DAO's as Digital Cooperativism
"In 2021, a DAO could be described as a voluntary association with the operating principles of digital cooperativism. As voluntary associations, they are a cross-jurisdictional way for strangers, friends, or unlikely allies to pseudonymously come together toward common goals, supported by a token model, incentives, and governance. Members of a DAO can have representative ownership of its digital assets through a token, which often simultaneously acts as a governance right.
Although many DAOs would not embrace the label of digital cooperative, one could say DAOs embrace cooperativism as a protocol, meaning an evolving set of relational practices that are distinct from traditional corporate structures or decentralized autonomous corporations, because they prioritize member ownership. The label cooperative is further qualified here by digital because today DAOs act primarily to coordinate around digital assets. However, as the concept of DAOs evolves in practice, its digital primacy will fade. DAOs, as we will see, also introduce new dimensions that exceed what the operating principles of a digital cooperative notionally encompass.
Decentralized technology ecosystems tend to describe a phenomenon through its technical products. Yet as Ruth Catlow, co-founder of Furtherfield and DECAL decentralized arts lab, notes, “We need to be building cultures before structures”. While the overview below of DAO tools provides a concrete description of the concept in practice, it feels critical to keep in mind that DAOs ultimately coordinate through collective vibes."
"The principles of Voluntary and Open Membership, Member Economic Participation, and Concern for Community translate to the examples of DAOs above. The principles of Autonomy and Independence and Cooperation among Cooperatives are key for DAOs to flourish as multi-organizational networks, strengthening an autonomous social sector built through cross-DAO collaboration.
DAOs could set more thoughtful norms around democratic member control, which cooperatives typically define as one member, one vote. Most DAOs employ token voting, that is, one token, one vote. DAOs reason that token ownership represents stakeholdership, with the token model often directly economically tied to the DAO, for example through fees on software protocols it owns. This allows DAO members with greater financial stake to have proportionally greater influence. Token voting does not directly contradict cooperative principles, as there are some cooperatives that weight votes by qualities such as production (15). In certain cases this may feel apt, but as some DAOs evolve toward maintaining basic infrastructure such inequality becomes undesirable. This is in part because not all stakeholders have the purchasing power representative of their stake, and their practical knowledge may be excluded from governance.
Projects such as Tornado Cash privacy protocol have approached this distribution problem by retroactively sending tokens to prior users, in a step toward making users stakeholders of the protocol (16). The Regen Network project, a public blockchain for ecosystem services, takes another approach to this distribution problem. They have set aside 30% of their tokens for land stewards, climate scientists, and other stakeholders in regenerative land management to form community DAOs that participate in network governance. Because tokens can be distributed more easily than traditional corporate interests, memberships, or shares, this creates the possibility for a new form of token holder company, which can incorporate deeper practical knowledge in governance without increasing operational transaction costs. Stakeholders with practical knowledge, or “tacit” knowledge, like land stewards in the case of Regen Network, benefit governance by incorporating informal practices in decision making. Here, DAOs begin to introduce new dimensions that exceed what the operating principles of a digital cooperative notionally encompass. For this reason, as much innovation and emphasis should be placed on token distribution mechanisms that identify broader stakeholder participation as on decision making mechanisms.
The tokenization of online communities could be the subject of a longer debate. Far from the best answer to the social media woes of web 2.0, tokenization introduces more financialized relations. As a guiding star, web3 applications could aim to introduce value in relations which have been historically denied it, such as labor and environment, rather than creating new financialized relations.
In this context, for DAOs with the mission of economic value creation, a token becomes a useful mechanism on three fronts:
- Bootstrapping Funding
- Distributing Governance Rights
- Aligning Ecosystem of DAOs
Tokenization introduces a powerful cultural norm into early stage organizations: the expectation of transparent co-ownership of its assets from the start. The tension between more traditional corporate structures that pay dividends and DAOs persists (17). Because most DAOs represent governance rights through a token, in some sense tokens Trojan horse principles of cooperatives directly into highly financialized spaces. These are two important sides of, quite literally, one coin, and for this reason, tokenization should not be dismissed. Tokens may be one key to unlock the ownership economy, but to reach a more equitable version of this future, we must participate in crafting the culture around token distribution, mediation, and governance now. This becomes important because, unlike shares in cooperatives, many tokens that double as governance rights can be sold on secondary markets. While this makes the conditions for entrance into an organization easier, DAOs can learn from cooperatives’ emphasis on long termism, through establishing more cultural patterns around token vesting, limited transferability, or more experimental mechanisms.
Just as DAOs can learn from case studies of cooperatives, in a two-way exchange DAOs could introduce more forms of decentralized governance into cooperatives. This is the case made by Morshed Mannan in Fostering Worker Cooperatives with Blockchain Technology: Lessons from the Colony Project, which cites how cooperatives often face “coordination problems as the entity scales across borders,” with a “negative trend in participatory management, mutual monitoring, and solidarity” as they internationalize. Dilemmas that cooperatives face, such as funding, governance, and alignment across jurisdictions, DAOs directly address. Embracing cooperativism as a protocol rather than as a corporate structure, in their neologism, DAOs could encourage a cultural space that can be crafted beyond traditional divisions.