In an ICO market flooded with Tokens and fundraisers, only 48% of which were successful in 2017, how much of the $5.6 billion raised was actually funding the next Salesforce, Google, or Amazon? In the unregulated, pre-SEC, wild west of ICOs—prior to the SEC bloodbath of Dec 11, 2017—shrewd investors were looking for real vision and actual products, especially in the wake of the The DAO debacle.
The entire concept of the initial coin offering is only five-years-old. The first token sale—the first ICO—was held by Mastercoin in July 2013. For most of that time, there were virtually no regulations on these fundraising ventures. The white paper “prospectuses” were casual and were more hype and promotion than sobering warnings of risk and responsibility.
What Is Aragon?
The Aragon framework/platform offers the tools that take the friction out of the wasteful, inefficient, expensive, management and maintenance tasks—such as arbitration, pay, hiring, firing, taxes, laws, and the pursuit of revenue, growth, and efficiency. This happens through internal, programmed, processes provided in the code, but it also relies on a truly democratic process based on who have bought into the project. You can buy in by buying tokens, yes, but you can also buy in by becoming a useful human employee that contributed to the success, growth, and efficiency of the organization. The Aragon code can actually give away Tokens as compensation to contributors who offer sweat equity. So, the human corpus of any single DAO can be an amalgam on investors (people who buy up coins to help fund the enterprise and get it funded) as well as the thousands of people who find a job helping the DAO to grow and become more profitable and more successful in its vision.
How Does It Work?
Aragon DAOs live on Ethereum. The DAO-based organizations release their own tokens, on the Ethereum blockchain/platform. All token buyers become both owners and employees. People who have Tokens have votes.
About a year ago, Jorge Izquierdo announced the Aragon DAO on reddit. In short, his intention was to create “a platform for creating companies on top of the Ethereum blockchain.” In longer form:
“Our ambition is for Aragon to be the backbone of a new generation of companies that will thrive in the new decentralized economy … Aragon is a fully decentralized app that only needs having a connection to an Ethereum node in order for the core functionality to work.”
On their Aragon Wiki,
“Aragon is a project that aims to disintermediate the creation and maintenance of organizational structures by using blockchain technology. We want to empower people across the world to easily and securely manage their organizations. We provide the tools for anyone to become an entrepreneur and run their own organization, to take control of their own lives. By making it possible for everyone in the world to organize, we are enabling a borderless, permissionless and more efficient creation of value.”
The goal of Aragon companies is to become more efficient. They won’t waste time on paperwork or dealing with third parties. They won’t waste a cent on tasks that don’t benefit their product or service. This will make Aragon organizations more competitive than their traditional counterparties. So they will be able to provide better products at better prices. Then clients will choose them because of that. This creates a virtuous circle that can speed up the decentralized economy.
According to Ethereum Use Cases, “Aragon’s companies, which I will call entities for clarity, are efficient and inexpensive because they do away with the intermediaries. No lawyer, no notaire, no government fees and registration.”
According to Bitcoin Exchange Guide, “entrepreneurs in a developing country could compete with Stanford graduates – despite the differences in resource availability. Just like the blockchain has democratized other industries, it could democratize business management.”
Taxation Without Representation
One of the goals of a decentralized corporate entity is that it’s impossible to kill and it’s impossible to tax. It doesn’t exist anywhere. According to Bitcoin & cryptocurrency tax accountant Daniel Winters, U.S. citizens are taxed on worldwide income which includes DAO income; however, most countries tax their citizens based on residency. In many ways, DAOs are powerful equalizers to these entrepreneurs in developing worlds.
And then there’s the issue of corporate taxation. According to the Tax Foundation, the worldwide corporate tax average rate is 22%, the USA is amongst the highest with 38.9% so even though the USA does tax its citizens and residents no matter where the money is made, DAO-based corporations, organizations, and enterprises are theoretically above the law and theoretically cannot be taxed my any nation state, per se. Being a corporation, an organization, or an enterprise is much different than legally incorporating. Presumably, once your incorporate your decentralized autonomous organization in Delaware, you’re a US company and you’ll be taxes accordingly.
However, if you feel the need to turn your pure, revenue-generating, decentralized autonomous organization, into an actual legal corporation, maybe you should look to incorporating in Anguilla, the Bahamas, Bahrain, Bermuda, Cayman, Guernsey, Isle Of Man, Jersey, Nauru, Palau, Turks And Caicos, Vanuatu, the British Virgin Islands, or Wallis and Futuna—all countries without general corporate income taxes. But why would you do that? There’s zero accountability for value one creates in concert with all your fellow stockholders who have pitched in through buying Ethereum-based tokens, thereby concurrently becoming both voting “stockholders” and valued workers.
In many ways, DAOs are the perfect corporate cloaking device (the whole world isn’t a friendly law-abiding place with a rule of law and an honest judicial system) and the only real reason to ever incorporate or form a legal nonprofit organization is if one needs to become an actual legal entity in order to fulfill the vision of the DAO itself (for example, while having a federal 501(c)(3) tax status is not required to operate, it is required in the United States in order to accept donations that are tax deductible to the donor).
So while cryptocurrency accountants agree that while Americans will need to pay taxes on any personal income made from being a part of their DAO, I haven’t read anything that suggests that there’s any innate accountability or tax liability associated with the organization itself as it’s autonomous, decentralized, and riding Ethereum’s blockchain. DAOs are impossible to kill or shut down unless they’re actually closed down by all the contributing shareholders. As a result, how can any nation state—or even a coalition—ever seize a DAO for nonpayment of tax?
DAOs Replace Everyone But the Workers in a Corporation
In current businesses processes, there’s more heat than light. In other words, there are so many levels of managerial inefficiencies that separate a company’s vision from the actual men and women who have the expertise and experience, make the tough choices, know what’s best, and sign their name to the work. Middle managers manage projects and processes and logistics and people and hiring and firing—all of which are cost centers and not revenue generators. In most cases, all of these jobs have strict protocols, rules, and procedures—most of which could more easily be replaced by skip logic than the actual work being done by the workers.
In a world where all work and workers will be replaced by robots and AI, products, platforms, frameworks, and structures like the blockchain-based decentralized autonomous organization (DAO) are endlessly appealing to the same sort of truly future-focused disruptive innovators that make up cryptocurrency’s base.
Alive! It’s Alive! It’s Alive!
Vitalik Buterin defined the DAO back in 2014 as “an entity that lives on the internet and exists autonomously, but also heavily relies on hiring individuals to perform certain tasks that the automaton itself cannot do.” In a perfect world, DAOs would need nobody. Quite possibly, Aragon’s DAO might be the framework that Cyberdyne Systems used to develop and run Skynet. Like any decentralized autonomous organization, Cyberdyne Systems only suffered hiring human individuals to perform tasks exactly only as long as it couldn’t find a way to replace that human with AI, an algorithm or a robot.
Jose Garay makes a very interesting contribution to the conversation about DAOs in general and the Aragon framework in particular by stating that, by definition, DAOs exist. They live on the Internet regardless of whether there are any owners or any workers. While Garay suggest that DAOs are more like ideas than corporations, you just need to own a few companies to realize that they’re both ideas and individuals, at lease according to the US Supreme Court. It’s called corporate personhood. I would argue that the personhood of a traditional corporation and a DAO are equally real, as far as that goes, though one might suggest that a DAO on its own, on the Internet, is an actual self-interested entity that has sole agency of its own existence. I agree with Garay that all of this is mind-blowing. Like an organism, it can evolve.
Evolution is a Process of Constant Branching and Expansion
By definition, DAOs only change based on true bottom-up stakeholder democratic processes. When there is change, it’s an update. That update either moves the DAO codebase—the corporation—forward or it hinders it. The “natural selection” of the emergent decisions of the participants in the organization drive the evolution towards increased revenue and profitability, be through increased efficiency, growth, scope, or even a pivot. These kinds of beneficial mutations are much more intentional, organic and responsive to external challenges, opportunities, and threats than by tying success or failure to the CEO and his or her ego, pride, fear, pressure, blindness, inspiration, or hubris. That’s not logical, captain.
Even more, the DAO corporate entity does absolutely everything that automation can do. The DAO can own and manage property. It can hire and fire. It can arbitrate disputes. It can even compensate those who participate in the arbitration. On the other hand, for as long as DAOs need humans, it needs to make sure that it only hires people who love doing what they do—and are not only exceptional but dependable. When there is junk work that nobody wants to do, the DAO can decide whether that work needs to be done by humans (in which case, maybe the fee will increase until someone commits), can be programed to be done by the DAO codebase, or maybe that work doesn’t need to be done at all.
Reputation is Character Minus What You’ve Been Caught Doing
There are also automated ways of attributing reputation to those human workers who deliver great work on time, every time. Too much Vulcan, not enough Kirk? How will DAOs deal with “but the kids are sick” and “I had to pick Danny up at the Principal’s Office?” Can humane compassion and the compromise between being human and being punctual be coded into a DAO in something more than “three strikes, you’re out.” My assumption would be that a decentralized autonomous organization would never get stuck. The moment you let the DAO know you need to go retrieve your lice-addled child from the nurse, the DAO would be able to route around you or re-task your portion to someone who is available. Instead of penalizing in a traditional way, the penalization would come more in the form of reduced revenue rather than scolding or double-secret probation. Eventually, if the DAO doesn’t like I work and I don’t like the work the DAO is offering me, it won’t really even require a firing, it might just require the end of a relationship. It’s surely an extremist form of meritocracy. In this case, it doesn’t matter at all, as a worker, if you have an undergraduate degree from Yale College, an MBA from Sloan, and a PhD from Caltech, it really only matters if you can do the work within the requirements as defined by both the DOA and the democratic token holders.
Aragon promises not only such a future but such a present as well. In the vision of the Aragon DAO, the only redundants are everyone else besides the actual revenue-generating workers.
AI Will Replace Cost Centers First
In short, robotics and AI is much more likely to replace low-level, middle-level and top-level management sooner and more easily than the actual revenue-generating employees who make money for the company of firm. Why fire the lawyers when you can just fire anyone who doesn’t sell or bill hourly. The first heads to fall include any and all cost-centers, including HR, of-counsel lawyers, the board, and even the C-suite.
Aragon is a platform that allows anyone to create and participate in a DAO. In the founder’s words, “Aragon was born to disintermediate the creation and maintenance of companies and other organizational structures.” This fires the government, the banks, the C-suit, the middlemen and manager, and all the lawyers as the Aragon DAOs should be able to replace all intermediary processes with a distributed ledger system of management.
The Aragon DAOs aspire to not only replace the internal stable of counsel lawyers but all the way up to the replacing existing dispute resolution technologies with a virtual decentralized court system that is able to settle disputes between—and not simply within—organizations when agreements encoded in smart contracts aren’t enough. The Aragon software purports to be able to assign voting shares and roles to members of the corporate entity, manage bylaws, account for transactions, and vote on decisions.
The End of Professional Services?
If you dig just a little deeper, decentralized autonomous organizations disrupt professional services that sell costly meta offerings such as accounting, legal, business, management, HR, financial, etc.
Most CFOs hire a top management consulting firm in order to placate shareholders and appease the board. In a strict DAO, none of these positions actually exist. There is no longer a C-suite, there is no longer a board of directors, and so there might never be a need for external professional services in the form of management consultants, human resources consultants, lawyers and law firms, or even accounting firms (as the DAO keeps a perfect ledger). Corruption and inefficiencies are much more challenging under a DAO-managed corporation or organization. Will there even be any need for these very expensive meta-solutions? How valuable is a McKinsey White Paper in a decentralized autonomous organization-driven future? Even today, being a successful enough company to retain a stable of white-shoe firms is the most expensive form or bragging rights. Under a DAO, nobody in the organization has enough autonomous say to demand that the most expensive form of bragging is innately valuable to the future success of the organization. It’s a very hard sell.
What does the future really look like for white shoe firms? What’s going to happen to Deloitte, Ernst & Young, KPMG, PricewaterhouseCoopers, McKinsey & Company, Latham & Watkins LLP, Willkie Farr & Gallagher, and WilmerHale? What will happen to the value of the JDs and MBAs from Harvard, MIT, Stanford, Columbia, Yale, Northwestern, Penn, UVA, Chicago, Berkeley, at al? Will kings become paupers in the new economy, thanks to the Aragon DAOs and others like it?
What Do Managers Do?
Just a reminder as to what management actually does in an organization (and remember, they’re generally much better compensated than the people who do the work, generally, and require more education and experience): top-level managers are responsible for controlling and overseeing the entire organization; middle-level managers are responsible for executing organizational plans which comply with the company’s policies (these managers act at an intermediary between top-level management and low-level management); low-level managers focus on controlling and directing and serve as role models for the employees they supervise.
