Evaluation: Largely false (medium-high confidence)

Web3 organizations such as DAOs may well model better ways of collaborating, at least in the context of some private or third sector organizations. The popularity of Web3 may well provide inspiration which has a positive impact on how such organizations are structured or operate in the future, such that there is potential for Web3 to bring about a change.

However, not only are we doubtful that this would amount to a revolution, we note that this inspiration and education is not what the spirit of the claim gestures to. When it comes to the idea that Web3 technology itself will be vital to, and underpin, a paradigmatic shift in how humans cooperate with one another, we can confidently assert that this is false. The more democratic and decentralized forms of cooperation characterizing DAOs have largely existed in other forms, be they cooperatives or Teal organizations, before Web3 rose to prominence. The reason they have not become dominant has not been one of insufficiently powerful technology. Further, unique features of Web3 technology particularly seem on closer inspection to add little to actors’ ability to cooperate effectively that is not already provided by off-chain technologies.

Evidence of claim being made

Andreessen Horowitz “How to Win the Future: An Agenda for the Third Generation of the Internet” October 2021: https://a16z.com/wp-content/uploads/2021/10/How-to-Win-the-Future-1.pdf

“web3 - a group of technologies that encompasses blockchain, cryptographic protocols, digital assets, decentralized finance and social platforms, NFTs, and DAOs - is the third generation of the internet. These innovations… will serve as the basis for new forms of economic and social interaction arising from platforms that allow people to collaborate, create, exchange, and take ownership of their digital identity and assets… We are radically optimistic about the potential of these solutions to restore trust and enable new kinds of cooperation and governance.”

OECD. ‘Blockchain at the Frontier: Impacts and Issues in Cross-Border Co-Operation and Global Governance’. OECD Business and Finance Policy Papers. Vol. 04. OECD Business and Finance Policy Papers, 25 May 2022. https://doi.org/10.1787/80e1f9bb-en.

“Blockchain technology is expected to drive digital transformation in the way businesses, governments and societies interact in the years ahead, including at an international level.”

[...]

“blockchain innovations have already yielded promising results across sectors, and the technology is being harnessed with the aim to deliver efficiency gains to business and public sector processes through digitalisation, decentralisation and automation. Uses to date have also hinted at its potential to create novel markets and alternative systems of economic and social interaction. Some of these innovations may offer marginal improvements, others might prove to be transformative.

In some quarters the technology has also prompted a re-imagination of current systems of governance, using more automated and decentralised systems. Examples of such hypothetical systems include “trust chains” that use blockchain and other emerging technologies to create entirely new trade systems, fully integrating digital currencies, payments, credentials, taxation, shipping and customs processes (Pentland, 2021), or a “global social contract”, with the rules and objectives of global governance and cross-country co-operation encoded onto a decentralised network, hosted by governments and civil society, and with agreements monitored and enforced by smart contracts (De Filippi, 2021[13]). While these may seem like distant possibilities, they illustrate future scenarios where blockchain is woven into the fabric of economic, financial and social life.”

Hypha. ‘What Is a DAO?’ Hypha (blog). Accessed 25 October 2022. https://52.211.147.246/what-is-a-dao/.

“We are at a transformational moment in time, as DAO’s create a fertile space for many new opportunities for global collaboration and coordination. While corporations were built for the industrial age, DAOs are built for the information age. Hypha builds for the age of Systemic Regeneration and the fundamental evolution of civilization.”

Ethereum. ‘Decentralized Autonomous Organizations (DAOs)’. ethereum.org. Accessed 25 October 2022. https://ethereum.org.

“Starting an organization with someone that involves funding and money requires a lot of trust in the people you're working with. But it’s hard to trust someone you’ve only ever interacted with on the internet. With DAOs you don’t need to trust anyone else in the group, just the DAO’s code, which is 100% transparent and verifiable by anyone.

This opens up so many new opportunities for global collaboration and coordination.”

Full analysis

Subclaims

• P1: Cooperation in the Web3 sphere is in some sense better than the way we tend to cooperate now
• P2: Web3 technology provides a unique value add
• P3: The unique value add provided by Web3 is sufficient to shift human cooperation more broadly i.e. make this better form of cooperation dominant

Claims steel-manned

P1: Cooperation in the Web3 sphere is in some sense better than the way we tend to cooperate now

Revolutionizing human cooperation first requires that the form of cooperation characterizing Web3 interactions is somehow better than ordinary cooperation. For this premise, we’ll focus on DAOs, as this is the area of Web3 which often features in these claims.

To steel man this claim, let’s take some of the features which are most often lauded in DAOs as an improvement on traditional forms of cooperation:

• Decentralized, participatory governance and ownership
• More fluid forms of association
• Recognition of diverse forms of value

Decentralized, participatory governance and ownership

One of the most lauded features of DAOs is that their governance and ownership (understood as entitlement to the gains of the collaborative enterprise, given many DAOs are not legal objects capable of being owned in a traditional sense) is often far more decentralized and participatory than traditional organizations. While specific details such as voting mechanisms and profit allocation calculations may vary, DAOs are generally regarded as modeling principles of non-hierarchical and egalitarian coordination, in stark contrast to the command and control governance and concentrated private ownership characterizing much of the wider economy¹.

DAOs are also a breeding ground for experiments with novel decision-making mechanisms such as quadratic and conviction voting². These are purported to further enhance these participatory governance models by not only making them inclusive but also highly effective in harnessing the collective intelligence of members to the end of optimal decision-making.

More fluid forms of association

DAOs are also seen as unique in the fluidity of their association. Members can come and go as they please with very little friction, with ad hoc participation in individual projects able to coexist side by side with full time work carried out over months and years³. This again stands apart from many more traditional forms of organization, where participation is often on the basis of a long term contractual commitment or, where there is flexibility, it is often used in an exploitative manner by firms in ways that create precarity for workers (for example, zero hours contracts or the gig economy). The DAOist movement prides itself on existing outside of either of these opposing poles.

One notable feature of DAOs which speaks to this fluidity is “rage quitting”. Within the DAO movement, rage quitting refers to the rights of members to leave the DAO if they disagree with decisions or approaches to management, and take their financial investment in the organization with them⁴. These immediate rights to cash out are painted as marking a significant departure from basic shareholding–where I must find a buyer for my shares if I wish to cash out–and are said to facilitate greater degrees of peer accountability as a result. Deliberately making exit easy is intended to create stronger incentives for DAOs to operate in ways that truly benefit their members.

Recognition of diverse forms of value

Finally, DAOs are said to hold the potential to allow more diverse forms of value and contribution to be recognised in compensation decisions, compared with traditional organizations. For example, the DisCo Coop model (which we are aware posits itself as a subtly different form of organization as DAOs, but which we use illustratively nonetheless) explicitly incorporates recognition of care work into its internal profit allocation mechanism⁵. Similarly, tools such as Coordinape⁶ are designed to democratize the process of resource allocation internally to groups, which not only speaks to the governance point above but also leaves room for allocations to reflect activities and contributions which may not be recognised in the compensation decisions of ordinary firms.

The idea here, then, is that DAOs are uniquely placed to reward all sorts of contribution and value creation. Rather than collaboration which only privileges time banked or directly monetizable activities such as sales made, the emerging DAO infrastructure can facilitate fair rewards for all sorts of activity which directly generate or underpin the creation of value. Given the longstanding critiques of the market economy as it stands and its failure to adequately capture large swathes of the social value generated in our societies (for example from feminist economics, which DisCo Coops draw on heavily) this appears to have the potential to be a revolutionary proposition indeed.

P2: Web3 technology provides a unique value add

Web3 opens up possibilities which were impossible before.

Blockchain technology can facilitate deep collaboration in the absence of interpersonal relationships of trust. One mechanism for this is the ability to encode rules for cooperation into automatic smart contracts⁷, removing them from the domain of human interpretation or implementation. Ensuring rules are explicitly encoded in a manner that is visible to all ensures that there are shared expectations around the terms of cooperation, and having them be implemented algorithmically means that there is no room for subjective interpretations or personal preferences to muddy how they are applied. Participants can be confident that they are participating on an equal footing under the rules as everyone else.

Similarly, the activity of organizations, including the results of votes, can be recorded publicly and immutably on the blockchain. This transparency and security can further bolster trust that these processes are operating in a manner that is above board.

The nature of blockchain based organizations as “trustless systems'' is particularly pertinent when it comes to their often transnational composition. It is argued that part of what makes Web3 revolutionary is its ability, through the above mechanisms, to facilitate cooperation with disparate groups of individuals across national and cultural boundaries, even when these individuals may not otherwise know one another⁸. The reach and scale of these forms of cooperation thus appears potentially far more expansive than traditional organizations.

The other pertinent technical feature of blockchain relates to the creation of tokens. Blockchain based organizations can easily create tokens, for example to raise equity or allocate voting rights⁹. As touched on above, the allocation of these tokens can incorporate the recognition of more diverse forms of value than often feature in traditional compensation decisions¹⁰. Crucially, these tokens exist immutably on the blockchain, meaning the potential for powerful members to clean out the company accounts or manipulate their allocations is removed.

P3: The unique value add provided by Web3 is sufficient to shift human cooperation more broadly i.e. make this better form of cooperation dominant

The strongest case we might make is that the revolution in cooperation required must facilitate large scale collaboration which transcends traditional geographical, legal and institutional boundaries. The fact that Web3 facilitates flexibly fluid cooperation between potentially large numbers of diverse actors spread across the globe may gesture to a new future of digitally enabled cooperation. These features can make collaborating in this manner sufficiently easier and more attractive that it may begin to outcompete collaboration through traditional organizations.

Evaluation: Largely false (medium-high confidence)

P1: Cooperation in the Web3 sphere is in some sense better than the way we tend to cooperate now (partly true)

The first thing we should note is that better is a highly context sensitive term. What is better for running a small consultancy may not be better for running a national military. This is a point we have made in our writing elsewhere¹¹. This observation alone should be sufficient to give us pause when considering such huge and sweeping claims as revolutionizing human cooperation. The features outlined above may well make for better forms of cooperation in many contexts, but almost definitionally they cannot be objectively better across all.

With this caveat aside, let’s narrow our focus to working together outside of the confines of state or government activity. That is to say the private or third sector collaboration which dominates most of our lives. Might we consider the form of collaboration characterized by DAOs as better here? Well, quite possibly. Much of the approach of Web3 organizations aligns very closely with preexisting thinking and ideas, from Teal organisations¹² to the cooperative movement¹³. Inasmuch as one thinks that the ideas present in these traditions do indeed point to better ways of working together (even if caveats abound around their own unique difficulties and applicability across the varied contexts even present in the world of work alone) then we may well think that DAOs do point to a form of working collaboration that is somehow better than the current paradigm. Given huge rates of job dissatisfaction, burnout and work related stress¹⁴, this is perhaps not the lowest of bars to clear.

P2: Web3 technology provides a unique value add (false)

So, qualifications notwithstanding, we might accept that the forms of cooperation found in the Web3 sphere are in some sense superior to their counterparts in many traditional organizations. But, to claim that Web3 itself will revolutionize cooperation, it must be Web3 technology itself that plays a significant role. How might this be so?

On the understanding posited by most proponents, there is something unique about the underlying blockchain technology itself which makes it potentially revolutionary.

First, let’s look at the underpinnings of blockchain based organizations as “trustless systems”. Encoding the rules of the game into smart contracts can support shared expectations and a sense of equality under the law. However two things should be noted here. First, it appears that similar effects at least with respect to shared expectations can be achieved by publicly codifying rules by other means, and this is in fact the approach already taken by off-chain decentralized governance models such as Holacracy¹⁵. Further, if these codifications are clear enough that they are not liable to contradicting interpretations, and do not leave power over their implementation concentrated in the hands of one or a small number of organization members, then it seems plausible that this can also go a significant way to garnering the requisite trust in shared application required. Automatic execution via smart contract, then, seems to add limited value beyond these other mechanisms which do not require blockchain technology.

What’s more, smart contracts may actually be actively undesirable. The very inflexibility and automation which sets them apart also renders flexibility in the face of unforeseen circumstances impossible. Human-in-the-loop governance systems have the advantage of enabling the application of rules to shift if circumstances necessitate it. For example, let’s say a collaborator misses a deadline and that in our constitution this offense is sufficient to eject them from the organization. If this process is executed via smart contract then the person may find themselves immediately ejected and locked out of the organization’s infrastructure. However under human application there is space to consider exceptional circumstances, for example our collaborator reporting back a day after their deadline to inform us of the death of a close relative which has kept them away from their computer. If this capacity is not actually at odds with trust or shared expectation, then there may be a strong case for retaining it.

But, even if one remains skeptical of smart contracts, they are admittedly not an intrinsic part of blockchain technology. Recording activities and voting outcomes on a public, decentralized and tamper proof ledger appears to be a more impactful foundation of blockchain organizations’ trustlessness. On one level this assessment is correct - this is a capability that is fairly unique to blockchain technology. The more important question, however, is whether it is legitimately revolutionary. A whole host of non-blockchain based collective decision-making platforms already exist¹⁶, and organizations such as platform cooperatives¹⁷ have been undertaking digital cooperation quite successfully for some time also. In each case activities and votes can be coordinated across geographical areas and recorded publicly.

What sets blockchain apart is that it removes the need for a trusted third party to host this data. We must interrogate whether the limitations of these alternative tools and models is really because there is distrust in the integrity of the data being shared, or real concerns around hacks or other manipulations. This feels like somewhat of a stretch, to say the least, particularly given the evidence provided by the success of the non-blockchain based projects reference prior.

Finally, it should also be noted that these technical features do not in fact remove trust entirely. One still has to have a degree of trust that the human on the other end of the keyboard will carry out agreed actions in the manner intended. Smart contracts can go wrong, people can be overpaid or deliver work which does not align with the spirit of agreements¹⁸. In all these cases, trust is required to ensure that even blockchain based systems are not abused.

So, how about tokenization? Using tokens to allocate revenue and/or voting rights certainly has the potential to lead to some interesting approaches to cooperation. However, again, it is hard to see the value added by having these tokens be blockchain-based. Experiments with quadratic voting are already underway off-chain¹⁹, for example. Similarly, there is nothing to stop organizations from allocating compensation based on non-blockchain based systems which enable recognition of diverse forms of value into their calculation. Again, it appears to be the decentralized and tamper-proof nature of blockchain-based tokens which sets them apart, and again it appears hard to make the case that it is the lack of these features which have been the major hurdle to these approaches to governance or remuneration taking hold.

To conclude, the unique technical features of blockchain don’t appear to do much for the potential of Web3 to revolutionize coordination. The most interesting areas, from alternative approaches to governance and compensation to collaboration across geographical boundaries, all seem perfectly capable of being carried out using other tools. Often, the major benefit of collaborating via Web3 organizations is that they are largely unburdened by regulation. Being able to form an organization without legal registration and raise seed funding through the sale of unregulated tokenized securities has certainly removed some of the friction from more traditional forms of collaborative enterprise. However this lack of regulation appears unlikely to continue in the longer term and, due to carrying its own risks, is likely undesirable in any case. Given this, there do not seem to be many unique benefits to collaborating via Web3.

P3: The unique value add provided by Web3 is sufficient to shift human cooperation more broadly i.e. make this better form of cooperation dominant (largely false)

Now, even if we were to accept that the cooperation charactersing Web3 is superior, and that this is in some way because of its Web3 foundations, we could nonetheless fall short of endorsing the overall claim. For Web3 to revolutionize human cooperation, it must scale. Revolution requires the overthrowing of an old paradigm and its replacement with a new one. So, does Web3 cooperation hold the potential to become a dominant force in the overall picture of human cooperation?

First, we should note that this evaluation must bracket the discussion of P2 as to whether the features of Web3 are actually capable of underpinning this revolution in the first place. We will therefore proceed on the assumption that we have not just given a negative evaluation of these prospects. We should also note that the revolutionary potential of Web3 collaboration appears fairly inextricably linked to the broader success of the Web3 ecosystem; it is hard to see Web3 revolutionizing cooperation while its other elements fade away. Given the “crypto winter”²⁰ which took hold in 2022, the prospects for Web3’s revolutionary potential look somewhat worrying to say the least.

Second, it is worth acknowledging that depending on how one understands the initial claim, it might be possible for the Web3 field to significantly improve cooperation without Web3 technology itself doing anything particularly special. It may simply be that, through the popularity of Web3, new forms of organizing and cooperating become mainstream and bleed out into other sectors. This could happen without Web3 technology itself making any unique contribution or underpinning the spread of these new forms of cooperation. For example, more off-chain organizations could take inspiration from DAOs in how they approach governance. Similarly, Web3 could generate a renewed interest in cooperative organizational forms²¹, whether these ebe blockchain based or not. This more modest understanding of the contribution of Web3 appears at least potentially plausible, however falls short of what is more often implied by the claim that Web3 will revolutionize cooperation.

The spirit of the claim is not one of inspiring people towards different organizational forms, but of Web3 itself becoming dominant as a foundation for a new form of cooperation. So, we must ask, do the improvements Web3 might offer have the potential to transform human cooperation overall? That is to say, could they bring about a paradigm shift such that these forms of cooperation become dominant? To answer these questions we must look at why these improved forms of collaboration have not taken off previously. If Web3 has the potential to transform cooperation then this implies that the hindrance to these forms of cooperation prior was fundamentally a technical one;what held people back from organizing in this manner was lack of technical capability, such that Web3 now providing this capability should open the proverbial floodgates.

Now, whatever one makes of the capability afforded by Web3 technology, it is hard to avoid the conclusion that this narrative feels a little stretched. As discussed, the technical capability to collaborate in ways at least comparable to Web3 have existed for some time. Platform cooperatives and decentralized governance models such as Holacracy and Sociocracy have come into being, while the general picture of human cooperation has shifted relatively little. As with all highly complex phenomena there are a raft of intersecting factors which have a role to play in this reality. For example, the profit motive which is much emphasized and encouraged across the majority of the global economy likely inclines many would be entrepreneurs towards private ownership rather than more communal models.

Similarly, due to a number of factors including the structure and regulation of the global economy, vast, often multinational, firms employing huge numbers of staff currently dominate²². At least some elements of more static and vertically integrated membership and governance and capital raising through more traditional channels (i.e. VC funding and/or exchange traded share offerings) is plausibly just easier to achieve effectively in these types of organizations. Even if alternative models are capable of operating at these vast scales–with examples such as Mondragon showing that this is at least possible in theory²³–the huge forms dominating the global economy today are unlikely to simply disappear, or realize the error of their ways and convert how they organize (particularly when this would likely reduce shareholder profits). Market power, often to the extent of borderline monopoly in the case of some of the largest firms, means that their dominance will be hard to shift²⁴. Even if new forms of collaboration are made possible by Web3, it is hard to see it revolutionizing human cooperation more broadly under these circumstances. Money talks, and it seems that for the moment money is on the side of the old paradigm.

Related content

Deep dives and notes

• Stephen Reid & Rufus Pollock on Worker Cooperatives and DAOs
• In conversation with Hypha
• Deep Dive: Web3 and Post-State Technocracy
• On the Potential of DAOs & Web3 with Jordan Hall & Rufus Pollock
• • Open Collective, Steward Ownership & Exit to Community with Pia Mancini
• • Making Sense of KlimaDao

Concepts

• Distributed Autonomous Organization
• Technosolutionism
• Techno Collectivism
• Hyperfinancialization
• Decentralization
• Externalities
• Free Rider Problem
• Governance tokens
• Smart Contracts
• Post-state Technocracy
• Consensus algorithm
• Initial Coin Offerings (ICO)
• Regulatory Arbitrage
• Crowdfunding

FAQs

• Is the underlying technology of “blockchain” useful for non-monetary purposes?
• Is Web3 decentralized?
• Is Web3 a well-defined term?

References