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Why DAOs will soon eat the enterprise world

And by ‘soon’ I mean: within a generation or two.

11 min read

Recently—under the guise of Dr Fox—I let my subscribers know that I will be accepting letters (in a selfish attempt to return to writing). I have been meaning to write about this initiative here, too, as foxwizard—but (merrily!) the letters have already begun to flow.

This first letter speaks to a topic I find myself very enthusiastic about: DAOs. I, uh, kinda plucked it from the mix because I already had an article in draft on the topic. If my tone gets a bit odd for a letter; this is why. Anyhoo: I hope whoever wrote to me finds something useful in this response. Here’s the letter.

Greetings great Wizard! You mentioned something I am very interested in DAOs and said they “will soon eat the enterprise world, gobbling it up, gloriously.” While I hope that will happen, I’m not sure it will. That enterprise world is tenacious! Please infect me with your optimism by elaborating more about this. Many thanks!

Ahoy friend anon; thank you for the question!

I would love to make an attempt to infect you with optimism, though I am a little wary of optimism itself. Or is it hope? It seems like folks in North America have different meaning associations betwixt the two, whereas in the antipodean realms it is flipped. Optimism, to me, refers to orientation or disposition. It’s a contextual stance we might fluidly adopt so as to respond to possibility and potentiality with what might be considered as more desirable. Hope, on the other hand, is more outcome-focused; and because the future is infinitely complex and opaque to even the most gifted farseers, it can be foolish to hope (lest we evoke its dark twin; despair). Or maybe I have these mixed up.

In any event; I am sceptically optimistic about what might emerge with DAOs, and the general movement towards decentralisation of wealth and power coupled with more transparent, responsive and responsible governance. Or at least, that’s the attractor-state I aspire to. Part of this sometimes means telling the truth (a fiction) in advance, so as to manifest or otherwise make-believe our way towards this relative utopia. (We do this not as some ‘grand plan’ that has been pre-ordained and prescribed to us by the elites; but rather as an effort to ‘move quietly and plant things’).

Otherwise we subscribe to a stagnant status-quo (or, unwittingly, we resign ourselves to a cyberpunk, fascist or otherwise dystopian future). Ergo; I like DAOs, and their implications for our world.

For folks reading this, ‘DAO’ is an acronym for ‘decentralised autonomous organisation’. This letter will probably be quite esoteric, so rather than relay the whole 101, here is an essential primer by Kei Kreutler. If you’d like to go venture deeper, here are the notes from the much acclaimed ‘How to DAO’ course, generously provided by the daoist.

I mentioned that DAOs will soon eat the enterprise world, yes. That was mostly for effect; to ruffle the feathers and evoke the ire of the incumbent leaders prone to dismiss such movements. You’re right in that the enterprise world is stubbornly tenacious; the egregores that dwell in this pantheon (and the warlock oligarchs that serve them) hold much of the world in their sway. And yet it’s this also why, as a complexity practitioner, I am less than optimistic about the future of traditional enterprises. Rigidity combined with centralised power makes for single points of failure and more catastrophic (black/white swan) risk. Fluidity combined with distributed power and authority make for a much more antifragile arrangement.

It reminds me a little of The Responsive Org Manifesto. Do you remember this one? At a high level, it’s one of those well-formed notions that makes a lot of sense.

The Responsive Org Manifesto (ROM) is over a decade old. It used to be something I would quote to enterprise leaders back in my heyday as a speaker-bard. I even wrote about it in my books, so enamoured was I. And still am, to a large degree. Here’s an excerpt:

Everyone and everything is connected. The world has become one giant network where instantly accessible and shareable information rewrites the future as quickly as it can be understood. Fueled by relentless technological innovation, this accelerating connectivity has created an ever increasing rate of change. As a result, the future is becoming increasingly difficult to predict.
Meanwhile, most organizations still rely on a way of working designed over 100 years ago for the challenges and opportunities of the industrial age. Team structures support routine and static jobs. Siloed, command and control systems enable senior leadership to drive efficiency and predictability at the expense of free information flow, rapid learning, and adaptability.
The tension between organizations optimized for predictability and the unpredictable world they inhabit has reached a breaking point.

Covid-19 has pushed many organisations past breaking point. And now, the cracks are showing.

I once genuinely thought that traditional enterprises could become responsive. That they could ‘transform’. But the more I worked with the executive teams of Enterprise Land, the more my naïveté waned—and the more my jadedness waxed—and the more I realised: traditional enterprises can never be responsive in the way the manifesto called for. The pernicious incentive structures are most often geared towards the centralisation and stagnation of power. The structure inhibits.

But DAOs (decentralised autonomous organisations)—they don’t even need a Responsive Org Manifesto. All the tenants of the ROM are baked into how DAOs work.

DAOs are responsive by default.

The ROM highlighted the new tensions faced by enterprises as we move to a world ‘less predictable’:

Profit <-> Purpose
Hierarchies <-> Networks
Controlling <-> Empowering
Planning <-> Experimentation
Privacy <-> Transparency

I reject the notion that the future was ever predictable, but variance sure does seem to be increasing (which makes any attempt at prediction or farseeing ever more difficult). We are in the messy liminal phase-shift betwixt what was and a new meta-stable context. And we have a chance to make it a better one. A slim chance.

Whilst the ROM could only ever be charismatic propaganda in a world where executives are incentivised to maintain power—the tensions highlighted are generative paradoxes within DAOs.

Let’s elucidate. But before we do, please note: we are not looking at these tensions as ‘either-or’ binaries. We aren’t choosing between this or that. Instead, the responsive nature of (good) DAOs synthesise both. In this way, they function more in a kind of dynamic/oscillatory ‘fluidity’; or ‘both/and’ simultaneity. (If this is a challenge to conceptualise, you may need to cultivate some negative capability; all wisdom lies in paradox).

Anyhoo, moving on!

Profit & Purpose

Uh, the dreaded ‘p-word’. I’ve long bemoaned how ‘purpose’ has become corrupted by Enterprise Land. Shallow narrative veneers to justify otherwise ruthless capitalism.

But, in DAOs, ‘purpose’ and profit are entwined. And whilst in these early days of web3, many (most?) DAOs are orientated towards profitability—the way in which they go about it is guided by a ‘purpose’. For example; Olympus DAO intends to be the reserve currency for decentralised finance. Tokemak intends to democratise liquidity in DeFi. Klima DAO is buying up carbon as a store of value (removing cheap carbon offsets from the market whilst driving the price of carbon upwards). The Kleros DAO is attempting to become ‘the justice protocol’ of web3 (this one worries me a heap, btw; so fraught). And Vita DAO is a decentralised collective funding early stage longevity research (I am not sure if I am a fan of this quest for longevity in life; but I do appreciate anything that contributes to the funding of open source research). And so on.

And of course there are plenty of DAOs using the frameworks provided by DAOhaus for simple things like investing, curating, supplying services. In each case—with every DAO—there’s a distinct purpose and the mechanics to ensure that those invested benefit from the profitability, growth and utility of the DAO.

Hierarchies & Networks

A common misnomer about DAOs is that they are entirely flat and structureless. This is not the case; DAOs work because they are structured in a way that allows governance to occur trustlessly. Most DAOs have an implicit hierarchy—the developers, founders and early investors usually wind up getting more voting power (though Elastic DAO are pioneering new and fairer ways of governance amidst DAOs, based on participation and contribution more so than starting capital). Knowledge is one of the main forms of power; those who participate and remain actively engaged are more likely to know of upcoming catalysts or partnerships.

But whilst there is a hierarchy of sorts; it’s often quite fluid. Positions aren’t fixed, roles aren’t rigid, and status isn’t flexed (unless ironically so). It’s a heterarchy—hierarchies emerge and dissolve as needed. The participants of the DAO itself form a kind of self-organising collective intelligence, where each person works for the betterment of the DAO itself. This has an infinite ‘win and help others win’ quality to it; we all prosper.

Controlling & Empowering

In the early days of a DAO’s formation, the core team will want to retain a higher degree of control, so as to ensure a good trajectory and decent behavioural norms are established. Moderators within discord forums play a vital role in this. But to be sustainable, most DAOs work progress along a gradient—from centralised control to distributed authority. Thus many founding teams will actively seek to progressively dilute their controlling power by rewarding users of their protocols (or participants of their DAO) with governance tokens; essentially giving away ownership.

From a complexity perspective, this often makes sense. The more dispersed the power, the more antifragile a network is to change. (I’m simplifying things here, for brevity).

Planning & Experimenting

‘Roadmaps’ have become a bit of a meme. In Enterprise Land, any ‘5 year strategic roadmap’ is either an elaborate piece of propaganda to placate the shareholders and employees—an amusing hypothesis about what might yet emerge—or it is literally a naively incentivised plan to which the organisation’s performance metrics will be slaved to.

In DAOs there are still vague roadmaps—but these are often living things, subject to revision whenever new sensibilities emerge. Additionally, most DAOs are in constant experimentation. The feedback loops for teams that coordinate remotely via synchronous and asynchronous platforms are tight; this means we don’t have to wait for quarterly meetings to respond to issues. What might take an enterprise months to coordinate can be achieved in days (if not hours) by a DAO.

Privacy & Transparency

One of the main charms of web3 is that you can engage with communities under a pseudonymous identity. From a security perspective, there’s a lot of prudence to this—maintaining privacy reduces the attack vector of anyone trying to hack into your wallets. Privacy also allows you to speak ‘truth’ (as in: whatever your version of it is) without risk of cancellation.

This naturally leads to a deep level of immaturity, which can be incredibly off-putting to those new to web3. Quite literally, it means all sorts of vile things can be said under a pseudonymous identity. (A good discord will have moderates that stamp out that shit early; if it persists, though, it’s a sure indication that there may be better DAOs to join.)

Yet, at the same time, a charm of a pseudonymous identity means your immutable qualities can’t be used against you. In this way, we have a shitty compromise that allows for a simulacrum proxy of what meritocracy would be if it weren’t bullshit. Relative to the alternatives, this makes web3 quite a haven—it doesn’t matter your gender, orientation, country of origin or any of that; the pseudonymous nature of web3 levels the playing field. (There are plenty of issues with this, of course. It’s fraught, and much more work needs to be done if we are to make web3 kinder, warmer and more inclusive).

A little while ago, Sushi (one of the main decentralised exchanges) were considering a strategic fund raise. This was discussed with a level of transparency you just don’t see in Enterprise Land—take a look. Most of the forums that DAOs use to deliberate, discuss and explore options are publicly accessible. You can easily see for yourself how decisions were (and are) made—whereas in Enterprise Land you’d have to wait for a glossy annual report that has been meticulously analysed by lawyers. This is neater, of course—but it’s hardly transparent.

Anyhoo: this has been a lazily slapped together article that has barely been edited. We are only skimming the surface here; DAOs still involve people and money and are thus inescapably complex and fraught. A DAO full of bad actors will still be a shitty DAO, and will unlikely work well in the long run.

And yet, when compared to the alternatives, DAOs are a relative beacon for what the future of coordination (work) may yet be.

Ahem. So. After clumsily wedging a draft article into this letter—I return to your request; to elaborate on why DAOs “will soon eat the enterprise world, gobbling it up, gloriously.” I stand by this—though naturally, I seek to qualify. Here is a pell-mell assortment of notes:

  • DAOs will soon eat the enterprise world; and by ‘soon’ I mean within a generation or two. We humans aren’t great at comprehending exponentials, and this will probably be our doom. (On this note, here’s a fascinating conversation worth attending to). But crypto and blockchain are growing at an exponential rate. DAOs, by extension, are fumbling their way toward more efficacious forms.
  • Yet still, they tend to favour those savvy with asynchronous communication. This is not necessarily the old guard, who will likely continue to insist on synchronised Zoom meetings and who still manage projects via email. The folks who “can’t wait to get back to the office” once everything “returns to normal”. The same ones who coin terms like “the new normal” to describe the old normal they seek to return to. The future of leadership and work, in the land of DAOs, will not work so well for them.
  • Yet still; DAOs will attract talent. DAOs will deploy memes and wield cultural capital to do this. Once within a DAO, folks will find similar relevance and rewards as they would in a traditional enterprise—only everything will be more flexible, transparent, equitable and responsive.
  • And this will happen, gradually but swiftly. And whilst I think it will be glorious; it will also be boring and mundane at the same time, too. This is a good thing. Similar to how eventually NFTs (non-fungible tokens) will likely be the norm for any memberships, tickets, deeds (and many things)—so too will DAOs become just as normal as an organisation.
  • This is not to imply that traditional enterprises will become extinct. Just as in Greek and other mythologies—wherein there is a lot of talk of gods eating gods and somehow re-emerging again—the traditional enterprise model has its place. And it has its advantages, too. A centralised, opaque, hierarchical organisation can move a lot faster (when it is small), and can operate with a greater degree of agility and political cunning. This is even a good thing for early DeFi protocols that need to adapt to a rapidly changing environment.
  • And DAOs aren’t all great. Influence can literally be bought within a DAO. The discord forums (where DAO communities informally coordinate before more formal discourse) can be immature, cliquey and (sometimes) quite vile. The good ones have good vibes—but it’s a delicate balance, abound in paradox.
  • And DAOs aren’t immune to the coordination headwinds that make any large endeavour increasingly difficult to achieve—though I would suggest that the way (some) DAOs are structured allows for much greater capacity to work in loosely coupled yet tightly aligned teams. This can go some way to mitigate the challenges that come with scale.
  • Ultimately DAOs, to me, reflect a potential (optional) point of maturity in the growth of any initiative. One of the greatest things any leader learns on their journey to development is that it’s not about them (as an individual). It’s not about recognition, reward, or any of that stuff—it’s that feeling when you can see something wondrous emerging around you. It’s that sense of cultivating and somehow ushering into being something that could not have otherwise bloomed into existence. It’s being able to step back, and away, and to see something flourishing (in a self-organising and relatively self-sustaining way).
  • A key to great leadership, in my opinion, is to make oneself redundant. To dissolve thy self into the greater collective. To be a co-participative dividual amongst other dividuals. A part of an infinitely greater whole. And DAOs seem to be a way to achieving this.

I sometimes wonder: what if our governments operated like DAOs? What if we collectively had a world DAO?

This naive thought experiment makes me return to (and appreciate) the role of governance as an emergent property of the complex adaptive system we consist of and co-create together. And how governments might somehow be improved by the governance experiments at play within responsive DAOs. Who knows? Perhaps some synthesis or betterment could be achieved? In any event; I am more optimistic about the future of collective coordination than I have ever been, thanks to what DAOs are and may yet become.

(Or at least; this is the disposition I choose to adopt.)


PS: I shall attent to more of these letters in the coming week(s). The topics are wondrously varied; stay tuned.



A rogue philosopher.