DAO as a Vending Machine

This week I am summarising recent posts about some of the mechanics around how DAO's might work for the enterprise. The basis is the simple vending machine pattern but it needs confidence that the contract will perform as advertised and confidence that we know who we are dealing with. At the end of the day CEO's need to decide if they want to expose their shareholders to the upside of this new digital economy by owning industry tokens and governing DAOs or if they will let others lead and then follow the rules set by others.

Think of a blockchain as a Vending Machine

You put a token in and you get a chocolate bar out ( idea stolen from Keir.) The token you put in is the money or value token for your DAO and is a store of value created by the innovation of developers and innovators in the DAO. It’s a bit like a decentralised equity. You use it to access (pay for) the various goods and services of the DAO or marketplace. The chocolate bar is maybe an NFT (perhaps each bar is unique in some way) - perhaps it has a personalised wrapper representing creativity of a user and that user is rewarded in the DAO’s token for doing that helpful thing - that helpful behaviour change. Perhaps the new owner of that NFT rents it when they are not needing it - maybe in our strange new world folk just like to look at the uniquely wrapped chocolate and not eat it. This NFT could be used as collateral in DeFi as we link lenders and borrowers together.

This becomes even more poweful if we can trade our chocolate money (our value or money token) for coffee beans as we start to interoperate tokens, anything for anything. And we can know exactly who we are trading with - maybe through reputation and/or if they hold an up to date identity credential issued from say a government entity that we can verify. Or we can build new types of secondary markets as we build derivatives of that token - maybe you can own a part of a chocolate bar or trade in its carbon emissions footprint.

This becomes yet more powerful as we can add up even more of these simple transactions by adding more and more nodes as we scale out. You can do a huge amount with that simple vending machine pattern. You see blockchains are about changing a lot of peoples' behaviours a little bit. Blockchains are good at doing lots of simple things. But keep it simple folks - like that vending machine. And DAO tokenomics is just about the behavioural economics of the folks in the DAO - how can we create incentives so that everyone wants to work together as a community and so that everyone wins in this simple buying and selling, borrowing and lending of fancy wrapped chocolate bars? I first drew the picture below in early 2018 for one of my other blockchain heros (Jurgen Kuebler ) - these things take time.

The tool kit to build DAOs is emerging. Read this paper from Outlier Ventures (link here)

DAO Tokenomics and Audit

Today we are codifying a new way of doing business. This has not happened for 500 years - so it is a big deal. This new idea is that a community of stakeholders can decentrally govern assets on-chain for the benefit of their community. The financial position of the community is made visible by code, real time and on-chain to all stakeholders. Stakeholders need to be protected that this code will do what it says it will do and not something else. So an audit should be required to let stakeholders know what the developers of that code (just like the directors of that company) have actually created the code to do. The community’s code should be compliant with a whole set of governance rules (or regulations) designed to further protect stakeholders. Right now the question is “who sets those rules and what are they?”

DAO Tokenomics as a new digital economy

I think we build a digital economy on top of what we have already today. Just as the industrial economy was much bigger than the agricultural economy that it was built on top of, then so will the digital economy be much bigger than the industrial economy of the 20th century. The digital economy will become the token economy built around DAO’s and presented via web3 and/or the metaverse.

Open, neutral chains are needed for this token economy. I think retail CBDC are about political aims - I always want my politicians (and central bankers) to do as little as possible and then get out of the way. Today’s industrial money supply is now only about politicians and central bankers - there is nothing here for young folk - only old folk like me. For example all QE did was prop up property & equity prices for the old industrial world not to reset

DAO Tokenomics - the hardest problems

Sometimes the hardest problems to solve fall outside the technology. Who will pay for what, and how will decisions, rules and policies be made - can be the hardest part. What is the economic incentive model? Traditionally, in collaborative blockchain networks the enterprise has had 2 or 3 options here. Perhaps one business , be it a solution provider or a larger enterprise, will take the lead and make all, or much of, the running here - probably taking advice from a board made up of rotating members of the network. This certainly has been the approach on private chains.

But with DAO Tokenomics we are (probably) using public rails - so the network is very open. The network can avoid much of the infrastructure costs of a setting up a private network - as that network already exists. But someone still has to write those smart contracts to set up the DAO by way of raising funding and voting on the rules for this new marketplace. And building the apps that wll run on the network. One of the key challenges is designing that DAO Tokenomics model - who will be rewarded for what? Who will pay for what? What will be private (off-chain or behind a ZKP) and what will be public data to all? How will data be monetised? How will value that is created be aligned to fairly to value that is received? Whose behaviour needs to change and how will that behaviour change be rewarded?

It is solving these new DAO Tokenomics problems that the enterprise will face in using new public chain solutions that so fascinates me and that I am setting out to start to propose ways to solve.