The coming InDAOstrial revolution

The coming InDAOstrial revolution

DAOs give people the ability to build bigger, crazier things in completely radical timelines, just as the advent of corporations paved the way for the Industrial Revolution.

The invention of the joint stock company in the 1600s was critical to the organization of humanity. By providing a structure for working together for economic growth, joint stock companies drove the subsequent Industrial Revolution and fundamentally changed the arc of human expansion.

Today, it is worth considering whether cryptocurrency-based decentralized autonomous organizations (DAOs) can drive an equally explosive cycle of innovation in the next century.

Julie Friedrickson is managing partner at Chaotic Capital. This article is a preview of the talk she will give next week on the Big Ideas stage at Consensus 2022 in Austin, Texas. Follow her on Twitter: @AlmostMedia. Register for Consensus 2022 here.

What is a DAO?

Defined as organizations managed by voting on a blockchain, DAOs offer us a shift toward open and inclusive legal entities to pool resources and energy across massively dispersed groups, which begs the question: could we be at the beginning of a multi-decade inDAOstry revolution?

To understand why I believe DAOs have such significant potential, it's helpful to dive into the history of the corporate form that helped lay the foundation for the Industrial Revolution, and in particular the role corporations played in creating the first corporate country: America.

The American ExperienceAlthough

I am

not a historian, I believe it is possible to make the case that corporate governance existed in America before we had a functioning state. According to Brief History of the Corporate Form and Why It Matters, published by Fordham University's School of Law, corporations existed in America before colonial legislatures:

"Notable corporations such as the Virginia Company helped extend British control over North America. In fact, the Virginia Company established the General Assembly, which was the first legislature in North America



A monarchy establishes a corporation to extract raw materials. At first glance, this is normal colonial mercantilism. But this business organization has led to a 300-year experiment in democratic self-government. DAOs starting a revolution suddenly doesn't seem so far-fetched, does it? Our entire political way of life is downstream from a monarchical charter for corporate property rights.

And that makes sense; after all, society is determined by how we organize and manage our resources and to what extent. When trying to build something more complex than an agrarian society, the ability to trust that your goals and investments will be realized, even if you don't personally oversee them, is an important catalyst for all other technologies. The more efficiently we are able to pool and deploy resources at scale, the further we will advance as a civilization.

But even today, business relies heavily on trust. A country's economic strength depends on the strength and development of its legal and financial system. That is why, as we have moved away from "God-given" rights to a system governed by laws, we have established sophisticated judicial processes to ensure institutional trust. The original version of this process took several hundred years from resource extraction to Silicon Valley. But now we are at an impasse when it comes to institutional trust and large-scale coordination.

DAOs and the Network StateDAOsare asking

us to think about whether it is possible to further abstract our trust from fallible humans. The trustless nature of DAOs could help us tap into more sophisticated financing that enables ever-expanding scaling and coordination. If the enterprise created America, could the DAO lead to the creation of other new nation-states? Could it lead to the creation of a network state, where a social network eventually coalesces into a physical state?

According to angel investor Balaji Srinivasan, "a network state is ... an archipelago of digitally networked, interconnected enclaves," meaning that a nation-state could consist of globally dispersed, networked real estate owned and operated by a group of citizens who use the DAO structure for governance. The closest metaphor we currently have is corporate campuses or co-working sites.

Imagine a network state made up of independent and supporting sub-DAOs that together run an interlocking economy. Some DAOs are responsible for infrastructure. Others are responsible for services such as police or fire. Perhaps several network states share important services, perhaps even an oligopoly for important social needs like health care. The more something needs large scale for success, the more large-scale, trustless, cooperative behavior is rewarded. I don't doubt that we can create some truly dystopian nightmares in this kind of experiment, but wouldn't it be great if we could get healthcare for all through DAOs?

Decentralized autonomous organizations offer us a new way to pool different types of resources, including but not limited to virtual resources. DAOs give people the ability to create bigger, crazier things in completely radical timeframes, just as the emergence of corporations paved the way for the Industrial Revolution. It's a new way of looking at wealth, power, and cultural mores.

DAOs and Social ChangeA trustless

unity at the societal level means that there are no longer kings or "big men" protecting corporate charters. We would rely on a set of legal codes and legal norms that happen to be readable as executable computer code. A smart contract is still a contract. It is just a (theoretically) more efficient, self-executing version of the standard norms of corporate governance.

This vision is still worth striving for because, unlike standard corporate governance, best practices are yet to be determined. These growing pains go back to the DAO, which famously led to a hard fork from Ethereum in 2016 to fend off an attack on the smart contract. America now has a century-old corporate law that helps resolve disputes, while DAOs haven't quite reached the ten-year mark yet. There is still a lot of work to be done in terms of best practices.

I recently watched the television series "The Gilded Age" because I'm a sucker for set pieces, but what I found was a story about changing expectations about deciding how we organize the spoils of civilization. The real-life Gilded Age marked the height of the Industrial Revolution and is an instructive story for anyone who wants to know how innovation cycles work. It is a story that is retold by new means with each new cycle of innovation in our history. I believe we are still in the "installation phase" of economic historian Carlotta Perez's "Technical Surge Cycle." If we are lucky, the current crypto bear market could be the crash that sets us on the path to adoption and eventual maturity.

Perhaps DAOs have the chance to unleash new norms that are as troubling and ultimately prosperous as anything we saw in the Gilded Age and Industrial Revolution. They say history doesn't repeat itself, but it does rhyme. I have no doubt that the changes we will see in cultural norms in the next century will be as revolutionary as the founding of America.

We are at a turning point in terms of the proper organization of individuals and citizens. It's entirely possible that something as arcane and mundane as automated corporate governance could be the linchpin for the next revolution.