Community is experiencing a renaissance as new, blockchain-based “Decentralized Autonomous Communities.” These next-generation social networks could help solve some of society’s greatest challenges. One of the ways they’ll do that is by building new types of mission-driven markets. Just as “impact investing” does for equity, “impact markets” turn commercial markets into a positive force for societal impact.
When Markets Fail
How do impact markets differ from existing commercial markets? While today’s markets are good at satisfying individual needs, they’re not great at addressing many types of shared needs. For example, lots of people want oceans to be free of plastics. But we just can’t seem to translate that shared desire into products and services that actually do that. Economists call these breakdowns in supply and demand “market failures” and often prescribe government intervention as the solution. The persistence of plastics, like so many other big challenges, suggests that many market failures are now beyond the reach of governments.
Impact Markets as New Economy Cocoons
Decentralized Autonomous Communities could serve as a kind of ‘cocoon’ for transforming commercial markets into impact markets. Impact markets function as a kind of public good, not unlike roads, bridges and blockchain protocols. They provide the infrastructure for coordinating community purchases and using that collective buying power to make markets more fully incorporate their societal impacts. B Corporations, benefit corporations, and impact entrepreneurs play an analogous role, driving these shifts from within corporations. With impact markets, it’s communities of end users who serve as the catalysts for change. These communities will draw on blockchains and other coordinating tools to create rich, values-aligned market niches—the ‘cocoons’ for new economies.
Solving large-scale societal challenges is risky and expensive. Returning to our example, people around the globe don’t want plastics in our oceans (or our bloodstreams!). The problem is that the nature of this demand is diffuse. It’s fragmented into tiny quantities of economic utility, spread across billions of individuals. I don’t want plastics in the ocean myself, but when I buy toothpaste, it’s price and cavity protection that drive my decision. I also can’t single-handedly generate enough demand to warrant developing eco-friendly packaging. So, the collective desire may be huge, but that signal gets lost as the market aggregates each of our individually top-ranked decision factors. Impact markets get around this fragmentation by enabling us to coordinate market signals that matter to us as a whole. They help us coordinate our shared values.
The Power of Buying Together
Most of us know monopoly. We’ve either played the game or had it played on us by unresponsive cable companies and social networks. If monopoly power is when an entity becomes the only supplier in the market, then “monopsony” power is what happens when there is just one buyer.
By their very nature, Decentralized Autonomous Communities are unlikely to create real monopsonies—they’re just too decentralized. But their blockchain technology could soon enable their members to coordinate purchases and greatly amplify their collective buying power. It’s not a consumer cooperative where a supplier is owned by its end users. It’s more like a buyer’s club, like Costco, Sam’s Club, Groupon, and even Amazon Prime. The key difference is that the buying power isn’t controlled by a corporation, but instead by a community on the blockchain.
Community-centered buying power will give members good deals like today’s buyer’s clubs, but it will also be used to influence the behavior of suppliers. In this sense, it is conceptually similar to a consumers union and broader consumer activism initiatives. These new communities will be able to distill their common interests into a set of principles for governing values-based “impact markets.”
Developing an Impact Market
To illustrate how a Decentralized Autonomous Community might one day build an impact market, we can use plastics-free packaging as an example.
Things start when a community of people organize themselves as a Decentralized Autonomous Organization, or DAO, with an online community on Discord. The group has some 10,000 reasonably active members with a shared interest in the environment. Within the community are a dozen or so people who are passionate about growing demand for plastics-free packaging, who they organize themselves into a working group. Most are just average citizens, but there are also a couple of people with real expertise on the issue.
This “plastics-free packaging working group” concentrates on two types of work that build the community’s collective purchasing influence:
- Mapping community interest to commercial dynamics and ecological impact
- Choosing specific products/services and developing purchasing strategies
The first set of workflows starts by identifying product and service categories where plastic packaging has the biggest ecological impacts. It then layers that with an assessment of what markets and suppliers are most susceptible to shifts in end user demand. From there, it collects community-wide feedback to identify which of these opportunities generate the most conviction within the community.
From these product and service categories, the working group selects specific commercial offerings that best achieve its goal of reducing plastics. Once this is done, the group develops group purchasing strategies to maximize the community’s influence on the market.
An Impact Market Example
Many products have a bigger plastics footprint than deodorant, but Tom’s of Maine’s plastics-free packaging creates an easy first project. The working group gets things rolling by setting up an Amazon Associates link to drive purchases using a shopping channel that its members already use.
In practice, these workflows are iterative and opportunistic. That means that—at least initially—products are chosen as much for their likelihood of success as their actual ecological footprint. This helps the community build momentum and grow its capacity over time.
In this case, the working group chooses a product whose sales can be meaningfully boosted by its community. They piggyback on existing distribution infrastructure, using the 10% Amazon Associates commission to fund their coordination work. It is not a high-volume product, so the community-generated uptick in purchases and positive reviews actually triggers Amazon’s algorithms. As a result, the retailer begins to automatically feature the deodorant more prominently on its site. That starts the flywheel turning. It builds organic trial among more and more shoppers outside of the working group’s community. If the cycles sustains itself, the working group can carefully begin to shift its focus to a similar program at Walmart. As momentum builds, the team begins exploring practical strategies for the more challenging work of extending its buying power into physical stores.
For a company like Tom’s, the sustained sales bump convinces them to shift more of their products to plastics-free packaging. The working group even provides Tom’s with community feedback on how to make their paper packaging increasingly competitive with plastic. The new paper packaging now has growing demand. The manufacturer supplying this packaging begins pitching it to other deodorant companies. Slowly, a new market niche for plastics-free packaging develops as this impact market breaks free from its cocoon.
A Role for Capital in Impact Markets
There are many challenges associated with developing markets. New products and services almost always lack the revenues needed to pay for investments that differentiate them from existing competition. Typically, that’s where venture capital and other early sources of capital come in. In impact markets, as communities develop new sources of demand, philanthropists and impact investors can:
- Invest in crucial research and development
- Subsidize prices in a market’s early stages
- Support the market development work of communities
Philanthropists can use their grant making abilities to support communities’ general capacity for developing impact markets. They can also target support at specific causes such as promoting plastics-free packaging. Foundations can also use Program Related Investments to wield investments and loans like investors do to fund societal change. In the deodorant packaging example, this might take the form of investing in R&D for better paper-based packaging designs or a loan to a small packaging supplier to scale up a promising new manufacturing process.
A Role for Nonprofit Organizations
Subject matter expertise is important for developing impact markets, and nonprofit organizations are one logical place to house that expertise. The working groups that build these new markets need sufficient knowledge about markets and their societal and ecological impacts. In our example, that includes expertise on the markets for, and ecological impact of, specific plastics applications. It might also include insights into which research labs and firms are developing the most promising alternatives.
There’s no sense duplicating efforts to build that expertise over and over within each working group. Instead, these groups can serve as nodes in a network stewarded by a nonprofit entity focused on a specific type of impact. In this case, it is an organization dedicated to eliminating the negative externalities of the plastics industry. This nonprofit specializes in raising philanthropy and capital (including crypto-economic tokens), in communications, in knowledge stewardship, and in coordinating networks of community-based working groups as its ‘distribution’ channels.
Individual communities, by themselves, won’t generate sufficient market pressure to effect actual change. But venture and philanthropic capital, combined with mission-driven domain expertise, could create rich networks of these communities. And these networks would wield remarkable power for shifting markets and building whole new, values-aligned economies.
The Bigger View
This rough outline for community-driven impact markets is a starting point. It is part of a larger framework on the role of Decentralized Autonomous Communities in large-scale economic reform. This, in turn, serves as foundation for what I am starting to see as a movement toward “enlightened civilization.”
These ideas have been percolating for nearly two decades. It’s only been with the rise of token engineering, however, that we now have the tools to bring them to life. In a future article, I plan to outline and explore how token economics will facilitate some of the incentive designs outlined above.