organise to attack at the same time? The way that you solve this problem is to ensure that all the generals have all the information at the same time so they don't have to trust one another. And this is achieved with blockchain technology using a consensus mechanism or an the mechanism called proof of work. So this is a theoretical problem. And of course, the Byzantine generals didn't have computers. But in the modern age, the blockchain solve the problem, where people that don't know each other can't trust one another can work cooperatively using a single source of truth, such as data on a blockchain. 

Craig: [00:09:31] Yeah. And I think just relying that theoretical example is pretty much that different parties can be confident in their decision making without the potential of betrayal. And that's with blockchain, and smart contracts come in because you can create laws where you need to have X amount of votes to get a proposal over the line. And this means that you're able to govern and manage anonymous people across the internet, and it means that these people who are participating can trust. Each other to work towards big, ambitious goals, and this is really creating the foundation of a decentralised Web3 where these projects that you might like, you might join the Discord, join the Dow and say, You know, I'm a I'm a project designer. I would love to redesign the Dollars website, and the Dow might say, Yeah, cool. That's probably worth about 100 Tracey coins. And then Tracey goes in, creates a new website for the Dow, and Tracey gets paid. So it's sort of really the foundation of Web three. 

Tracey: [00:10:33] Yeah. OK, look, I think, you know, this is really getting to the core of the power blockchain technology again. And I think when we get back from the break, we'll we'll have a little look at how the deals actually work and maybe discuss a bit more about Tracey. So in a nutshell, we're discussing DAOs and the fact that they are decision making mechanism that offer a very pure form of democracy. Let's look now at how these work in the crypto landscape right now.

Craig: [00:11:05] Yeah, it's important to mention Etherium was sort of the first foundation project where Dollars became possible. And it's sort of seen as the most reliable way of new Dollars to create and to start working together. And this is because of the use of smart contracts. Now we talk a little bit about smart contracts in our Ethereum episode, so if you're not sure what that means, scale up, have a listen. But with smart contracts, you can create rules that the Dow is governed by. So we might say, you know, crypto curious dao where you can hold the podcast funds in this smart contract. But for these funds to be released, we need to have two out of the three hosts to vote on the funds to be released, which means, you know, Blake can't run away and steal the Dollars funds and neither. And you know, at least two of us can vote on that mechanism, and we will be able to release the funds and we might have that mechanism for everything we might say. You know, two out of the three people have to vote on creating a new podcast or hiring someone else. And you know, this can all be governed by a particular coin that we have in our DAO. So that's sort of a really top line example, but Ethereum is a deal in itself. So Blake, do you wanna talk about, you know, a theorem and how they've work together? 

Blake: [00:12:26] Yeah, for sure. So a theorem has the biggest developer community in the crypto space, and obviously a lot of people want it to grow in all sorts of different ways that they think are interesting or may benefit them. And you know, Vitalik Buterin, who is the founder, put up a proposal onto the proposal notice board a couple of years ago for something called the London Hard Fork, which basically allowed Ethereum to become more deflationary. And of course, it took a while for that proposal to gain traction. It sat there for quite a while, but then eventually the community voted on it and it was implemented, you know, just, I think, for about four months ago now, and that's how practically it works. So there's all sorts of proposals in there and some some get up and others don't. 

Tracey: [00:13:14] So that's a good example for Etherium. But what about bitcoin? 

Craig: [00:13:17] Bitcoin is sort of the first example of a decentralised project. As we all know, it was the first crypto that ever existed. Now, if you wanted to make a change to a coin like bitcoin, you would need the economic majority to be in favour of this change. This includes everyone involved with bitcoin. Bitcoin miners, developers and bitcoin holders.

Blake: [00:13:39] And, you know, sometimes there is disagreement where, you know, not all the community believes that bitcoin should go in one direction. And then in this circumstance, it's called a hard fork where the coin actually split into two coins. Now that sounds ridiculous. I know when I first heard it, I didn't quite understand it. But because cryptocurrencies have open source code, if the community wants to move into another direction, they can copy the code and run it the way that they like. And some people may have heard of another crypto called Bitcoin Cash, and that's how Bitcoin Cash came about. Two communities divided over some philosophical differences with relation to how the bitcoin network should grow, and then the two camps split in their own direction. So it was it ended up being a healthy move for the ecosystem, and both coins still live on today. 

Tracey: [00:14:35] I think what we need to understand here is also that the economic majority is not 51 per cent, but a minimum of 95 per cent. So this is a really high threshold and makes this particular part of the governance a very slow process. And that's why that London fork hard fork that we spoke about with ETH took over two years to actually pass. And it's also why the only bitcoin upgrade that's ever happened took four years to pass, and that only happened last month, which was called Taproot. The Taproot 

Blake: [00:15:09] upgrade? I might just interject this, so I think there might be two different mechanisms that we're talking about here, Tracey. So there's to implement new code onto these networks. You may need 95 percent majority for the miners and the stakers, but in order for an economic majority to place an attack onto the network, you only need 51 per cent economic majority. And then that would allow you to fork the network and then split it

Tracey: [00:15:36] because you only need 51 per cent to four, but not to make a change. Correct to the actually.

Blake: [00:15:41] Yeah, yeah. So it's two two concepts here, 

Craig: [00:15:45] and the most basic governance structures give the users one vote for each token they hold and when to put. Those laws passed if 51 percent of voters or tokens vote in favour of the proposal. Now this is a little bit controversial because obviously it favours people who have a lot of tokens and we're essentially going back to the hierarchy structure. So once a motion like this is passed, a portion of the Treasury funds allocated to the proposal to the project or the initiative that they're voting on. 

Blake: [00:16:14] And there's many different types of your governance structures, and all projects kind of have their own tweak on it. But yeah, that's certainly the basis of really strong basic model that your projects use. And a good example of this is Polkadot. You know, if you look up a certain amount of tokens, it means that your your vote has more weight over time. And that just creates an incentive for those people that are committing to the project for a longer period of time have more of a sway over what happens on the network. And know there's many different examples of how these governance structures implemented. 

Tracey: [00:16:55] Okay, guys, let's let's have a look at how this might look in the future with some companies in the real world right now.

Blake: [00:17:02] Imagine a future where you know Facebook is actually a dao earned by its community members, or UBA was a DAO and it was collectively owned by the drivers and they decided, you know which direction the company should go in. And you imagine if there was a dao, the orange, you know, that controlled Twitter and the users contributed to, you know, the growth and the direction of the platform. And this is what the technology allows for. And one day we're going to see these things, you know, but it's going to take a long time before these organisational mechanisms to grow out from just the projects that we see them on today. 

Tracey: [00:17:40] So is this also in essence similar to, say, your local surf club or your basketball club? That is a community driven club that makes their own decisions about what's best for their club? 

Blake: [00:17:51] Yeah, it's very similar to how a foundation functions or a community organisation or even a non-profit in some circumstances. So, yeah, there are certainly similarities of compared to the way other groups organise themselves, but this is specific for internet first or digital first projects. 

Tracey: [00:18:10] Yeah, and going back to digital, we're seeing DAO emerge in gaming where empowered players in the play to earn model where it's not just centralised, but, you know, in CORP- corporations earning all this money and profits from these in-game purchases. Craig, you're across this. What are your thoughts here for gaming? 

Craig: [00:18:27] Yeah, I think the best example right now of Dollars in gaming is Axie Infinity. Actually, Infinity has its own token called access, I believe, and this is actually a DAO governance token where the ACSI team and community members will put forward proposals and the ACCE token holders will vote on these proposals. Now, if you just pull it back a bit, what these projects are doing is empowering the players with the profits of this game. Now, if you think about what it is at the moment in the traditional sense, Call of Duty, you know, I play Call of Duty with my mates. I pay a subscription to PlayStation. I buy my skins, my guns, Call of Duty are taking the money. They're making the money. The Call of Duty product team are deciding on what coming next. They're building the next game. This model of the company has worked for decades, but you know, with ACSI, we can sort of say, you know, I can play in these ballerinas, earn the pay token, make money from playing the game and also deciding on what's being made next. So it's really sort of flipping the the system. 

Blake: [00:19:39] Yeah, it's really interesting. 

Tracey: [00:19:41] So I think we'll leave it there. And that was really more of a top level discussion around dals. And it really is, you know, more of a conceptual part of the crypto landscape right now. And we're really looking at where this could go in the future. So if anything, you know, put your interests there. If you want to know a bit more than please shoot us an email and ask us a question podcast, I get Bambu Io or follow us on social media. All those details are in the show notes below, and don't forget to write and review us in your podcast app, and that's it for today's crypto curious episode. Thanks for joining us. I'm Tracey. 

Craig: [00:20:18] I'm Blake. I'm Craig. Cheers, guys. 

Tracey: [00:20:21] See you later! 

Blake: [00:20:21] Bye bye.