DAOs that open themselves up to outside investments are at a high risk of falling into the same capitalist spiral as today’s organisations, where values are slowly eroded away in place of profit.
Is it possible to create an alternative model, whereby organisations are driven to pursue values, such as happiness and sustainability, instead of profit?
DAOs open to external investors with access to reputation are at severe risk of values erosion due to the fact that investors have a direct say in the operations of the DAO. This values erosion risks being even greater than that of a traditional capitalist organization, which is scary.
The challenge arises from two groups with differing incentives. Investors want to maximize returns, while reputation holders (likely) want to maximize a metric which isn’t necessarily returns (but can be). Is it possible to align these two orthogonal views?
The values erosion problem
In traditional organizations, values are generally compromised over time.
- The original Apple values did not include paying factory workers in harsh working conditions in China.
- The original Nestle values didn’t include sucking aquifers dry in locations around the world
- The original Levis values did not include polluting rivers and oceans with dyes
DAOs will evolve in the same way as organizations of today have (with likely an even faster values erosion), unless precautionary measures are taken. Even with a minority voting power, investors are motivated to sway votes (via bribes), and push the organization further from the values on which it was founded.
There are likely many ways to achieve this goal, and still allow investors to capitalize an organization. Below are two:
- Do not allow investors to own reputation in the DAO. This can be achieved via the issuance of debt instruments to investors, along with some mechanism to hold DAO members accountable in situations where debts can’t be paid back.
- Allow investors to own reputation in the DAO, but scale the reputation of investors based on how close the DAO is to the “Founding Values” of the DAO which were created on inception. If the DAO deviates from it’s values, more power would be given to members of the DAO who are more aligned with the Founding Values.
Why would a DAO want to be values-based?
If a DAO is founded with this kind of mechanism, it will make fundraising more difficult. Similar things have been seen in B Corps and social enterprises.
But for DAO looking to raise funds from investors, they should be free to decide whether or not they want their core values eroded over time, or maintained in perpetuity.
There is likely no better time to start discussing values-based DAOs than at this early stage of inception as it could have far reaching implications beyond what we can imagine, and move the globe towards sustainability.
Imagine a system for example, where values based DAOs have preferential treatment and reduced friction, which ultimately put at a disadvantage non-values based DAOs. Maybe such a vision is possible.
Please comment and help push this discussion forward, and invite anyone who might be able to add value.