It seems that just yesterday, exchanges like Coinbase opened the eyes of the mainstream economy to the benefits that cryptocurrencies offer as an asset class.
Cryptocurrencies and other decentralized technologies have created apps that promise to create real social value by providing an automated way to build trust, but at a cost far lower than traditional middlemen (banks and governments) who have monopolized trust as a service.
Building on the decentralized revolution, forward-thinking people are already talking about the next big breakthrough – the Decentralized Autonomous Organization, or DAO – that can ensure trust at the organizational level. But while the problems that DAOs could solve are real, proponents of DAOs misunderstand the nature of these problems and come up with a tool that creates more harm than benefits.
Decentralized applications are built on smart contracts – algorithms that run when predetermined conditions are met and, in doing so, automate day-to-day decisions. Smart contracts create trust by ensuring predictability; when a predetermined set of actions occurs, you will be paid in tokens.
Enthusiasts see DAOs as the next logical step in this trust-building process by bringing together a series of smart contracts to create what they describe as a smart “organization” – where business decisions such as inventory control, cash management, pricing and even hiring are taken. based on predetermined inputs.
For an extreme example, consider an Amazon third-party reseller. This business operates on a number of simple inputs – the level of interest in its various products, the cost of raw materials and production at different facilities, shipping costs, etc. Based on these predetermined inputs, the investor’s value of the business should be fairly straightforward to determine, and a DAO would weed out managers who make bad – or selfish – decisions.
Business owners are constantly making decisions that may be sub-optimal from an investor’s perspective for reasons that are obscure at best and far too often made in their personal best interests. For example, the decision to switch to a more expensive manufacturer could be protection against returns of products based on poor quality, or it could be because the new manufacturer is the owner’s cousin.
With a DAO, the whole business could be run without any human being, with all decisions made by a series of smart contracts. If a certain range of products does not sell, production automatically goes down and the price may also go down until stocks are reduced. As sales increase, production increases. As production costs increase, prices increase and so on. And the profits would flow to DAO investors who, in turn, made investment decisions based on pre-defined (and pre-approved) smart contracts.
But this very reliance on smart contracts solving small problems remains subject to what proponents mistakenly call extreme cases. What if there is a strike or a fire at a manufacturer? It’s hard to imagine a smart contract anticipating better than a human manager when it’s safe to take back control with them.
This is why companies are using traditional contracts in addition to smart contracts – the reality is that the world of business relationships is much more messy and versatile than a series of smart contracts suggests. DAOs, of course, could continue to retain humans (as employees or consultants) to solve these kinds of extreme cases, but I wonder if humans would want to be called in to clean up the mess of smart contracts.
Decentralized finance has created value by more effectively validating quantifiable economic decisions. This has been successful because an automated trust mechanism for simple (or even complex) transactions has a simple metric (economic value) to measure the benefit of the decision.
But there is a profound difference between seeking trust in transactions and building trust in relationships, let alone organizations or communities. People derive economic value from transactions, but they gain other types of value from being part of relationships and organizations. By being part of an organization, we derive a sense of place, and from that sense of place, ultimately a sense of self.
This feeling of belonging comes from the fabric of reciprocal relations which are constantly renegotiated between them and within a group. And in an organizational relationship, we have to constantly weigh between competing values to make a decision – should I do something that doesn’t make economic sense, but makes it more likely that someone will help me in the future? ?
Pierre Bourdieu described all of these values as a field and underlined that each person’s field is constituted differently according to their accumulated historical and cultural circumstances. According to Bourdieu, to master these relationships, we do not need a boilerplate algorithm, but an intuition that he calls a “sense of the game”.
This sense of play is what separates a visionary from a good businessman. And, more importantly, this is what separates a good person from a good manager. For me, the ultimate proof that a DAO can replace our existing broken business organizations is when a smart contract can decide it’s a good time to give an employee a day off. If you are a DeFi enthusiast, this should be your challenge.