Companies vs. DAOs. Who is suitable to do what?
Community became an overused term in web3. Basically it’s a mishmash of customers, stakeholders, investors, tokenholders and team.
Some of the most notable examples of people building communities have chosen to do it with a company behind it. That’s the case of Yuga Labs (Bored Apes), PROOF Inc (Moonbirds), Chiru Labs (Azuki) and others.
I have absolutely nothing againts companies, have been a founder before and I am well aware that a company is the most efficient way to coordinate a group of people to accomplish a mission in an efficient and relatively centralized manner. Centralization can truly work to deliver results, especially in the short term.
My beef is with the idea of companies claiming to be building communities, when they’re actually building a business that happens to have a communal aspect.
Take WeWork for example. Is WeWork building a community or building a business? When push comes to shove and the leaders have to decide it’s one or the other, the business will always win. In the list of priorities of a company, the shareholder interest comes before the community.
When times are good this can be obfuscated, because everyone is getting what they want. Shareholders are seeing the value of the business and revenue going up. Customers are seeing the value of what they paid for being justified (or in the case of NFTs, go up). Employees are seeing their stock options go up. Everyone is happy and the community is strong.
Then, as cycles unwind or exhaustion causes the novelty to fade, the misalignment of incentives start to show.
As prices go down (as they’re currently going) and the expectations are not met, customers start to complain and demand action from the company.
The impression that the company profited out of them as some are underwater gets validated.
The incentives for customers to contribute and find solutions is not exactly clear, because they stand to gain very little from their efforts. It’s easier to abandon the company and fire it as a customer.
DAOs perform the best when doing narrow tasks, that can be fully automated and distributed to a network of computers, like Bitcoin or Ethereum.
However, a new type of DAO requiring human coordination, based on the premise of progressive decentralization and automation started to become more popular in the latest years. Fingerprints DAO is one example of that. Nouns DAO is another.
The main challenge for a DAO is executing without turning into a company. There are multiple traps into this path and I will write a lot about this in this journal. But the flip side is that some of that conflict we see between the company, the investor and the customer can be much better managed in a DAO, if incentives are correctly designed.
Makes no sense to do a DAO for a task where a company would be more efficient and there are no real benefits to decentralization or transparency. If you’re selling pizza, you don’t need a DAO (sorry Pizza DAO)
But a DAO is the only true “community” that can be build aligning all the stakeholders with an economic incentive behind it.
Take Fingerprints mission: to built the greatest collection of blockchain art and to expand the art market through the web3 space.
We need accountability to our principles and full transparency on our processes is to execute our strategy. Art is a public good to an extend, and art institutions should strive to be transparent in what they support and why. This would be an improvement on how things are made in the traditional world.
To the broader space, we can be more openly criticized because it’s all there in the open, and the stakeholders have actual votes that can be turned into actions.
If the quality of the art collected or produced deteriorates, there’s no “company” to blame. It’s on the tokenholders to bring accountability on whoever is in charge of execution (or on the process, if the execution is already decentralized).
That’s not to say there’s no space for leadership and efficient execution, but it’s similar to a small government body. The ultimate decision power rests with the voters, and no leader is above the decision of the collective.
Now go back to the companies I listed and think how you can fire the CEO if the “community” is unhappy. Maybe the investors get to fire the CEO, but the customers have no governance power. If the CEO decides they need to change course to improve the shareholder value at the expense of the community — like for example, inflating the supply of one project to maximize revenue — there’s not much that can be done.
Governance is good when times get tough
Lack of governance rights is seen as dispensable when times are good, and structures with too much collective power are seeing as slow and inefficient. That was the narrative some of the Western media has adopted over China in the last few years: “look how efficient they are!”
But when times get tough, this equation changes. And ultimately, if you’re truly building to reach millions, governance becomes central to the mission.
If Fingerprints is to become the leading art institution in web3 it should not be controlled by a group that can divert from the mission in order to maximize its own profit.
This choice may slow us down, cause much more internal debate and discussion and even bureaucracy as we get to a solution.
But it’s the sustainable path to expand the art market to millions.
See you tomorrow.