The way that we think about organizations will change a lot in the next decade. One of the ideas I’m keeping an eye on is the Decentralized Autonomous Organization. A handful of tool builders are now shaping how these new, blockchain-based organizational forms could change the future of work.
The other day, I interviewed a pioneer of the Decentralized Autonomous Organization. Jack du Rose has been interested in distributed work for many years. He used to design very expensive jewelry, heavily encrusted with diamonds and precious gems from all over the world (the asking price for this skull was £50 million). Jack felt there had to be a better way of coordinating his highly distributed network of suppliers and jewelry makers. Then, on Christmas 2013, he got a very special present. Vitalik Buterin published his Ethereum white paper, and Jack hooked.
The focus of his work is now an Ethereum-based tool, called Colony. Jack had long been interested in complex adaptive systems, which he saw as a much more natural way to coordinate human work than the organizational hierarchies we tend to use. Ant colonies are a type of complex adaptive system, and so, yes, the inspiration for the name was actually the ant colony.
Colony and the Decentralized Autonomous Organization
The purpose of this article is to highlight some of the more revolutionary thinking behind this new platform, so if you want details on the technology, your best source is the white paper.
Colony is a protocol for building a Decentralized Autonomous Organization using open source smart contracts on the Ethereum network. In simpler terms, it’s basically a social operating system for tracking people’s contributions in highly decentralized networks of collaborators. Think blockchain enabling the future of coordinated work.
Once it becomes publicly available in 2018, people will be able to create their own colonies. Each colony will be able to issue its own tokens to reward contributions from members. To help ensure liquidity, each colony’s tokens will be exchangeable for Ether (Ethereum’s token) and CLNY (the primary Colony token).
That’s the basic idea. Now let’s turn to what is most intriguing about this technology and what it might say about the future of work.
The Fruits of Ownership
Those of you who regularly read the Vital Edge know that taking care of stakeholders is something I care a lot about. While interviewing Jack, I noted that his work was important because it would seem to give people a “piece of the pie.” He agreed, and went a step further:
“Yeah absolutely. I mean there is no giving them a piece of the pie because that implies directed relationship. It’s claiming a share of the pie as a result of something, and as soon as you’ve done so, you are the co-owner of that, and you have a proportional ability to direct its progress.”
This quote cuts to the heart of what I appreciate most about this platform: it rewards people’s contributions by giving them ownership in the shared outcomes of their collaboration with others. And that gets to what most ails our economy today: it’s just too damn hard for most people to build equity through their work. Equity is the key to wealth, so solving the problem of ownership is really important.
The second thing I like about Colony is that it embodies a very nuanced understanding of rewarding people for their contributions to shared ventures. In essence, what Jack is saying in the above quote is that contribution begets both ownership and influence. We’ll get back to the influence part later. First, let’s look at the rewards of ownership.
Reputation Rewards Contribution
The first thing to understand is that Colony’s tokens are designed to work in tandem with another variable, called “reputation.” Compensation on the platform is thus the product of two factors: tokens and reputation.
Whereas tokens are completely transferable, like shares in a company, reputation is not. In Colony, you earn reputation through demonstrating a particular skill and by applying that skill in a particular domain. So, it makes sense that reputation is both member-specific and non-transferable.
Colony has no interest in being in the game of issuing securities or in enabling its users to issue their own securities. There is a legal reason for this but there is also a philosophical perspective at play. If compensation were based on tokens alone, early ‘investors’ would continue to reap a disproportionate share of the rewards of the work of future members. As with equity shares in a corporation, this earning potential would be freely tradeable, so that a person who’d never contributed any work into a particular colony could buy the rights to much of the future stream of revenues earned by its members.
We’re used to thinking that this is normal since it’s the way things work with stocks, but that doesn’t make it right.
The other important thing about Colony reputation is that, just as in real life, you build reputation within colonies over time. Colony reputation is ephemeral, and by that, I mean that it decays over time if you don’t actively maintain it. What this means is that if you want to continue receiving the fruits of a colony’s work, you need to maintain your reputation in good working order. That means continuing to contribute to its success over time. When I was working at Microsoft in the nineties, we had a term for people who had checked out and were simply waiting for their stock options to appreciate: we called it “resting and vesting.” In Colony, there is no “resting and vesting.”
Colony is building a tool for rewarding contributions that is very different from the way most companies work now. Today, most people earn salaries or hourly wages, while the rewards of ownership are held in relatively few hands. In Colony, the rewards of working together are owned by everyone and divvied up based on your reputation and your tokens.
What this means is that in this model, ownership is a living thing. When you stop contributing, your reputation dies, and so does your compensation. In other words, I believe that what Colony is building here is a compensation platform designed not for shareholders, but for stakeholders. These are the people who are contributing an ongoing stake. Let’s call it a “living stake” in a shared venture.
Tokens Compensate Risk
If ongoing contributions are so important, why not just skip the whole token thing and just tie all compensation to reputation? This question gets us to another interesting aspect of the Colony design. Tokens are deliberately fixed as a finite resource. Just as there are only 21 million BitCoins that can ever be mined, the number of tokens in a given colony is also fixed. It can only be changed through broadscale consensus among existing token holders, which acts as a hedge against the dilution of a token’s value.
Beyond that though, if compensation in Colony were tied to something that wasn’t finite, it would leave the system open to attack. People, or bots, could create multiple accounts to flood the platform with the equivalent of low quality ‘contribution spam’ and other ways of gaming the system, and in so doing wreck havoc on a colony’s compensation system.
Beyond this though, there is another philosophical question that the token is designed to address, and that is the question of risk. Early on in a given colony’s existence, things are much less certain. Members who contribute to a colony in its early stages assume more risk than those who contribute later, when the colony is well-established and earning revenue.
Colony acknowledges the risks of an early investment in a colony by not decaying them over time as it does with reputation. So, as long as a member maintains their reputation in good standing, their early investments will be maintained. If the colony is successful, it’s very likely that its tokens will appreciate, just as a stock does or as does the value of BitCoin or Ether. This too is fair, as it rewards the inherent risks of new ventures.
Governance and Influence
Colony makes another important distinction between reputation and tokens. Reputation gives you influence in the governance of a colony, whereas tokens generally do not. There is only one question on which token matters in colony decisions, and that’s around the fiscal policy of changing the supply of tokens.
On all other matters, the only way you get a say in a colony’s operations is by having a good reputation within that colony. And that means you have to be involved and actively contributing to its success. In other words, only those people with a “living stake” in the enterprise count as true stakeholders with a right to influence its governance and management.
Blockchain: Always On
One of the other important things to understand about the Decentralized Autonomous Organization and decentralized technologies, in general, is that once they’re up and running, no one can take them away from you. Many startups today carry huge dependencies on Facebook for traffic and Amazon for hosting. But Colony and other decentralized solutions don’t have that weakness. They have no single point of failure because they run on a decentralized, peer-to-peer network. They are there as long as there is the desire to use them.
The Future of Work
I asked Jack where he thought all this might end up in terms of the future of work. Colony describes itself as “a platform for open organizations,” and if what Colony is attempting succeeds, it will be much easier for people to participate in the upside of lots of shared ventures. Today’s gig economy gives us some of that freedom; the difference is that contributors are simply paid for their work and don’t get to participate in the rewards of ownership. Jack’s vision for the future of work is people treating their contributions of work much the way today’s investors manage their financial portfolios. In other words, we may well have one or two fairly risky bets that we balance with a handful of more sure things. This makes sense. As an owner, you will always want to hedge your bets.
Colony itself is a risky, new venture, but I am very excited about what this team is building. I think it has the potential to change the way we think about ownership and may even give us a new platform for operationalizing stakeholder-centric organizations. Colony really could change the future of organizations as well as the future of work. I will be keeping an eye on it.