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Decentralized Autonomous Associations (DAAs): A Variation on the DAO Concept

There is no shortage of experimentation in trying to apply blockchain technology to organizational dynamics [this is different than governing technical blockchain protocols, reference: Let’s Be Clear About What is DAOable and What is Not. Decentralized autonomy in organizations (DAOs) is one popular metaphor that has seen a surge of entrepreneurial activity especially in the past year.

Recent interpretations of the Decentralized Autonomous Organizations (DAO) concept have lead to several implementation approaches, including notable ones by Aragon, MolochDAO, MarketingDAO, MetaCartel, LAO and others.

The differences between each DAO implementations abound, but the most common denominator is the desire to inject smart contract technology into how organizations/processes are run. And each one of the above named examples (and other unnamed ones) assumes a different set of assumptions as a starting point.

One new variation is the concept of Decentralized Autonomous Associations that takes roots from the Swiss Association legal structure (recently popularized as the choice for the Libra structure).

In my opinion, any successful “decentralized autonomy” initiative needs to be able to simultaneously satisfy the three key pillars:

  • Technical
  • Organizational
  • Legal

The Swiss Association has lower startup hurdles than a Swiss Foundation. In the context of the DAA, the autonomous activity focuses on certain membership-related functions, which is a realistic scope that doesn’t risk slipping into the abstract during implementation.

Swiss legal firm MME (who pioneered the implementation of the Swiss Foundation structure for launching blockchain protocols) has documented a process to allow DAAs to exist, aided by a set of smart contracts that Validity Labs has started to codify.

Along with Luka Müller and Thomas Linder of MME and Sebastian Bürgel of HOPR Network (formerly co-founder at Validity Labs), I will be discussing the DAA and many of its aspects tomorrow Thursday May 28th at 10:30AM EST / 16h30 Central European Time during a Zoom virtual session. You can register (free) by using this link.

I’m interested in diving further into the DAA concept. I don’t pretend to have all the answers pertaining to how this might evolve, but it’s definitely an area that deserves experimentation and implementation.

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Let's Be Clear About What is DAOable and What is Not.

I wrote today an opinion piece on CoinDesk, with a provocative title, “Cut the Consensus: You Can’t Run a Business Like a Blockchain“. Its original draft title was Beware the Pitfalls of Decentralized Decision-Making.

It’s a 1,400 word essay arguing the important distinction between the “governance of blockchains” and “governance by blockchains.”

Five years ago, I had outlined an An Operational Framework for Decentralized Autonomous Organizations. More recently, I have been involved in a DAO experiment, the Ethereum Marketing DAO, in addition to closely following the key projects in that space, and doing my ongoing research on decentralized governance and decentralization in general. So I have a lot of perspective, and a lot to say on that topic.

I’m supportive of the concept of decentralized autonomous organizations, aided by blockchain technology. But I believe that we are still tinkering with its application in the realm of business. We are at ground zero.

Here is the link to the article, “Cut the Consensus: You Can’t Run a Business Like a Blockchain.

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Let's Imagine. What if Plaid Was Acquired by a Blockchain Company?

A couple of days ago, Plaid, a fast growing FinTech company that lets users connect their bank accounts to a variety of financial services, announced that it was being acquired by Visa for $5.3B.

The first thought that came to my mind is that I wished Plaid would have rather been acquired by a large blockchain company, like Coinbase. The only issue is that $5.3 Billion is a hefty price for even the largest of blockchain companies, whereas it’s only a digestible bite for a behemoth like Visa. 

Many analysts referred to Plaid as “FinTech plumbing”. For me, Plaid symbolized more than plumbing. It was an essential on-ramp/off-ramp component that enabled consumers to loosen their reliance on banks. I have previously written about and continue to believe that FinTech, DeFi, and blockchain-based financial services are allowing us to gradually depend less and less on large banks as our primary financial services providers. In Banks as Back-ends: The Decentralization Has Started (January 2016), I gave examples of that trend, asserting that the decentralization of banking is already here, but it hasn’t been evenly distributed yet. 

I became aware of Plaid in the past years as it is used by some cryptocurrency wallet providers to provide an essential on-ramp to bank accounts. Basically, Plaid users connect their bank account to participate in off-banks personal finance, payments, lending, brokerage, wealth management, and a plethora of ancillary financing services. Plaid’s metrics were impressive: they signed-up 11,500 banks/credit unions and touched more than 20 million consumers via popular apps like Venmo, Robinhood, Betterment and 2,500 others. 

Of course, FinTech broadly is a big culprit in this unstoppable finance decentralization trend, but I had wished that the companies leading this trend (such as Plaid) would not be swallowed by incumbents. 

I don’t know the Plaid team, and I congratulate them on this amazing exit. At the same time, I’m a little apprehensive because we all know too well how these types of acquisitions typically end. Will Plaid services continue to flourish as before providing more freedom to consumers, or will that service become eventually suffocated and dictated by what’s important for Visa before what’s important for decentralized finance? 

When big companies think of innovation, it doesn’t mean the same as when startups do. Big companies are restrained and chained by their current business models, and everything gravitates towards, and aligns behind their existing strategies and direction. This means that innovation will be boxed-in instead of flying according to its own path.

Just imagine for a moment how different the significance of this acquisition might have been if Coinbase had acquired Plaid, and not Visa. 

I see this acquisition as another successful FinTech company that was supposed to give users freedom from big banks, yet it is brought back under the claws of big Fin.

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Moving to Decentralized Platforms Just Became a Lot Easier

I’ve been saying for a while now that most users will not easily move to decentralized systems, protocols or applications unless something bad or painful happens to them, What Incentives Will Push Users to Move to Decentralized Applications?

Well, something bad just happened to a long list of video producers. 

Yesterday, it was reported that YouTube started to take down thousands of crypto-related videos from dozens (perhaps hundreds) of content producing sites and accounts.

Although YouTube has not officially acknowledged the reasons why so many crypto-related videos are being targeted, it is assumed that the reasons were “harmful or dangerous content” or “sale of regulated goods”. 

At Token Summit, we have been notified that the following 2 videos were indiscriminately removed from our YouTube channel for “policy violations” without citing which policy they violated.

It’s ironic that Naval’s video was just a fireside chat with my Token Summit partner Nick Tomaino, and it was mostly an intellectual conversation about the future of cryptocurrency and what the underlying philosophical implications this new technology has on society, business or government. It was actually one of the most widely viewed videos from our San Francisco Token Summit II in December 2017. The other video dated from May 2017 from our first Token Summit at the NYU campus, again a highly educational conversation about the governance of blockchain. Nothing about ICOs there. 

It is a good thing that these two Token Summit videos and all others (from the past 4 events) are also available on the SlideLive site. SlidesLive is the company we hire to shoot  the Token Summit videos. 

You can still watch Naval’s video on the SlidesLive site at this location and the one about Governance is here

What is interesting about this situation is the revelation that YouTube’s algorithm were not perfect by any means, as they ended-up removing some good content in one fell swoop. 

What just happened is a strong tipping point for moving to decentralized / uncensored solutions, whether it’s video or other. It showed what big and powerful companies can do to shut us down, or shut us up based on their own whims or rules. 

Emerging Decentralized Solutions Are Here

Luckily, decentralized alternatives are emerging, and we need to give them a boost. 

In search we have DuckDuckGo as an alternative to Google. In e-commerce, we have OpenBazaar (and their Haven App) as an eBay or Amazon alternative. For private browsing, we have Brave. In private chat, we have Telegram or Signal. In private money, we have Monero and Zcash

For video content, we have https://3speak.online/ or https://d.tube/, both based Steem; or https://livepeer.org/ based on Ethereum.

There is nothing available on Blockstack yet, but their CEO, Muneeb Ali told me he has just received dozens of inbound requests following this new YouTube development. I’m sure a Blockstack alternative will eventually emerge.

Or, you can move to friendlier services like SlidesLive.

YouTube just handed the decentralized blockchain movement a big tipping point opportunity. They are making it easier for us to move to decentralized apps, platforms, protocols, and services that are censorship-free or privacy-minded.

YouTube is showing us that big companies will shamelessly flex their muscles at the whiff of regulatory pressure. This also shows that algorithms are not perfect, but they can be dangerously harmful in acting the wrong way and making mistakes. When a human makes a mistake, you can usually talk to them and reason with them, but when an algorithm goes willy nilly on something, good luck in reasoning with it. The good humans will hide behind bad algorithms.

How we wiggle our way out from central systems will be won the hard way, one censorship attempt at a time. The producers will move out first, then the end-users will follow.

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Why Ethereum’s Churn is Normal and the Chinese Bamboo Tree Analogy

Ethereum has attracted the world’s largest decentralized applications ecosystem behind it, with an estimated number of participating developers in the range of 250,000-350,000. This growth has been nothing but spectacular from a global and diversified reach perspective, only five years after its launch.

At this footprint magnitude, it is not surprising that Ethereum encounters some attrition from developers or projects for a variety of reasons. In startup terminology, the rate of attrition is called “churn”, and it simply refers to the % of users that leave. If a company wants to continue increasing the adoption of its products, its usage growth rate must exceed its churn rate. In human resources, this is also called “employee attrition”, and for mid-to-large companies, up 5-10% attrition rate is considered generally acceptable. 

With this background in mind, let’s examine Ethereum’s churn and its significance (or lack of), both from a quantitative and qualitative perspectives.

At the quantitative level, Ethereum’s churn is apparently insignificant, just because its ecosystem continues to grow at quite healthy growth rates that are much higher than the reported churn along the way. Less than two years ago, the Ethereum ecosystem was estimated at about 100,000 developers. Today’s 250,000-350,000 numbers are a clear indication of net growth. At the most recent ETH Boston hackathon event that took place Sept 6-8 2019, 13% of the attendees were new to Ethereum, and another 21% were beginners, together being indicators that a lot more developers are coming to Ethereum than those who are allegedly leaving it. To get a sense of the continued growth of the Ethereum developers ecosystem, just follow ETH Global to track the impressive attendance and participation numbers at these events around the world. As I wrote previously, Ethereum meetups, hackathons and ETH Global events are the envy of other aspiring blockchains in that space. 

It is not surprising that, according to Techstars, 95% of the blockchain projects applying to their program are building on Ethereum.

https://twitter.com/yossihasson/status/1169571179650322433?s=21

From a qualitative perspective, we tend to hear comments similar to this:

“Developers are immediately seduced by ETH promises, but they leave after a few months, at least those who actually tried to build on it. The projects that work run into trouble. It’s great for prototyping but not commercial release.” 

However, one must examine the real reasons and motivations behind these anecdotal occurrences. Despite a few publicized cases, such as those enumerated by this misleading article (The Unbundling of Ethereum), this is not a pattern, but rather normal attrition from those that didn’t find Ethereum to be suitable for them.

As it turns out, not only the number of projects that left Ethereum is relatively small, most of them share a common thread: not being a fit for what Ethereum is very good at. 

The fact is,- many projects used Ethereum’s ERC-20 token generation feature as the lynchpin of their genesis, without thinking further too much about whether they would be able to actually develop on Ethereum. Generating an ERC-20 token is a very low-barrier type of activity, and succeeding in it doesn’t mean that you have either figured out or committed to developing on the Ethereum platform. 

Some other projects wanted to treat Ethereum like a database and record every single transaction on it. If you treated Ethereum like a database, you would have run into processing issues that only databases are optimized for. 

Several projects didn’t really require the underlying decentralization infrastructure features of Ethereum. Decentralization comes at a price of course, specifically as transaction processing speed is compromised in favor of maintaining the sustainable economic security of the blockchain.

Other projects didn’t know how to use Ethereum’s scalability to their advantage. Namely, you needed to become quite familiar with Layer 2 scalability options in order to grow your applications on Ethereum. 

Another segment of projects ultimately wanted to be on a separate chain they owned, so they could derive their own economic benefits, so Ethereum couldn’t provide that option to them.

Even for those projects that left it (or will leave it), Ethereum has most probably given them good benefits whether it was to generate the economic token, develop a prototype, or issue non-fungible assets on it. And for developers, it allowed them to gain their first experiences in decentralized applications development based on cryptographic blockchains, whether they were able to prototype something or not.

What Ethereum is Good At

The proverbial product-to-market fit process is inescapable for any product, technology, protocol, solution or movement. While Ethereum’s use cases and sweet spots are still evolving, and being refined as more of them get uncovered, we already know what Ethereum is really good at:

  1. Easy developer on-boarding into crypto 
  2. Generation of new tokens to raise money and/or embed token functionality
  3. An efficient medium of value exchange
  4. Native creation of non-fungible assets
  5. Pegging real-world/existing assets on its blockchain 
  6. Base layer for stablecoins
  7. Operational platform for thousands of dApps
  8. Omnipresence in the enterprise via dozens of forks and implementations  (e.g. J.P. Morgan’s Quorum)                              
  9. Platform for Decentralized Finance solutions 
  10. An Open Finance infrastructure (read Bankless)
  11. Platform for decentralized governance (based on smart contracts and voting structures)
  12. Where financial products are being re-invented (e.g. Santander’s $20M Ethereum Bond)
  13. A store of value asset (ETH)
  14. A financial settlement network
  15. Where most of the DAO innovation is taking place


Generally, Ethereum is an excellent platform for managing relationships that can be (entirely) mediated by a universally trusted and openly decentralized blockchain that enforces the logic behind these connections.

Finally, when it comes to Ethereum’s most criticized weakness, its transaction processing speed, one needs to factor the existing Layer 2 capabilities that expand Ethereum’s transactional throughput beyond its on-chain’s limit of 15 TPS. Fast forward a few months from now, after Ethereum’s next hard fork, the Ethereum chain could reach up to 4,000 transactions/second via ZK roll-ups, shadow chains and chain witnesses. And once stateless clients are implemented, it will unlock a lot of built-in latency as clients will not be required to store large state data, instead they would just have to verify Merkle branches.

More and more, Ethereum is at the center of a re-definition of the web programming stack, as I previously noted that Ethereum’s stack is one of its biggest strengths.

Understanding the Ethereum Foundation

Ethereum’s criticism is often associated with a criticism of the Ethereum Foundation, its more visible artifact. However, just focusing on the EF is wrong because they are only co-ordinating perhaps 10% of what is actually going on within the broader Ethereum ecosystem. The rest happens on its own. When Ethereum got started, its Foundation was the key entity that was responsible for initially developing most of its core functionality. However, gradually, the Ethereum ecosystem started to grow around its Foundation to the point where the current estimated activity ratio is 10/90 in favor of a vastly decentralized ecosystem of contributors, influencers, developers, investors, research groups, companies, projects, and a variety of diverse stakeholders.

The end result has been, as Albert Ni of the Ethereum Foundation put it aptly: “independent flourishing within a massive, diverse ecosystem, as one of Ethereum’s superpowers”.

That didn’t happen by luck. 

At the August 2019 ETHBerlin Zwei conference, Albert Ni explained Ethereum’s dogmatic “subtraction mindset” (versus the addition mindset), a direct contributing factor to its sprawling ecosystem. According to Albert, a subtraction mindset creates options, and allows them to remain focused on always distributing opportunities instead of capturing them.


To better understand the full context of how the Ethereum Foundation operates today, please listen to Albert Ni’s excellent presentation

The Chinese Bamboo Tree Analogy

Maybe it’s just a parable, or maybe it’s partially true, but I had heard of this analogy during my previous years at Hewlett-Packard (in the early 90’s) in the context of getting indoctrinated in Hoshin Kanri, the Japanese strategic planning process. [Today, a simpler version of Hoshin has been popularized as the OKRs process (Objectives and Key Results].

The story back then referred to a Japanese plant that had a long seed gestation period, before it showed any signs of life above the ground. You had to keep watering it for these initial years, without seeing it grow visibly above the ground. Rather, the plant was growing its roots below the ground, first. The lesson here was that planning is like growing the roots first before starting to see visible results.  

More recently, this analogy metamorphosed as the “Chinese Bamboo Tree” parable, and similarly to that mysterious Japanese plant, for the first few years there is no visible sign of above the ground activity, until finally in the fifth year, the Chinese bamboo tree starts to grow exponentially. Had the plant not developed a strong (yet unseen) foundation, it would not have been able to grow so rapidly thereafter. 

The analogy with Ethereum is striking. Ethereum has been in this incredible formation period for the past five years, building strong community adoption roots as the basis for a solid foundation. Although a lot of Ethereum’s success is already visible, there is much more that’s ahead of it, not currently visible, but poised to suddenly grow further soon.

Ethereum Is Not a Monolithic Artifact

To further understand the impact of Ethereum and tie together the 10/90 concept with the Chinese Bamboo Tree analogy, one needs to understand that Ethereum is not a monolithic technology. The Ethereum Foundation is not a singular entity in the same sense that one would label a given organization. 

Ethereum is not “one thing” that you can point at, shoot at, swing at, or pin down. It is a set of technologies, stack tools, infrastructure, currency, belief system and at least a quarter million self-indoctrinated developers that are stubborn enough to stick with it despite its imperfections because their collective actions are making it better in all of its aspects.

Ethereum has already sprawled into most of the nooks and crannies of what this new world of decentralized constructs might look like. Many other “competing” chains that are based on single feature theoretical superiority [e.g, speed] are not realistic about the omnipresent developers network effects that Ethereum already has.

If Ethereum fails, the whole crypto sector fails. I don’t think one can presume that projects behind Ethereum’s early lead would auto-magically morph or migrate unto other blockchain infrastructures that are aspiring to be “better than Ethereum”.

Will there be other successful blockchains that serve specific needs? Yes for sure. Has there been churn coming out Ethereum projects that were abandoned or didn’t materialize? Yes, of course (though the reasons need to be inspected and not generalized). 

Ethereum’s ambitions and scope on the decentralization spectrum are orders of magnitude ahead of others, with the exception of Bitcoin, and certainly Blockstack who is carving itself a different but successful path along the data ownership / decentralization paradigm.

Ethereum’s Open Finance / DeFi footprint is real and not built on a house of self-referential use cases.

Whatever imperfections Ethereum or its Foundation seem to have, they are largely compensated by the sheer variety, vigor, vibrancy and scale of its ecosystem. Of course, in theory Ethereum can be attacked but in practice, and on the grounds of its reality, Ethereum’s lead is substantial. If you want to fight Ethereum, you are fighting its decentralized army of self-indoctrinated supporters that are self-motivated and committed to make it a success. 

https://twitter.com/wmougayar/status/1169615785645551622?s=20

Don’t look solely at the Ethereum Foundation to judge the status of Ethereum. But if you do, you must understand the essence of its subtraction mindset which they have been perfectly executing upon for the past five years, and that is actually what caused Ethereum’s rapid decentralized to take place, and has become its best market defense mechanism.

https://twitter.com/wmougayar/status/1155802345822965766?s=20
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