Research, ideas, and leadership for a more secure, peaceful world
Author
Sarah Hubbard
Throughout history, nearly every organization, institution, and market has been plagued with a simple but perpetual question: how can we most effectively work together towards collective outcomes? It’s a question as old as time—and one that doesn’t have a clear answer or solution given the complexity of human coordination. However, a number of innovations—from democracy to powerpoint—have served as catalysts in our ability to coordinate effectively. I’m here to make the claim that “web3,” and its underlying blockchain infrastructure, is the next catalyst.
While the buzzwords and acronyms related to web3 have received a lot of attention and hype, in this piece, we look at what they really mean and why they matter. We start with a macro-lens on the societal trends that have contributed to the growth in this space, dive into “web3” and “DAOs,” and identify a few areas for further research.
In general, “web3” refers broadly to a new wave of internet applications aided by decentralized blockchains. However, it spurred from a larger ideological movement; and it is easier to understand the intent and design of web3 by first understanding the larger societal and cultural momentum at play.
There are several underlying trends that have pushed us all towards greater frustration with the state of the internet and institutions we live with today. A few of the dominant trends include:
We are tired of being the product. Power has centralized into the hands of a few large technology companies, which has resulted in unignorable implications for privacy, advertising, mis- and disinformation, censorship, and lack of competition. As users, we are the product; we are forced to exchange our data for services, and mega-platforms have found a lucrative position as the middleman.
Government distrust has risen. There continues to be rising distrust and dissatisfaction with many governments around the world; in the United States alone “low public trust in federal government has persisted for nearly two decades”.1 Between political polarization, authoritarian regimes, and corruption—many citizens have a rising distrust in their governments, institutions, and media.
Wealth inequality is growing. “Today, 71 percent of the world’s population live in countries where [income] inequality has grown.”2 Limited social mobility and access to financial services/tools has only continued to exasperate the wealth inequality around the world. The rich are getting richer, and many of us are left looking for how to secure our financial stability. So, rather than being the product, as stated in the first point above, we want to be beneficiaries of the wealth created through Internet platforms and online tools/services.
Given these trends revolve around themes of distrust, inequality, and ownership, it is not surprising that there is increasing momentum towards new institutions and practices in this digital eta. The introduction of web3 technologies have enabled people to begin to experiment with how they coordinate globally, without the need to trust the current institutions which have left so many behind. While this entire space is still extremely nascent, the vision of a level playing field and the reinvigoration of democracy is driving much of the ethos of web3.
“Web3” is a catch-all term that refers to the next version of the internet which emphasizes decentralization3. In essence, decentralization is the distribution of power out of the hands of the few and into the hands of many. Decentralization relies on fundamental principles of checks and balances, inclusion, democracy, and the wisdom of the crowd. Web3 aims to enable greater decentralization through innovative technologies such as blockchain, smart contracts, and cryptography.
Several other buzzwords and acronyms surrounding web3— DAOs, NFTs, crypto, stablecoins, DeFi, DApps— all seek to describe categories of experimentation in decentralization. You can find a more in-depth explanation of these here, but fundamentally these are all different financial and organizational applications of the blockchain. Blockchain is the real underlying technology powering web3— it provides a “distributed database” which enables a secure, transparent record of transactions over a distributed network of computers that no single person controls. You can read more in-depth about blockchain here, but this is how many of these applications establish a sense of—and arguably, an operational version of—“credible neutrality”4 as they function without a central entity.
Web3 and its various applications have exploded in growth and popularity. The massive growth of web3 has caught the attention of stakeholders from a variety of industries. Andreessen Horowitz, a venture capital firm, is investing $7.6 billion into web3.5 Several DAOs hold over $1 billion in their treasuries.6 Legislators across the world are also taking notice—in the United States we have seen several states introduce DAO legislation, senators propose bills regarding DAOs at the federal level7, and even a call to action for the responsible development of digital assets from the White House8.
Web3 applications exist at various stages of the Gartner Hype Cycle9, but most are still in their infancy and experiencing a period of rapid experimentation. With the introduction of any new technology there are growing pains, scams, product-market fit challenges, get-rich-quick schemes, and a lot of noise. However, just like the early days of the internet in which there were plenty of scams and skepticism, we must not cast off the entire web3 space. There are genuinely interesting, revolutionary applications that will find their foothold in our world as we know it and have the potential to fundamentally alter the structures of power in society. Opportunity is not absent of risk, and there are plenty of both in web3, but it is a timely space worthy of our understanding, attention, and research.
One of the more interesting applications emerging from web3 is DAOs, which are enabling people around the world to coordinate together in novel ways— I’ll dive into more detail on DAOs in the sections below.
DAO is an acronym for “Decentralized Autonomous Organization” and describes a broad category of coordination experiments. A range of more formal definitions exist, but for our purposes we can think of a DAO as a “community-led entity without a central authority”.10 DAOs are typically groups of people who come together with a shared mission, pool together their resources, and leverage blockchain and smart contract technology to make and execute collective decisions. These entities are ideologically most akin to a member-run, member-operated, and member-owned cooperative. All members are economically incentivized and aligned to the success of the organization. The cooperative is one of the oldest forms of collective human coordination and as of today it is estimated that 10% of the world’s employed population is employed through this type of organization.11 DAOs have many of the same principles of a cooperative12, but they use the blockchain technology of web3 to develop powerful tools for governance and coordination that are secure, transparent, and autonomous.
While DAOs are most ideologically like a cooperative, the phrase DAO is also a catch-all term that is used to describe a range of different organizations, with different missions, different governance mechanisms, and which exist all over the spectrum on how decentralized and autonomous they actually are in practice. Today there are DAOs for almost any mission humans can coordinate and organize around, here are a few examples of different categories:
|
DAO Type |
Description |
Examples |
|
Impact-focused DAOs |
These are organizations which have emerged to create a positive impact on society through funding public goods. |
Gitcoin and BitDAO both provide grants to fund interesting proposals, VitaDAO is collectively funding longevity research, and UkraineDAO quickly came together to donate over $7 million to Ukrainian organizations.
|
|
Investment DAOs |
These are organizations which allow people to pool together their funds and allocate the capital to a portfolio of asset(s). |
ConstitutionDAO raised $47 million to attempt to collectively buy a copy of the US Constitution at auction, FlamingoDAO collects different assets such as art, and organizations such as The LAO and MetacartelDAO invest in various web3 projects.
|
|
Social DAOs |
These are organizations that are typically membership-based and cultivate community through events and spaces. |
Friends with Benefits has amassed a large “members club” and CabinDAO has built a physical community for members to live in.
|
This is a non-exhaustive set of some of the very different types of DAOs which have gained momentum over the last couple years and illustrate how truly varied the DAO space is. What makes a DAO unique over a traditional organization which could have any of these same goals, is that a DAO is based on a set of codified rules and can use smart contracts to have members vote on a proposal and automatically execute the collective decision. Currently one of the most popular governance mechanisms is for members of a DAO to be token-holders—members may purchase or earn these tokens, use these tokens to vote on proposals, and can “cash out” their tokens at any time. Any decisions or transactions are recorded on the open source blockchain which is what leads to DAOs being secure, transparent, and distributed—enabling people from all over the world who don’t know each other, and don’t have to trust each other, to coordinate towards furthering a common goal. There will be many ways which emerge in which traditional organizations such as cooperatives, companies, or governments may learn from or leverage what DAOs have built.
DAOs have been able to quickly, iteratively experiment with different forms of governance and voting mechanisms to reach the fairest form of consensus. As these continue to mature, we’ll not only be able to identify best practices, but may also get to use what we have learned from the DAO sandbox to inform democratic governance and the future of human coordination itself.
While I’m skeptical of the hype surrounding web3, I’m also hopeful about the potential of the larger ideological movement and applications of the underlying infrastructure. I believe DAOs will find their foothold and will push existing organizations towards exploring democratic forms of ownership, coordination, and decision-making for a more equitable future.
Over the next year as a Technology and Public Purpose Fellow at the Belfer Center, I’ll be investigating some of the following research questions:
How might we leverage these new technologies and decentralized organizations to create a more equitable, transparent, and inclusive society? What are the risks we need to mitigate?
What is the product-market fit for a DAO? Where are these organizations uniquely suited to be most effective? In which areas might web2 or web3 applications be a better fit, and where are we willing to make trade-offs?
What can existing web2 cooperatives and entities learn from DAOs? Likewise, what can DAOs learn from the rich, global history of cooperatives? What might these hybrid organizations look like in the future?
What are the best governance mechanisms for a DAO to implement based on their purpose and stakeholders, in order to maximize “fairness” and their decentralized principles? What best practices are emerging for DAO self-governance?
How might policymakers understand, support, enable and/or regulate these new technologies moving forward? What are the benefits or shortcomings of current proposed legislation?
If you have any questions, or would like to collaborate in any way, please feel free to reach out at sarah_hubbard@hks.harvard.edu.
2 https://www.un.org/en/un75/inequality-bridging-divide
3 It is worth noting that “web1” was the beginning of the internet with static webpages and the introduction of the browser; “web2” was the centralization of power into the hands of “big tech” companies and the rise of the advertising business model: and “web3” is the movement back towards a more decentralized, open internet. In this pendulum swing, web3 offers a potential path for greater shared ownership, trustless coordination, and a more level playing field. Web3 refers more to a general movement and set of technologies, and while not a silver bullet by any means, it is already enabling many interesting applications, which we look into in this blog.
4 https://nakamoto.com/credible-neutrality/
6 https://deepdao.io/organizations
7 https://www.congress.gov/bill/117th-congress/senate-bill/4356/text
9 https://blogs.gartner.com/avivah-litan/2022/07/22/gartner-hype-cycle-for-blockchain-and-web3-2022/
10 https://consensys.net/blog/blockchain-explained/what-is-a-dao-and-how-do-they-work/
11 https://www.ica.coop/en/cooperatives/facts-and-figures
12 https://www.ica.coop/en/cooperatives/cooperative-identity
Hubbard, Sarah. “Beyond the Buzzwords: Web3, DAOs, and the Future of Human Coordination.” October 4, 2022
