A popular video trend that I saw on Youtube over the summer was "I don't dream of labor" and really the aim of that trend was to disparage capitalism and all of the ills it's caused in the world, while the creators of those videos simultaneously profited off of it by trying to create content that would be more widely viewed and result in more capital for them. I will never knock someone's hustle, I just find it ironic that people are willing to only see what they want to see, and not dig deep to get a fuller picture of any given situation. As the saying goes, "perception is reality." With this anti-capitalist movement, there are many who've latched onto this idea that decentralizing everything is the way to go, and while that may seem great in theory, there are always two sides to every story, and for that reason, it's worth exploring whether DAOs are the end-all-be-all, or if they're not.

For starters, what is a DAO?

“Jack du Rose, co-founder of Colony, defines a DAO as: … a type of decentralised application which incentivises its users to engage in activity which furthers its agreed business objectives by enabling them to work together without requiring them to trust one another.” source

Put simply, DAOs get rid of the institutional intermediaries by utilizing smart contracts on a blockchain to carry out rules that are programmed into them, which enables people to operate in a decentralized fashion. Many people today—especially crypto-anarchists—see DAOs as the solution to the mismatched incentives that we see with shareholder capitalism. People are tired of corporations acting in the best interests of their shareholders, rather than the best interests of humanity and the environment, and—I think naively—see decentralized governance as the way forward, often neglecting the issues that this form of governance has.

In a previous memo, I mentioned how I believe centralization is a relic of the past. Upon further research, however, I've come to learn that there is a natural human inclination towards centralization, so it'll never actually be a relic of the past. Explained further:

‘The sustainability of a decentralised economy faces significant practical issues. The main argument is that "[n]o matter how decentralized a service is to start with, left to itself, things eventually tend towards centralization". A popular example of this tendency is the Internet. In the Internet's early days, it was completely decentralised with individual nodes connecting directly. However with the introduction of Internet service providers (ISPs), the Internet began to become commercialised.’ source

Given this is an investing social network, I think it's important to note the major hindrances in buying into DAOs via their tokens.

Another notable hindrance of DAOs is “Once a DAO is established in a specific jurisdiction, that jurisdiction’s governing body has inherently gained regulatory authority over the DAO.” What this means is that there will be legal issues—especially in the beginning—and it may be safer for investors to deploy capital into more adequately defined and compliant investments.

At the root of what DAOs aim to solve is this misalignment of incentives between people and corporations, and while DAOs are still a good option, I think there is an even better option available right now, and that is stakeholder capitalism enabled by DeFi.

A company that I'm really excited about is Fairmint, and it gave birth to the Rolling SAFE (Rolling Simple Agreement for Future Equity), which enables "engaged customers to earn ownership in the companies they love & use to build wealth alongside them," and "sophisticated investors the ability to invest in the private companies they believe in with a clear path to liquidity." I see the biggest challenge with Rolling SAFEs being how the SEC defines an accredited investor, and the regulations opening up to allow any individual—regardless of income level or their amount of assets—to invest in the companies that they trust and believe in.

We have a long way to go in terms of leading people to an abundant future, but it's important to always have an informed view of the different implications of adopting any given business model. To close this out, my views align with the conclusion reached by this paper:

“With the status quo favoring corporations, but the increasing availability of these DAO-facilitating technologies, the future will witness a hybrid of these two forms of organization. Those in society who are wary of and have succumbed to the faults of hierarchical institutions will be drawn to DAOs, while less affected persons shall not. For cooperatives, workers in capital intensive sectors, which involve standardized tasks, are relatively indifferent about hierarchical structures compared to workers in knowledge intensive sectors. By analogy, we may see DAOs become more popular in knowledge intensive sectors, with hierarchical companies persisting in capital intensive sectors.” source

When thinking about whether or not to invest in DAOs, or to upend a corporate structure to adopt a decentralized one, I hope you'll keep all of this information in mind!