December 22, 2021 • 44 mins
Erik Voorhees, founder of crypto management platform ShapeShift, makes a case for decentralized autonomous organizations, known as DAOs. Earlier this year, ShapeShift became a DAO, “moving from a centralized, closed-source application with bank accounts, governed and owned by shareholders, to a decentralized, open-source application without bank accounts, governed and owned by holders of the FOX Token.” Voorhees explains how DAOs works could reshape business, economics, and politics. .
Read Erik Voorhees’ Medium post about moving to a DAO structure here:
https://erikvoorhees.medium.com/shapeshift-is-decentralizing-639bb4c82fc8
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Episode Transcript
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Speaker 1 (00:15):
Pushkin Pushkin from Pushkin Industries. This is Deep Background, the
show where we explored the stories behind the stories in
(00:36):
the news. Today's episode explores a fascinating story that combined
two interests that I have. You may have heard about it.
A few weeks ago, an original printed copy of the
draft Constitution of the United States from seventeen eighty seven
went up for sale at Southby's. The auction made national news,
but not for the reasons you might think. The actual
(01:00):
copy of the Constitution was not all that rare, though
there weren't very many that remained on the market. What
was newsworthy was that a group called the Constitution TAO,
or a decentralized autonomous organization, came together over social media
over a very very brief period of time to crowdfund
tens of millions of dollars for the specific purpose of
(01:23):
purchasing this copy of the Constitution at auction. Now, as
it turned out, the TAO did not win the auction,
but the whole event did a lot to raise public
consciousness about taos, which are an innovative new technology that
nobody can exactly decide about. Are they progressive? Are they progressive?
(01:44):
Are they libertarian? Are they anti racist? Mark Cuban was
quoted as calling them the ultimate combination of capitalism and progressivism.
And I will leave it to you to figure out
what that means. But I've been on a trajectory myself
of trying to learn more about Taos ever since my
conversation on this podcast with Vitalic Puderan, and I wanted
to speak to someone who was deeply involved and engaged
(02:07):
in the Tao world. Right now, I'm joined today by
Eric Vorhis. He's a tech entrepreneur who founded the bitcoin
company Coinipolt and later founded Shapeshift, which was a cryptocurrency exchange.
This past year, shape Shift announced it was switching from
a classic corporate style government structure with a board of
directors to a DOW based on decentralized decision making, and
(02:32):
Eric explained all that in a medium post that will
put in the show notes. I'll be talking Eric about dows,
what they are, how they function, and about the politics
or anti politics of the DOO movement. Eric, thank you
for being here. I'm really excited to talk about a
(02:54):
topic where my own learning curve is, let's say, at
the very steep part of the curve So let's just
go right into the question of dows decentralized autonomous organizations
to give you some sense of how new I am
to the topic. The first time I talked publicly about
the subject, I still wasn't clear whether it was supposed
to be pronounced dow or spelled out as dao, and
I was a little skeptical of the idea that DOO
(03:15):
sounded too much like a Eastern religious tradition. So talk
to me about doos starting with one oh one, and
then with any luck, we'll move up to the more
advanced level or the course of the conversation. Cool Well,
about a year and a half ago, I was probably
in the same place you were, so this is still
relatively new to me. Also, DOO stands for decentralized autonomous organization,
(03:40):
which is a lot of syllables, and essentially it's just
a new way for humans to organize towards some kind
of economic ends. So generally people organize toward economic ends
like a for profit corporation like an LLC or a
C corps or something like that, or through some kind
(04:01):
of nonprofit organization, and those are both very well known.
Think of a DOO as basically a new version of
economic organization, and the defining feature is that there's no center,
there's no central entity whatsoever. It's not registered anywhere, there's
(04:21):
no one who is the CEO of a DOO. And
it is found generally in the cryptocurrency world, but I
think it can expand eventually beyond that. So let's talk
about what are the agreements that turn a DOO into
a doao. If you and I wanted to create a
(04:42):
DOO to disseminate this episode of this podcast, what would
we want to do to do that. Yeah, So thinking
about it from the perspective of contracts, I think is
a good way to do it. The key difference here
is that instead of being paper contracts written in English,
signed by humans and enforced by the state, these are
(05:04):
contracts written in code, essentially what are called smart contract
which operate independently. They are not enshrined or protected by
the state in any way. They simply execute because the
code makes them execute. So they are much more immutable
than the normal contracts that would govern a corporation, and
(05:28):
they are subject to exactly how the code is written.
So generally in the cryptocurrency world, the locust is the treasury.
So you have like a treasury contract of a certain
digital asset, and let's say that contract is holding a
million dollars of ethereum cryptocurrency. That contract sits there and
(05:51):
executes certain rules. And so the simplest set would be
if fifty one percent of the holders of a certain
token vote to move money out of this treasury contract,
then it will move to where the voters say it
should move around. That in entire DAO can form, and
(06:11):
it doesn't use a bank account, it doesn't have a jurisdiction,
it's not, you know, subject to any particular country. It
just exists on the Internet as one or more self
executing smart contract sets of code. A terminological question before
we dive into the really fascinating I think already practical
(06:31):
and philosophical consequences of this way of doing things. You
spoke of it as a treasury contract, and then you
said that contract sits there. I take it that this
is a kind of term of art in taospeak. It's
that the fund sits there, the money sits there, or
the asset sits there, and that as it is referred
to as the treasury, or effectively as the treasure, or
(06:52):
as the treasury contract. Am I getting that right? Yeah?
Treasury is just kind of like a colloquial name given
to it. But it's a contract that holds cryptocurrency. So
some kind of digitalized makes it a contract. What makes
it a contract is that there's an encoded set of
rules that are connected inextricably to the reality of this holding. Correct. Yeah,
(07:15):
So think of it like a bank account. You know,
the bank account has a bunch of written and unwritten rules,
and if you have money in the bank account, the
money will leave the bank account if certain things are done,
like if the person who owns the bank account directs
money to be moved, and if X, y, and z
people at the bank approve of the transfer, the money
will move out of it. All of that is handled
(07:38):
and managed and overseen by humans on some layer. Smart
contracts are operating as code, and so computers can make
the money move on their own. No human has to
be involved whatsoever. And so instead of money being held
by a bank movable by humans, money is held in
(07:58):
a smart contract movable by code and machines. Let's talk
about change. So we've got your stylized example of a
fund of a million dollars worth of I think you
said ethereum sitting there. And there's a rule of decision
that's built into the code, which is that if fifty
(08:21):
one percent of say, the token holders who have a say,
choose to distribute the asset in a particular way, then
it happens. If you were to build in, as well
to that initial code, the possibility that fifty one of
the holders of the token could change the rules for distribution,
(08:42):
then you'd have a more open ended set of arrangements,
at least in principle. There's no reason you couldn't design
it that way, correct. Yeah, And actually, since fifty one
percent of the people can move the money out of
the contract, if fifty one percent of the people decide
that a change is needed, they just make a new
contract and move the money into that new one. So
(09:04):
the initial one doesn't even need to contemplate that kind
of change. Well, what it does need to contemplate, though,
is it needs a rule of decision. Right, it needs
to know that fifty one percent is the rule of decision.
You could also do it by any number of other
modes of governance. Right, you could have ten percent of
those who own a special token or just ten percent
of the people could put it out of existence. I mean,
there's nothing magic about the majority control. It's just whatever
(09:27):
you lock in the program, because that's what this is. Effectively,
it's a program. A set of programs will execute. Ye.
So if that's the case, then I'm curious about how
much thought goes into the process of choosing that rule
of decision. I would assume it's an enormous amount of thought,
because that's, as it were, the whole ball of wax.
(09:47):
If you talk about a smart contract, they will execute itself.
But actually it will execute itself unless that circumstances whereby
the rule of decision can change is executed, in which
case it won't execute itself. Yeah, and this is where
dows are all just experimenting with different models. So a
DOW can be very small, you know. It could be
(10:08):
like two or three p bull that have some kind
of smart contract that they all participate in. It could
be massive. It could be millions and millions of people
in controlling billions of dollars of economic assets. And the
rules can be simple, like a simple fifty one percent
moves the money, and that's the core. Nothing else is
written other than that single rule, or it could be
(10:30):
very elaborate with lots of interlocking contracts with different rules
and singular Dao organizations may change over time. They learn
how to govern themselves, they learn what works and what doesn't,
and so they evolve and adapt. The important point here
isn't what specific rules the Tao chooses. It's simply that
you now can have humans interact economically with no central
(10:53):
party being involved whatsoever. Well, let me ask you a
follow one question about that. Let's say you know again,
it's a simple dow You and I are the only participants,
or maybe there're three of us, so that we have
a fifty one percent option, and we write it so
that there's a majoritarian rule of decision. Then two of
us get together and vote within the system, saying we
want to change things and disburse the funds in some
(11:14):
different way. And in principle, that would seem to follow
the rules as written. But the person who is the
third person says, I think that somehow the system has
been hacked here, and in fact my vote was cast
let's say, without my knowing it. I didn't mean to
vote this way, but someone voted my share the program
(11:35):
doesn't know that. Presumably it's just going to execute. What
if any recourse does that person then have. I mean,
if there's no recourse to the state, then that person
is just out of luck. Game is over for that person.
If there is recourse to a state or a government,
or maybe to a broader set of users, that person
could appear in some form and say, hey, you know
(11:58):
this is supposed to only have happened if there's a
majority vote. There wasn't really majority vote. I was hacked.
I didn't mean to do this. Yeah, well, anyone familiar
with cryptocurrency systems, you know this won't sound alien too.
But the code executes, and that is the arbiter like,
that's what happens. So there is no recourse outside of
the code. If you make a mistake, or if the
(12:18):
code is written poorly, or if there's a bug or
anything that can happen, the code executes and then it's done.
So when writing these kind of contracts, obviously you have
to be very careful, and the more complicated they get,
the more likely it is that there will be errors
of some kind. You could, of course add complexity to
help mitigate this effect. You could say, any vote can
(12:41):
be reversed within a week if x, y and z
factors happen. So you can write any number of arbitrary
rules to these things. But yeah, once as they execute,
no government in the world can unwind a smart contract.
And this is super critical when it comes to something
like bitcoin, which is arguably the world's first daw even
though people didn't use that terminology for it, but it
(13:02):
happens throughout cryptocurrency and these smart contracts, they just do
what they are programmed to do. We'll be right back.
Let's talk about what are the advantages and uses of doaos,
(13:23):
at least at this stage, and what are the limitations
associate with it. I keep coming back to the question
of what an ordinary limited liability corporation does. So an
ordinary limited liability corporation has shares and has shareholders who
have paid in It has a governance structure, and typically
it's organized to do anything that would make a profit
(13:44):
for the shareholders. If it's for profit, they may have
a goal at the beginning, but typically the rules are
written so that they can have maximal flexibility and decision making,
and there's also rules of decision just like there would
be in a DOO in some sense, there could be
a majority rule in electing members of the board, and
then the board itself has the capacity to hire the
managers or the firm, and then the managers make the
(14:05):
decisions subject to supervision from the board. So it's got
a set of rule of decision in it as well.
So that has a lot of flexibility in It seems
your flexibility is constrained by what you've said upfront, right,
You've written that contract in and unless you have a
(14:25):
rule of decision that enables it to be changed with
an elaborate government structure attached, you sort of have to
do what you started with. Does that seem like a
fair concern? I see what you're saying, but I think
it's I think it's the opposite. The main benefits of
ADAO are the greater flexibility, not the greater constraint. To
give a very like clear demonstration of how much more
(14:48):
flexible ADAO is, any normal company that employees employees has
to follow, you know, all sorts of employment laws in
a specific jurisdiction. Those employment laws have nothing to do
with serving the customer. They have everything to do with
certain special interests. In the past, arguing for political reasons
(15:10):
that external rules should be imposed on the mutual work
between two people. A dow doesn't have to abide by that.
A doubt does not exist within a territory, and a
dow does not have employees as defined under law. So
a dow can pay a worker in some country to
do X, Y and Z task with zero concern about
(15:35):
the five hundred different you know, labor laws of any
arbitrary country. And that's this is a very important thing
you're saying, and I want to take it on head on,
and I want to do it, if it's okay with you,
in two parts. First, I just want to respond to
what you were saying about flexibility, and then I want
to go straight into the employment law and the more
deeply libertarian versus regulatory conceptions that one might have of that.
(15:59):
But before we get there, and I'm really excited to
get there, I just want to quickly do a clarification
on the flexibility point. Yeah. So you know, a group
of people got together and they very quickly created ADAO
to buy a copy of the Constitution that was up
for auction, and they all had to put in money
because you have to put your assets in advance or
create those assets in advance in a DAO and then
they didn't win. They didn't get the object because they
(16:21):
were outbid fair enough, and they need to have a
rule of decision of what to do about that money
after the fact, because the money was all in there,
it was set that the program was set up. So
if they won then auction, they would have bought the
constitution if they if the TAO then wanted to say,
we want to go into business now to do something
completely different. You know, we want to go into business
to promote I don't know, to promote the idea of doubts, right,
(16:46):
and we want to have all the elements that you
need to go into business that require more than just
paying people, like a whole business operation. To do it,
they would need to have a rule of decision that
enabled the majority of the members of the doubt to
enact what would be in effect rules of corporate governance. Right.
They would have to say, this is how we're going
to appoint our CEO, this is how we're going to
(17:07):
how we're going to supervise the CEO, this is how
the decision ers are going to proceed on a day
to day basis. Otherwise, they'd have to make ever, have
every single decision made by vote of the whole collective
the way sort of like a town meeting in New
England does it. And as anyone who has ever been
to one of those town meetings, no, it's wildly inefficient.
So that's why guess what I meant on the flexibility point.
I mean, I get that in principle, the DAO could
(17:29):
legal structures of the state provided just say we're not
we're now adopting rules of incorporation. But unless they reinvent
the wheel of the rules of incorporation, it seems all
everything they do they have to do by the same
rule decision they've adopted in from the beginning. If that's
fifty plus one, then they need to vote on everything
fifty percent plus one. Am I getting that right? Yeah?
(17:50):
So this is a super important point, and it was
one of the things that I was initially skeptical on
about DAOs is you know, if every decision of an
organization has to be voted on, it's going to be
a disaster for many reasons. DAWs generally get around this
by simply creating groups with delegated authority. So you create
this initial tao. It has a million dollars, and it
(18:11):
just has the simple rule that fifty one percent of
the token holders can move the money. The next vote
might be, Okay, we need marketing, so give one hundred
thousand dollars to this guy because he seems credible with marketing.
He gets one hundred thousand dollars. And then everything he
does for marketing is not up to a vote. It's
just up to him, so he has full autonomy over
(18:33):
his role. At some point he's going to want to
come back from our money, right, and so that's when
he needs to demonstrate, like, hey, here's what I did
for you as the DOAO, Here's how well I spent
all that hundred thousand dollars, and here are the results.
Give me more money and I'll keep doing this for you.
So in that case, you know, only one decision was
voted on, which was give one hundred thousand dollars to
this guy, and he has tons of flexibility. I don't
(18:58):
want to labor the point, but I do think that
in the real world of contracts, one of the things
that contracts are used for is repeated iteration by the
same players over a long period of time, with ongoing
negotiation and shifts in what the duties are. So let's
say I have a company, and I hire an ordinary company,
and I hire someone who does marketing, and I pay
the person monthly for a certain amount of work, or
(19:20):
by the job for a certain amount of work. Each month,
we check in with each other, or maybe even every day.
We check in with each other, and we see how
each of us is doing, and when the term of
the contract ends, we're capable of renegotiating the contract. In fact,
we don't even have to wait for the term of
the contract end. In the real world, people are constantly
renegotiating contracts all the time, based on their needs, based
on circumstances. And it does seem to me that that
(19:43):
iterative structure of engagement. I agree that in principle it
could be done. In a doubt, that seems correct to me.
But it seems like one of the great advantages of
ordinary corporate form of government is that the shareholders are saying,
we don't have the time to manage the firm in detail,
so we're going to delegate that management to people who
have the full time job of, among other things, talking
(20:03):
to the marketing guy who gets hired and making judgments
about that. And it seems like, again, unless you reinvent
that within a DOO, you lose that. Yeah, it's reinvented
within the DOO. The DOO can decide to hire someone
who acts sort of as a manager to oversee several
roles beneath them. So if the DOO organization wants to
do that, it absolutely can. There's no reason that can't work.
(20:27):
So let's go to the point that you made about
employment laws. And here what you said was to my mind,
very reminiscent of some of the early arguments for cryptocurrencies, namely,
you can avoid regulation. And I want to raise two
concerns about that. One whether it's actually true that you
can avoid regulation, and two whether you should avoid regulation
(20:48):
as a normative moral matter. Even if you could, Let's
say you say, we don't want to fill out. It's
one of the things that employers have to do, even
if they're hiring contractors, is they have to send them
at the end of the year at tax documents saying
how much money they were paid and go through this
whole procedure of doing so. Even if it's only minimal,
they still have to go through it. And you say, well,
this is a DOO. It's not under the jurisdiction of
any regulator of any states. It's not going to do that.
(21:11):
If the state then appears, it can say to the
employee you got paid, well, hey, you you were under
a duty to do this and you didn't pay your taxes,
And the DAO could say, well, we don't care, not
our problem. But then if the state turns to the
DAO and says, look, if you're going to operate in
the state of Delaware, we obligate you to follow our
(21:34):
employment laws, and we will sanction you by sanctioning the
people who are in our jurisdiction, who are within our jurisdiction,
who are participants in the DAO. And if you say,
and this is going to be easier for the government
of China than for the government of Delaware, but it's
in principle possibly even in Delaware, if the TAO effectively says,
(21:54):
I mean, the DOO can't speak. But if the DAO
effectively says, sorry, we're not subject to your regulation, the
hell with you. You know, we're libertarians. The state's ultimate
sanction is to say it's unlawful for people in our
jurisdiction to own or participate in dao in the same
way that some countries have already done with some cryptocurrencies,
and then people could hide from the law, they could
(22:15):
unlawfully trade in crypto or unlawfully participate in the tao,
and then it becomes just the ordinary count and mouse
game of any unlawful activity. So in those senses, isn't
it the case that you really can only avoid regulation
insofar as the state entities where the human beings who
participate live chooses to allow the dao to remain unregulated. Yeah,
(22:38):
fascinating topic. So what you've really done in a doao
is you've removed the corporate entity from the equation entirely.
So instead of having a bunch of individuals and then
a corporate entity, which is where all regulation is applied
at a corporate level, that entity is gone. There is
no entity. A state can obviously enforce whatever coercion it
(23:01):
wants against individuals within its territory. And that's true regardless
of a DOO. But let's say Delaware becomes totally tyrannical
and says, you know, we don't like all the all
the freedom going on here. We will make it illegal
to participate in a dow. How that would be worded
legally would be very interesting, and obviously it would be
(23:23):
immediately a First Amendment issue. But even if they succeeded,
then okay, the people that were part of the DOAO
in Delaware end up selling their tokens because they can't
participate anymore, and the DOO morphs into the jurisdictions where
it can work. Right. So, unlike a corporation, which if
it's in Delaware and Delaware shuts it down, it's in
(23:45):
big trouble and it would take a lot of work
and effort to pull the roots out into redomicile somewhere.
A doo is very fluid. It's like trying to regulate,
you know, the movement of air or water, and for
that reason, it's a it's an entirely different beast. Eric.
That metaphor of airrow water really nicely tease up the
(24:05):
should we question, because the reason we, I mean, the
truth is we can regulate air and we can regulate water,
and we try to or at least we try to
regulate human interactions with them. But the reason that it's
hard to do that is that those are naturally occurring
entities that don't in their very nature subject themselves easily
to jurisdiction. Employment relations are different from that there are
(24:26):
human interactions between people, and states are interactions between people
and exist to regulate relations between people. Well, you described
employment laws, I think essentially what you're saying was that
they're the result of special interests lobbying for different forms
of regulation at past times. And that's absolutely the way
some people would describe employment laws, the way some economists
(24:48):
might describe it. But another way to describe employment law,
of the way say legislators would describe it, or unions,
is that they're the product of complex social negotiation between
people in society, making moral judgments and political judgments about
how much people need to live, about whether this social
(25:09):
conflict between unions and management that you almost burned down
Europe and the United States in the nineteen and twentieth
centuries should be regulated by some set of mechanisms. That
they are products of social forces, for sure, I think
everyone would concede. But many people think that employment law,
like other law, is a desirable set of forms of
regulation of human conduct. And if you believed all that,
(25:31):
I'm not saying that you have to or that one
has to. But if someone believed all that, would they
be right in thinking that taos are very very bad things.
I mean, if they exist to evade regulation, then they
exist to evade to the extent that they're able relations that,
at least in adjust in democratic society, have been adopted
by everybody in the hopes of making everybody better off,
(25:53):
and ironically, that have been adopted by democratic procedures, which
are the kinds of democratic procedures that the Tao talks
about using. So should my listeners who who like the
rule of law be turned off of taos? Exactly at
this point in the conversation, I like the rule of law.
I just think that there's a lot of laws that
(26:14):
are coercive and unethical. And the reason to be opposed
to taos is if you didn't like the idea that
two adults could just consensually interact with each other. Anyone
who's opposed to consensual interaction between adults is not going
to like taos because it allows them to do that.
(26:35):
You know, an economic pow do you have to be?
I mean, I guess I'm asking is how much of
a libertarian do you have to be? To like taos
because could one be a non libertarian dow lover or
is it that you have to basically be a libertarian
to love a doo. Doos are like pristine equality in
(26:56):
relationships between people. There is no corporate hierarchy, there is
no boss. It is simply a format on which any
two individuals or more can come together and opt in
to trade with each other on terms agreeable to both.
That's it. A lot of people are uncomfortable allowing to
(27:20):
adults to consensually agree with one another, and for those
people probably not going to like anything that increases the
ability for human adults to just like interact freely. You know,
dows are not asking anyone's permission for anything, and if
you don't like the DOO, you shouldn't be involved in it.
The DOAO is only by definition, going to include participants
(27:41):
that willingly wanted to interact with that organization. So Eric,
let me just be clear again about why I'm asking this.
I mean, I think I'm actually really interested in the
moral questions, but I think that's not the thing that's
most valuable to listeners. What's most valuable is people are
trying to figure out I think many people are trying
to figure out how serious or taos, how long will
they last, what kinds of capacities do they have to
(28:04):
the extent that doos are dependent upon. If they are
dependent upon that kind of a theory, no boss, no master,
they run the risk of being regulated in exactly the
way that everything else in society is regulated. Right, So,
democratic theory says that in democratic society there are no bosses,
no masters. And yet within democratic societies, by a whole
(28:26):
set of processes, vast economic inequalities emerge, those generate property
and equalities, and then via contract, we get bosses, and
we might even get masters and slaves if they enter
into those relationships by contract, And in principle, you know,
through if you think of an indentured servitude contract, which
was a very common form of contract in early America,
you get something that looks a heck of a lot
(28:48):
like slavery, just by voluntary contracting. So that's why the
great majority of well all governments that have ever existed
have regulated in ways that are in commensurate with genuine libertarianism.
Now again, I'm not saying that to make a philosophical
argument against libertarianism. I'm saying it because if the DAO
(29:08):
depends on that libertarian theory, then a lot of us
think that as a predictive matter, it's way more likely
the taos will in fact be subject to radical regulation
and therefore won't be able to achieve they're somewhat utopian purposes.
Then if you told me no, as a lot of
people are saying in crypto, look, there's nothing wrong with
crypto being regulated. Sure, crypto can be regulated. You know,
(29:30):
at the beginning people said, well, what's great about cryptos
It will evade all regulation. And now as crypto's getting
bigger and bigger and more and more successful, lots of
advocates of crypto say, it's not a problem for crypto
can be regulated. We can we can manage that regulation.
And crypto's got all kinds of other valuable functions other
than the evasion of regulation. So I guess what I'm
trying to figure out is is that where are DAWs
(29:52):
different in some way or is it like crypto where
of course there's still lots of crypto people who would
like no regulation to exist, but lots of advocates of
crypto have sort of accepted the reality of future regulation.
So both in cryptocurrency and in DAOs, you are established
a layer of human society that is beyond politics. And
(30:15):
this is a weird thing to say and to hear,
because it's not really existed before a smart contract, you
cannot regulate it. Or, to be more precise, politicians can
write whatever rules they want, and the smart contract is
oblivious to them. It will execute according to the code,
no matter the rules that politicians write about it. In
(30:39):
the same way that if if I write rules about
how the dust on the moon should settle, it doesn't matter.
The dust on the moon shall settle according to the
laws of physics, and the rules within a cryptocurrency protocol
will execute according to the rules of the code the
code is. This is just a clarifying question, not an
(31:00):
argument question. But on the clarification side, isn't it the
case that there has to be a distributed network of
computers on which the code runs, unlike the laws of physics,
which I mean, they need some substrate. We need to
live in the universe as it's presently constituted. But if tomorrow,
you know, all computers in the world went down, or
if all states in the world that were capable of
(31:22):
hosting big enough servers to run a global network regulated
and shut down these smart contracts, they would stop, right.
I mean they're dependent on distributed computing, right, correct, and
certainly not quite like the laws of physics, not quite
in that. Yeah, they do have prerequisite technology that exists.
(31:42):
But if the argument against cryptocurrencies functioning, or against you know,
smart contracts and DAW's functioning, is that maybe all computers
in the world will shut down, we're already talking about
some kind of horrible dystopia in which, you know, most
of humanity is dying from starvation. Anyway, I didn't mean that.
I meant what if all states where there are enough
big server farms to host distribution insisted on regulation or
(32:08):
where or in a world where all states regulated their
citizens sufficiently to bar them from engaging in the conduct
that is required to keep the thing running. Yeah, I mean,
you know, most states have made it illegal to consume
certain kinds of narcotics, and yet those narcotics are everywhere.
So so what but that's not Yeah, but that really
(32:29):
doesn't seem analogous to a lot of physics. That just
seems like governments are incapable of complete enforcement. Well, what's
analogous to the physics is that the code will execute
if the system is turned on. And you can debate
about whether a government can turn the system off or not,
and that's a fascinating discussion, but practically speaking, these networks
cannot be turned off, or more specifically, the ones that
(32:51):
are the most robust are the furthest away from being
able to be turned off. You know, Bitcoin cannot be
turned off at this point. Ethereum cannot be turned off.
If you start a new crypto platform tomorrow and it
has it's just running on your own computer or like
you and your three friends, obviously that one's going to
be a little more fragile and susceptible to some kind
of intervention. Eric, tell me, what are some advantages and
(33:15):
benefits of taos that are distinct from being able to
evade existing regulations. So, yeah, it's not I don't want
this to come across as like the point is to
evade regulations. The point here is that you remove frictions
which have been built up by society, which are arguably
(33:35):
harming the purpose of what many organizations try to do.
If you're a you know, if you're a for profit business,
You're really there to build some kind of product or service,
serve customers, and earn a positive return on that. So
you should care a lot about how happy the customer is.
You should care a lot about how good your product
(33:58):
is and how resilient it is. These kind of things
are at the core of any business, and any one
of your listeners who's ever run a company, you know,
at any management or executive level, will know that so
much happens in a corporation which is not at all
about serving the customer or about making the product good.
It's about all this other like cruft that has built up,
(34:20):
some of it regulatory, some of it just habitual. Some
of it has to do with like you know, IP
law and that kind of thing. There is a whole
world of friction that is built into corporations today, and
all of that disappears when you're in the doo world.
And this does not mean that dows are utopian. They
(34:41):
have other problems, right, They're not perfect. They introduce new
new issues that a centralized corporation may not suffer from.
But having lived through building a centralized corporation and being
in the midst right now of transferring this into a doo.
Speaking of my own company, Shapeshift, I have just seen
(35:02):
the degree to which we can focus our time, attention,
and resources on serving the customer and building the product
has increased dramatically, and that is I think fundamentally highly
valuable to all of society. I want to close by
asking you about the egalitarian sort of aspirations here that
you've mentioned a few times, specifically in the context of
(35:23):
your company. So, in preparation for our interviewer, I read
you're fascinating, fascinating medium post about how you were going
to go about transforming shape Shift into a DOO. I
guess you must have had some unconscious expectation of that,
given the name of the company with shape Shift. But
but you say somewhere towards the end of the post,
listen full disclosure. I'm going to be the largest holder
(35:45):
of this new currency, I think at five percent of
the total unlocking over some period of time. Others who
are your co founders or your close associates will also
have larger blocks. So coming right in the DOW has
some features that other corporations might have, namely that some people,
just from the get go have more say in how
(36:10):
the entity is conducted than others, And it sounded like
from what I read, at least in your case, that
didn't give you more than five percent of the voting rights.
You just had five percent of the voting rights alongside
five percent of the currency. But one could imagine people
organizing DAWs where there were differential voting rights for different
kinds of ownership. You could have a governance token that
(36:31):
was set up more like shareholder voting, so you could
have different classes of governance tokens. Why wouldn't we expect,
and in fact, why wouldn't eleborate libertarian welcome the emergence
of radically non egalitarian structures in the now world, where
it wouldn't be that everyone would have the same say,
Some people would have much greater say than others, and
(36:52):
it would be consensual in the same sense that any
economic relationship is consensual. Right. I need a job, but
I can negotiate at arm's length with Uber. But I'm
not going to get very far if I say to Uber,
you know what, if you want me to drive, you
have to pay me a lot more than everybody else
gets paid. Right, I don't have a lot of negotiating
power in that situation. So why wouldn't we just get
at the re emergence of exactly the same kinds of
(37:12):
societal inequalities here that we get in the real world
over time. And I guess maybe there'd be nothing wrong
with that from your perspective either. I don't mean to
say that would be a bad thing. Yeah, I think
there's a lot of kinds of inequality that are not wrong. Right.
So an obvious example, if two people are hanging out
and one guy sits on the couch doing nothing, and
the other person goes out and does something productive, that
(37:34):
person is going to end up with something more than
the one sitting on a couch, right, And this is
a very simplistic example, but I think most people would
agree in that in that example, the outcome being unequal
is not an ethical problem. If you imposed something to
cause the outcome to be equal, even despite that difference
in their input, that would arguably be unethical. So I
(37:56):
have to be careful about this inequality perspective. Certainly, doaos
won't suddenly make everyone economically equal. What they do, however,
is they give everyone the same set of rules. The
rules can't be changed by you know, like bias. So
here's a good example in the Shapeshift dow. A lot
(38:17):
of the people that contribute to it and are part
of it are pseudonymous. I don't know. I've never seen them,
I don't know who they are, I don't know what
country they're in. I don't know if it's a male
or a female, and it doesn't matter. They're just an identity,
a pseudonym on the Internet, and they're based on their merit.
Their contribution is based on their merit. So a lot
of inequities that you see in a corporate setting that
(38:37):
people rightly point out as wrong, you know, certain biases
or something, you know, racism for example, there's no racism
in Adao, right because anyone can take whatever identity they want.
They can assume full pseudonymity. They can be public about
who they are, what they look like, their background, or
they can keep it all private. Coming from a position
where you care about equality for the right reasons, that
(38:58):
should be very encouraging. Someone should look at that and
be like cool. You know. Finally, there's a system of
economic organization that removes a lot of these biases, and
it doesn't remove them through some kind of government diktat.
It removes them through a new a new method of
interaction between people. Yeah, I mean, I think I hear
the appeal of that for sure. At the same time,
(39:19):
although the doo is not a human, the people who
make the dour humans and the people who invest in
the dower humans, then the outputs are also going to
reflect inequality. And that doesn't mean that the process is racist.
It just means that the process replicates the inequalities which
we already have in a society that has historically been
inflected by racism. So it's hard to and it's not
(39:42):
that dowers are unique in this problem that it's that
you can't always escape the results of the past just
by entering into a new domain. Yeah. Yeah, doos don't
solve history, but neither does anything else, right, So what
are we comparing it against? What dows do is allow
(40:02):
people to have transparent economic organization with no center, and
that is a fundamental new primitive of humanity. DAOs did
not force anyone to do anything. They're purely voluntary for
people who care about results and interacting with other people
toward productive ends, and doing it in an open, equitable
(40:23):
way in which the rules are clear, open source. This
is something really beautiful, but it doesn't solve world poverty.
It doesn't solve all iniquities of the past, but neither
does a centralized corporation, and certainly neither does a government. Well,
I think on another occasion it would be fun to
talk about the empirical side of this, and we might
not see exactly eye to eye, but what I want
(40:44):
to say is, thank you for a really helpful walk
through of the basic principles and some of the philosophical
consequences of the dao structure. I learned a lot, and
I very much enjoyed the conversation, and I'm super grateful too.
Thank you so much for your time. Thanks. Yeah, this
was really good. Happy to be on the show. We'll
be right back. I was really fascinated by this conversation
(41:17):
with Eric Vorhees, and I really am grateful to him
for sharing it with me. On the one hand, he
really helped me understand some of the basic structure of
what a tao is and how it functions, and I
hope that his explanations were of value to you listeners
as well. I remain interested in trying to figure out
for what taos are good and for what taos may
(41:38):
not be good. I am fascinated by the question of
whether they are more or less efficient than traditionally existing corporations,
and whether they are more or less flexible than those corporations.
The other theme that came out very strongly in this
conversation was the question of whether taos ultimately are connected
to a libertarian ideal of evading governmental regulation. Eric seems
(42:00):
to think fairly strongly that they are. It's not that
he's saying that the only advantages of taos are its
ability to avoid regulation, but he is saying that what
makes a doo worthwhile distinctive, unique and original, and to
his mind, attractive, is its capacity to array people in
freely entered into contracts free of what he calls government coercion,
(42:21):
but I and others would think of as governmental regulation.
I was reminded of the fact that in the crypto
world as well, many of the early innovators were very,
very focused on the libertarian and I would say, to
some degree utopian aspects of the idea of currencies that
could operate outside of governments and outside of states. My
(42:42):
own view is that there may be many benefits to
taos that have nothing to do with its capacity or
lack of capacity to evade regulation. I promised to continue
to explore this issue in future episodes until the next
time I speak to you. Breathe Deep, think, deep plots,
and with the holidays upon us, definitely have some fun.
(43:05):
If you're a regular listener, you know I love communicating
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would be useful to hear from. More so, I'm opening
a new channel of communication. To access it, just go
(43:26):
to my website Noah Dashfelman dot com. You can sign
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is brought to you by Pushkin Industries. Our producer is
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(43:48):
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(44:09):
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tell a friend. This is deep background
Pushkin Pushkin from Pushkin Industries. This is Deep Background, the
show where we explored the stories behind the stories in
(00:36):
the news. Today's episode explores a fascinating story that combined
two interests that I have. You may have heard about it.
A few weeks ago, an original printed copy of the
draft Constitution of the United States from seventeen eighty seven
went up for sale at Southby's. The auction made national news,
but not for the reasons you might think. The actual
(01:00):
copy of the Constitution was not all that rare, though
there weren't very many that remained on the market. What
was newsworthy was that a group called the Constitution TAO,
or a decentralized autonomous organization, came together over social media
over a very very brief period of time to crowdfund
tens of millions of dollars for the specific purpose of
(01:23):
purchasing this copy of the Constitution at auction. Now, as
it turned out, the TAO did not win the auction,
but the whole event did a lot to raise public
consciousness about taos, which are an innovative new technology that
nobody can exactly decide about. Are they progressive? Are they progressive?
(01:44):
Are they libertarian? Are they anti racist? Mark Cuban was
quoted as calling them the ultimate combination of capitalism and progressivism.
And I will leave it to you to figure out
what that means. But I've been on a trajectory myself
of trying to learn more about Taos ever since my
conversation on this podcast with Vitalic Puderan, and I wanted
to speak to someone who was deeply involved and engaged
(02:07):
in the Tao world. Right now, I'm joined today by
Eric Vorhis. He's a tech entrepreneur who founded the bitcoin
company Coinipolt and later founded Shapeshift, which was a cryptocurrency exchange.
This past year, shape Shift announced it was switching from
a classic corporate style government structure with a board of
directors to a DOW based on decentralized decision making, and
(02:32):
Eric explained all that in a medium post that will
put in the show notes. I'll be talking Eric about dows,
what they are, how they function, and about the politics
or anti politics of the DOO movement. Eric, thank you
for being here. I'm really excited to talk about a
(02:54):
topic where my own learning curve is, let's say, at
the very steep part of the curve So let's just
go right into the question of dows decentralized autonomous organizations
to give you some sense of how new I am
to the topic. The first time I talked publicly about
the subject, I still wasn't clear whether it was supposed
to be pronounced dow or spelled out as dao, and
I was a little skeptical of the idea that DOO
(03:15):
sounded too much like a Eastern religious tradition. So talk
to me about doos starting with one oh one, and
then with any luck, we'll move up to the more
advanced level or the course of the conversation. Cool Well,
about a year and a half ago, I was probably
in the same place you were, so this is still
relatively new to me. Also, DOO stands for decentralized autonomous organization,
(03:40):
which is a lot of syllables, and essentially it's just
a new way for humans to organize towards some kind
of economic ends. So generally people organize toward economic ends
like a for profit corporation like an LLC or a
C corps or something like that, or through some kind
(04:01):
of nonprofit organization, and those are both very well known.
Think of a DOO as basically a new version of
economic organization, and the defining feature is that there's no center,
there's no central entity whatsoever. It's not registered anywhere, there's
(04:21):
no one who is the CEO of a DOO. And
it is found generally in the cryptocurrency world, but I
think it can expand eventually beyond that. So let's talk
about what are the agreements that turn a DOO into
a doao. If you and I wanted to create a
(04:42):
DOO to disseminate this episode of this podcast, what would
we want to do to do that. Yeah, So thinking
about it from the perspective of contracts, I think is
a good way to do it. The key difference here
is that instead of being paper contracts written in English,
signed by humans and enforced by the state, these are
(05:04):
contracts written in code, essentially what are called smart contract
which operate independently. They are not enshrined or protected by
the state in any way. They simply execute because the
code makes them execute. So they are much more immutable
than the normal contracts that would govern a corporation, and
(05:28):
they are subject to exactly how the code is written.
So generally in the cryptocurrency world, the locust is the treasury.
So you have like a treasury contract of a certain
digital asset, and let's say that contract is holding a
million dollars of ethereum cryptocurrency. That contract sits there and
(05:51):
executes certain rules. And so the simplest set would be
if fifty one percent of the holders of a certain
token vote to move money out of this treasury contract,
then it will move to where the voters say it
should move around. That in entire DAO can form, and
(06:11):
it doesn't use a bank account, it doesn't have a jurisdiction,
it's not, you know, subject to any particular country. It
just exists on the Internet as one or more self
executing smart contract sets of code. A terminological question before
we dive into the really fascinating I think already practical
(06:31):
and philosophical consequences of this way of doing things. You
spoke of it as a treasury contract, and then you
said that contract sits there. I take it that this
is a kind of term of art in taospeak. It's
that the fund sits there, the money sits there, or
the asset sits there, and that as it is referred
to as the treasury, or effectively as the treasure, or
(06:52):
as the treasury contract. Am I getting that right? Yeah?
Treasury is just kind of like a colloquial name given
to it. But it's a contract that holds cryptocurrency. So
some kind of digitalized makes it a contract. What makes
it a contract is that there's an encoded set of
rules that are connected inextricably to the reality of this holding. Correct. Yeah,
(07:15):
So think of it like a bank account. You know,
the bank account has a bunch of written and unwritten rules,
and if you have money in the bank account, the
money will leave the bank account if certain things are done,
like if the person who owns the bank account directs
money to be moved, and if X, y, and z
people at the bank approve of the transfer, the money
will move out of it. All of that is handled
(07:38):
and managed and overseen by humans on some layer. Smart
contracts are operating as code, and so computers can make
the money move on their own. No human has to
be involved whatsoever. And so instead of money being held
by a bank movable by humans, money is held in
(07:58):
a smart contract movable by code and machines. Let's talk
about change. So we've got your stylized example of a
fund of a million dollars worth of I think you
said ethereum sitting there. And there's a rule of decision
that's built into the code, which is that if fifty
(08:21):
one percent of say, the token holders who have a say,
choose to distribute the asset in a particular way, then
it happens. If you were to build in, as well
to that initial code, the possibility that fifty one of
the holders of the token could change the rules for distribution,
(08:42):
then you'd have a more open ended set of arrangements,
at least in principle. There's no reason you couldn't design
it that way, correct. Yeah, And actually, since fifty one
percent of the people can move the money out of
the contract, if fifty one percent of the people decide
that a change is needed, they just make a new
contract and move the money into that new one. So
(09:04):
the initial one doesn't even need to contemplate that kind
of change. Well, what it does need to contemplate, though,
is it needs a rule of decision. Right, it needs
to know that fifty one percent is the rule of decision.
You could also do it by any number of other
modes of governance. Right, you could have ten percent of
those who own a special token or just ten percent
of the people could put it out of existence. I mean,
there's nothing magic about the majority control. It's just whatever
(09:27):
you lock in the program, because that's what this is. Effectively,
it's a program. A set of programs will execute. Ye.
So if that's the case, then I'm curious about how
much thought goes into the process of choosing that rule
of decision. I would assume it's an enormous amount of thought,
because that's, as it were, the whole ball of wax.
(09:47):
If you talk about a smart contract, they will execute itself.
But actually it will execute itself unless that circumstances whereby
the rule of decision can change is executed, in which
case it won't execute itself. Yeah, and this is where
dows are all just experimenting with different models. So a
DOW can be very small, you know. It could be
(10:08):
like two or three p bull that have some kind
of smart contract that they all participate in. It could
be massive. It could be millions and millions of people
in controlling billions of dollars of economic assets. And the
rules can be simple, like a simple fifty one percent
moves the money, and that's the core. Nothing else is
written other than that single rule, or it could be
(10:30):
very elaborate with lots of interlocking contracts with different rules
and singular Dao organizations may change over time. They learn
how to govern themselves, they learn what works and what doesn't,
and so they evolve and adapt. The important point here
isn't what specific rules the Tao chooses. It's simply that
you now can have humans interact economically with no central
(10:53):
party being involved whatsoever. Well, let me ask you a
follow one question about that. Let's say you know again,
it's a simple dow You and I are the only participants,
or maybe there're three of us, so that we have
a fifty one percent option, and we write it so
that there's a majoritarian rule of decision. Then two of
us get together and vote within the system, saying we
want to change things and disburse the funds in some
(11:14):
different way. And in principle, that would seem to follow
the rules as written. But the person who is the
third person says, I think that somehow the system has
been hacked here, and in fact my vote was cast
let's say, without my knowing it. I didn't mean to
vote this way, but someone voted my share the program
(11:35):
doesn't know that. Presumably it's just going to execute. What
if any recourse does that person then have. I mean,
if there's no recourse to the state, then that person
is just out of luck. Game is over for that person.
If there is recourse to a state or a government,
or maybe to a broader set of users, that person
could appear in some form and say, hey, you know
(11:58):
this is supposed to only have happened if there's a
majority vote. There wasn't really majority vote. I was hacked.
I didn't mean to do this. Yeah, well, anyone familiar
with cryptocurrency systems, you know this won't sound alien too.
But the code executes, and that is the arbiter like,
that's what happens. So there is no recourse outside of
the code. If you make a mistake, or if the
(12:18):
code is written poorly, or if there's a bug or
anything that can happen, the code executes and then it's done.
So when writing these kind of contracts, obviously you have
to be very careful, and the more complicated they get,
the more likely it is that there will be errors
of some kind. You could, of course add complexity to
help mitigate this effect. You could say, any vote can
(12:41):
be reversed within a week if x, y and z
factors happen. So you can write any number of arbitrary
rules to these things. But yeah, once as they execute,
no government in the world can unwind a smart contract.
And this is super critical when it comes to something
like bitcoin, which is arguably the world's first daw even
though people didn't use that terminology for it, but it
(13:02):
happens throughout cryptocurrency and these smart contracts, they just do
what they are programmed to do. We'll be right back.
Let's talk about what are the advantages and uses of doaos,
(13:23):
at least at this stage, and what are the limitations
associate with it. I keep coming back to the question
of what an ordinary limited liability corporation does. So an
ordinary limited liability corporation has shares and has shareholders who
have paid in It has a governance structure, and typically
it's organized to do anything that would make a profit
(13:44):
for the shareholders. If it's for profit, they may have
a goal at the beginning, but typically the rules are
written so that they can have maximal flexibility and decision making,
and there's also rules of decision just like there would
be in a DOO in some sense, there could be
a majority rule in electing members of the board, and
then the board itself has the capacity to hire the
managers or the firm, and then the managers make the
(14:05):
decisions subject to supervision from the board. So it's got
a set of rule of decision in it as well.
So that has a lot of flexibility in It seems
your flexibility is constrained by what you've said upfront, right,
You've written that contract in and unless you have a
(14:25):
rule of decision that enables it to be changed with
an elaborate government structure attached, you sort of have to
do what you started with. Does that seem like a
fair concern? I see what you're saying, but I think
it's I think it's the opposite. The main benefits of
ADAO are the greater flexibility, not the greater constraint. To
give a very like clear demonstration of how much more
(14:48):
flexible ADAO is, any normal company that employees employees has
to follow, you know, all sorts of employment laws in
a specific jurisdiction. Those employment laws have nothing to do
with serving the customer. They have everything to do with
certain special interests. In the past, arguing for political reasons
(15:10):
that external rules should be imposed on the mutual work
between two people. A dow doesn't have to abide by that.
A doubt does not exist within a territory, and a
dow does not have employees as defined under law. So
a dow can pay a worker in some country to
do X, Y and Z task with zero concern about
(15:35):
the five hundred different you know, labor laws of any
arbitrary country. And that's this is a very important thing
you're saying, and I want to take it on head on,
and I want to do it, if it's okay with you,
in two parts. First, I just want to respond to
what you were saying about flexibility, and then I want
to go straight into the employment law and the more
deeply libertarian versus regulatory conceptions that one might have of that.
(15:59):
But before we get there, and I'm really excited to
get there, I just want to quickly do a clarification
on the flexibility point. Yeah. So you know, a group
of people got together and they very quickly created ADAO
to buy a copy of the Constitution that was up
for auction, and they all had to put in money
because you have to put your assets in advance or
create those assets in advance in a DAO and then
they didn't win. They didn't get the object because they
(16:21):
were outbid fair enough, and they need to have a
rule of decision of what to do about that money
after the fact, because the money was all in there,
it was set that the program was set up. So
if they won then auction, they would have bought the
constitution if they if the TAO then wanted to say,
we want to go into business now to do something
completely different. You know, we want to go into business
to promote I don't know, to promote the idea of doubts, right,
(16:46):
and we want to have all the elements that you
need to go into business that require more than just
paying people, like a whole business operation. To do it,
they would need to have a rule of decision that
enabled the majority of the members of the doubt to
enact what would be in effect rules of corporate governance. Right.
They would have to say, this is how we're going
to appoint our CEO, this is how we're going to
(17:07):
how we're going to supervise the CEO, this is how
the decision ers are going to proceed on a day
to day basis. Otherwise, they'd have to make ever, have
every single decision made by vote of the whole collective
the way sort of like a town meeting in New
England does it. And as anyone who has ever been
to one of those town meetings, no, it's wildly inefficient.
So that's why guess what I meant on the flexibility point.
I mean, I get that in principle, the DAO could
(17:29):
legal structures of the state provided just say we're not
we're now adopting rules of incorporation. But unless they reinvent
the wheel of the rules of incorporation, it seems all
everything they do they have to do by the same
rule decision they've adopted in from the beginning. If that's
fifty plus one, then they need to vote on everything
fifty percent plus one. Am I getting that right? Yeah?
(17:50):
So this is a super important point, and it was
one of the things that I was initially skeptical on
about DAOs is you know, if every decision of an
organization has to be voted on, it's going to be
a disaster for many reasons. DAWs generally get around this
by simply creating groups with delegated authority. So you create
this initial tao. It has a million dollars, and it
(18:11):
just has the simple rule that fifty one percent of
the token holders can move the money. The next vote
might be, Okay, we need marketing, so give one hundred
thousand dollars to this guy because he seems credible with marketing.
He gets one hundred thousand dollars. And then everything he
does for marketing is not up to a vote. It's
just up to him, so he has full autonomy over
(18:33):
his role. At some point he's going to want to
come back from our money, right, and so that's when
he needs to demonstrate, like, hey, here's what I did
for you as the DOAO, Here's how well I spent
all that hundred thousand dollars, and here are the results.
Give me more money and I'll keep doing this for you.
So in that case, you know, only one decision was
voted on, which was give one hundred thousand dollars to
this guy, and he has tons of flexibility. I don't
(18:58):
want to labor the point, but I do think that
in the real world of contracts, one of the things
that contracts are used for is repeated iteration by the
same players over a long period of time, with ongoing
negotiation and shifts in what the duties are. So let's
say I have a company, and I hire an ordinary company,
and I hire someone who does marketing, and I pay
the person monthly for a certain amount of work, or
(19:20):
by the job for a certain amount of work. Each month,
we check in with each other, or maybe even every day.
We check in with each other, and we see how
each of us is doing, and when the term of
the contract ends, we're capable of renegotiating the contract. In fact,
we don't even have to wait for the term of
the contract end. In the real world, people are constantly
renegotiating contracts all the time, based on their needs, based
on circumstances. And it does seem to me that that
(19:43):
iterative structure of engagement. I agree that in principle it
could be done. In a doubt, that seems correct to me.
But it seems like one of the great advantages of
ordinary corporate form of government is that the shareholders are saying,
we don't have the time to manage the firm in detail,
so we're going to delegate that management to people who
have the full time job of, among other things, talking
(20:03):
to the marketing guy who gets hired and making judgments
about that. And it seems like, again, unless you reinvent
that within a DOO, you lose that. Yeah, it's reinvented
within the DOO. The DOO can decide to hire someone
who acts sort of as a manager to oversee several
roles beneath them. So if the DOO organization wants to
do that, it absolutely can. There's no reason that can't work.
(20:27):
So let's go to the point that you made about
employment laws. And here what you said was to my mind,
very reminiscent of some of the early arguments for cryptocurrencies, namely,
you can avoid regulation. And I want to raise two
concerns about that. One whether it's actually true that you
can avoid regulation, and two whether you should avoid regulation
(20:48):
as a normative moral matter. Even if you could, Let's
say you say, we don't want to fill out. It's
one of the things that employers have to do, even
if they're hiring contractors, is they have to send them
at the end of the year at tax documents saying
how much money they were paid and go through this
whole procedure of doing so. Even if it's only minimal,
they still have to go through it. And you say, well,
this is a DOO. It's not under the jurisdiction of
any regulator of any states. It's not going to do that.
(21:11):
If the state then appears, it can say to the
employee you got paid, well, hey, you you were under
a duty to do this and you didn't pay your taxes,
And the DAO could say, well, we don't care, not
our problem. But then if the state turns to the
DAO and says, look, if you're going to operate in
the state of Delaware, we obligate you to follow our
(21:34):
employment laws, and we will sanction you by sanctioning the
people who are in our jurisdiction, who are within our jurisdiction,
who are participants in the DAO. And if you say,
and this is going to be easier for the government
of China than for the government of Delaware, but it's
in principle possibly even in Delaware, if the TAO effectively says,
(21:54):
I mean, the DOO can't speak. But if the DAO
effectively says, sorry, we're not subject to your regulation, the
hell with you. You know, we're libertarians. The state's ultimate
sanction is to say it's unlawful for people in our
jurisdiction to own or participate in dao in the same
way that some countries have already done with some cryptocurrencies,
and then people could hide from the law, they could
(22:15):
unlawfully trade in crypto or unlawfully participate in the tao,
and then it becomes just the ordinary count and mouse
game of any unlawful activity. So in those senses, isn't
it the case that you really can only avoid regulation
insofar as the state entities where the human beings who
participate live chooses to allow the dao to remain unregulated. Yeah,
(22:38):
fascinating topic. So what you've really done in a doao
is you've removed the corporate entity from the equation entirely.
So instead of having a bunch of individuals and then
a corporate entity, which is where all regulation is applied
at a corporate level, that entity is gone. There is
no entity. A state can obviously enforce whatever coercion it
(23:01):
wants against individuals within its territory. And that's true regardless
of a DOO. But let's say Delaware becomes totally tyrannical
and says, you know, we don't like all the all
the freedom going on here. We will make it illegal
to participate in a dow. How that would be worded
legally would be very interesting, and obviously it would be
(23:23):
immediately a First Amendment issue. But even if they succeeded,
then okay, the people that were part of the DOAO
in Delaware end up selling their tokens because they can't
participate anymore, and the DOO morphs into the jurisdictions where
it can work. Right. So, unlike a corporation, which if
it's in Delaware and Delaware shuts it down, it's in
(23:45):
big trouble and it would take a lot of work
and effort to pull the roots out into redomicile somewhere.
A doo is very fluid. It's like trying to regulate,
you know, the movement of air or water, and for
that reason, it's a it's an entirely different beast. Eric.
That metaphor of airrow water really nicely tease up the
(24:05):
should we question, because the reason we, I mean, the
truth is we can regulate air and we can regulate water,
and we try to or at least we try to
regulate human interactions with them. But the reason that it's
hard to do that is that those are naturally occurring
entities that don't in their very nature subject themselves easily
to jurisdiction. Employment relations are different from that there are
(24:26):
human interactions between people, and states are interactions between people
and exist to regulate relations between people. Well, you described
employment laws, I think essentially what you're saying was that
they're the result of special interests lobbying for different forms
of regulation at past times. And that's absolutely the way
some people would describe employment laws, the way some economists
(24:48):
might describe it. But another way to describe employment law,
of the way say legislators would describe it, or unions,
is that they're the product of complex social negotiation between
people in society, making moral judgments and political judgments about
how much people need to live, about whether this social
(25:09):
conflict between unions and management that you almost burned down
Europe and the United States in the nineteen and twentieth
centuries should be regulated by some set of mechanisms. That
they are products of social forces, for sure, I think
everyone would concede. But many people think that employment law,
like other law, is a desirable set of forms of
regulation of human conduct. And if you believed all that,
(25:31):
I'm not saying that you have to or that one
has to. But if someone believed all that, would they
be right in thinking that taos are very very bad things.
I mean, if they exist to evade regulation, then they
exist to evade to the extent that they're able relations that,
at least in adjust in democratic society, have been adopted
by everybody in the hopes of making everybody better off,
(25:53):
and ironically, that have been adopted by democratic procedures, which
are the kinds of democratic procedures that the Tao talks
about using. So should my listeners who who like the
rule of law be turned off of taos? Exactly at
this point in the conversation, I like the rule of law.
I just think that there's a lot of laws that
(26:14):
are coercive and unethical. And the reason to be opposed
to taos is if you didn't like the idea that
two adults could just consensually interact with each other. Anyone
who's opposed to consensual interaction between adults is not going
to like taos because it allows them to do that.
(26:35):
You know, an economic pow do you have to be?
I mean, I guess I'm asking is how much of
a libertarian do you have to be? To like taos
because could one be a non libertarian dow lover or
is it that you have to basically be a libertarian
to love a doo. Doos are like pristine equality in
(26:56):
relationships between people. There is no corporate hierarchy, there is
no boss. It is simply a format on which any
two individuals or more can come together and opt in
to trade with each other on terms agreeable to both.
That's it. A lot of people are uncomfortable allowing to
(27:20):
adults to consensually agree with one another, and for those
people probably not going to like anything that increases the
ability for human adults to just like interact freely. You know,
dows are not asking anyone's permission for anything, and if
you don't like the DOO, you shouldn't be involved in it.
The DOAO is only by definition, going to include participants
(27:41):
that willingly wanted to interact with that organization. So Eric,
let me just be clear again about why I'm asking this.
I mean, I think I'm actually really interested in the
moral questions, but I think that's not the thing that's
most valuable to listeners. What's most valuable is people are
trying to figure out I think many people are trying
to figure out how serious or taos, how long will
they last, what kinds of capacities do they have to
(28:04):
the extent that doos are dependent upon. If they are
dependent upon that kind of a theory, no boss, no master,
they run the risk of being regulated in exactly the
way that everything else in society is regulated. Right, So,
democratic theory says that in democratic society there are no bosses,
no masters. And yet within democratic societies, by a whole
(28:26):
set of processes, vast economic inequalities emerge, those generate property
and equalities, and then via contract, we get bosses, and
we might even get masters and slaves if they enter
into those relationships by contract, And in principle, you know,
through if you think of an indentured servitude contract, which
was a very common form of contract in early America,
you get something that looks a heck of a lot
(28:48):
like slavery, just by voluntary contracting. So that's why the
great majority of well all governments that have ever existed
have regulated in ways that are in commensurate with genuine libertarianism.
Now again, I'm not saying that to make a philosophical
argument against libertarianism. I'm saying it because if the DAO
(29:08):
depends on that libertarian theory, then a lot of us
think that as a predictive matter, it's way more likely
the taos will in fact be subject to radical regulation
and therefore won't be able to achieve they're somewhat utopian purposes.
Then if you told me no, as a lot of
people are saying in crypto, look, there's nothing wrong with
crypto being regulated. Sure, crypto can be regulated. You know,
(29:30):
at the beginning people said, well, what's great about cryptos
It will evade all regulation. And now as crypto's getting
bigger and bigger and more and more successful, lots of
advocates of crypto say, it's not a problem for crypto
can be regulated. We can we can manage that regulation.
And crypto's got all kinds of other valuable functions other
than the evasion of regulation. So I guess what I'm
trying to figure out is is that where are DAWs
(29:52):
different in some way or is it like crypto where
of course there's still lots of crypto people who would
like no regulation to exist, but lots of advocates of
crypto have sort of accepted the reality of future regulation.
So both in cryptocurrency and in DAOs, you are established
a layer of human society that is beyond politics. And
(30:15):
this is a weird thing to say and to hear,
because it's not really existed before a smart contract, you
cannot regulate it. Or, to be more precise, politicians can
write whatever rules they want, and the smart contract is
oblivious to them. It will execute according to the code,
no matter the rules that politicians write about it. In
(30:39):
the same way that if if I write rules about
how the dust on the moon should settle, it doesn't matter.
The dust on the moon shall settle according to the
laws of physics, and the rules within a cryptocurrency protocol
will execute according to the rules of the code the
code is. This is just a clarifying question, not an
(31:00):
argument question. But on the clarification side, isn't it the
case that there has to be a distributed network of
computers on which the code runs, unlike the laws of physics,
which I mean, they need some substrate. We need to
live in the universe as it's presently constituted. But if tomorrow,
you know, all computers in the world went down, or
if all states in the world that were capable of
(31:22):
hosting big enough servers to run a global network regulated
and shut down these smart contracts, they would stop, right.
I mean they're dependent on distributed computing, right, correct, and
certainly not quite like the laws of physics, not quite
in that. Yeah, they do have prerequisite technology that exists.
(31:42):
But if the argument against cryptocurrencies functioning, or against you know,
smart contracts and DAW's functioning, is that maybe all computers
in the world will shut down, we're already talking about
some kind of horrible dystopia in which, you know, most
of humanity is dying from starvation. Anyway, I didn't mean that.
I meant what if all states where there are enough
big server farms to host distribution insisted on regulation or
(32:08):
where or in a world where all states regulated their
citizens sufficiently to bar them from engaging in the conduct
that is required to keep the thing running. Yeah, I mean,
you know, most states have made it illegal to consume
certain kinds of narcotics, and yet those narcotics are everywhere.
So so what but that's not Yeah, but that really
(32:29):
doesn't seem analogous to a lot of physics. That just
seems like governments are incapable of complete enforcement. Well, what's
analogous to the physics is that the code will execute
if the system is turned on. And you can debate
about whether a government can turn the system off or not,
and that's a fascinating discussion, but practically speaking, these networks
cannot be turned off, or more specifically, the ones that
(32:51):
are the most robust are the furthest away from being
able to be turned off. You know, Bitcoin cannot be
turned off at this point. Ethereum cannot be turned off.
If you start a new crypto platform tomorrow and it
has it's just running on your own computer or like
you and your three friends, obviously that one's going to
be a little more fragile and susceptible to some kind
of intervention. Eric, tell me, what are some advantages and
(33:15):
benefits of taos that are distinct from being able to
evade existing regulations. So, yeah, it's not I don't want
this to come across as like the point is to
evade regulations. The point here is that you remove frictions
which have been built up by society, which are arguably
(33:35):
harming the purpose of what many organizations try to do.
If you're a you know, if you're a for profit business,
You're really there to build some kind of product or service,
serve customers, and earn a positive return on that. So
you should care a lot about how happy the customer is.
You should care a lot about how good your product
(33:58):
is and how resilient it is. These kind of things
are at the core of any business, and any one
of your listeners who's ever run a company, you know,
at any management or executive level, will know that so
much happens in a corporation which is not at all
about serving the customer or about making the product good.
It's about all this other like cruft that has built up,
(34:20):
some of it regulatory, some of it just habitual. Some
of it has to do with like you know, IP
law and that kind of thing. There is a whole
world of friction that is built into corporations today, and
all of that disappears when you're in the doo world.
And this does not mean that dows are utopian. They
(34:41):
have other problems, right, They're not perfect. They introduce new
new issues that a centralized corporation may not suffer from.
But having lived through building a centralized corporation and being
in the midst right now of transferring this into a doo.
Speaking of my own company, Shapeshift, I have just seen
(35:02):
the degree to which we can focus our time, attention,
and resources on serving the customer and building the product
has increased dramatically, and that is I think fundamentally highly
valuable to all of society. I want to close by
asking you about the egalitarian sort of aspirations here that
you've mentioned a few times, specifically in the context of
(35:23):
your company. So, in preparation for our interviewer, I read
you're fascinating, fascinating medium post about how you were going
to go about transforming shape Shift into a DOO. I
guess you must have had some unconscious expectation of that,
given the name of the company with shape Shift. But
but you say somewhere towards the end of the post,
listen full disclosure. I'm going to be the largest holder
(35:45):
of this new currency, I think at five percent of
the total unlocking over some period of time. Others who
are your co founders or your close associates will also
have larger blocks. So coming right in the DOW has
some features that other corporations might have, namely that some people,
just from the get go have more say in how
(36:10):
the entity is conducted than others, And it sounded like
from what I read, at least in your case, that
didn't give you more than five percent of the voting rights.
You just had five percent of the voting rights alongside
five percent of the currency. But one could imagine people
organizing DAWs where there were differential voting rights for different
kinds of ownership. You could have a governance token that
(36:31):
was set up more like shareholder voting, so you could
have different classes of governance tokens. Why wouldn't we expect,
and in fact, why wouldn't eleborate libertarian welcome the emergence
of radically non egalitarian structures in the now world, where
it wouldn't be that everyone would have the same say,
Some people would have much greater say than others, and
(36:52):
it would be consensual in the same sense that any
economic relationship is consensual. Right. I need a job, but
I can negotiate at arm's length with Uber. But I'm
not going to get very far if I say to Uber,
you know what, if you want me to drive, you
have to pay me a lot more than everybody else
gets paid. Right, I don't have a lot of negotiating
power in that situation. So why wouldn't we just get
at the re emergence of exactly the same kinds of
(37:12):
societal inequalities here that we get in the real world
over time. And I guess maybe there'd be nothing wrong
with that from your perspective either. I don't mean to
say that would be a bad thing. Yeah, I think
there's a lot of kinds of inequality that are not wrong. Right.
So an obvious example, if two people are hanging out
and one guy sits on the couch doing nothing, and
the other person goes out and does something productive, that
(37:34):
person is going to end up with something more than
the one sitting on a couch, right, And this is
a very simplistic example, but I think most people would
agree in that in that example, the outcome being unequal
is not an ethical problem. If you imposed something to
cause the outcome to be equal, even despite that difference
in their input, that would arguably be unethical. So I
(37:56):
have to be careful about this inequality perspective. Certainly, doaos
won't suddenly make everyone economically equal. What they do, however,
is they give everyone the same set of rules. The
rules can't be changed by you know, like bias. So
here's a good example in the Shapeshift dow. A lot
(38:17):
of the people that contribute to it and are part
of it are pseudonymous. I don't know. I've never seen them,
I don't know who they are, I don't know what
country they're in. I don't know if it's a male
or a female, and it doesn't matter. They're just an identity,
a pseudonym on the Internet, and they're based on their merit.
Their contribution is based on their merit. So a lot
of inequities that you see in a corporate setting that
(38:37):
people rightly point out as wrong, you know, certain biases
or something, you know, racism for example, there's no racism
in Adao, right because anyone can take whatever identity they want.
They can assume full pseudonymity. They can be public about
who they are, what they look like, their background, or
they can keep it all private. Coming from a position
where you care about equality for the right reasons, that
(38:58):
should be very encouraging. Someone should look at that and
be like cool. You know. Finally, there's a system of
economic organization that removes a lot of these biases, and
it doesn't remove them through some kind of government diktat.
It removes them through a new a new method of
interaction between people. Yeah, I mean, I think I hear
the appeal of that for sure. At the same time,
(39:19):
although the doo is not a human, the people who
make the dour humans and the people who invest in
the dower humans, then the outputs are also going to
reflect inequality. And that doesn't mean that the process is racist.
It just means that the process replicates the inequalities which
we already have in a society that has historically been
inflected by racism. So it's hard to and it's not
(39:42):
that dowers are unique in this problem that it's that
you can't always escape the results of the past just
by entering into a new domain. Yeah. Yeah, doos don't
solve history, but neither does anything else, right, So what
are we comparing it against? What dows do is allow
(40:02):
people to have transparent economic organization with no center, and
that is a fundamental new primitive of humanity. DAOs did
not force anyone to do anything. They're purely voluntary for
people who care about results and interacting with other people
toward productive ends, and doing it in an open, equitable
(40:23):
way in which the rules are clear, open source. This
is something really beautiful, but it doesn't solve world poverty.
It doesn't solve all iniquities of the past, but neither
does a centralized corporation, and certainly neither does a government. Well,
I think on another occasion it would be fun to
talk about the empirical side of this, and we might
not see exactly eye to eye, but what I want
(40:44):
to say is, thank you for a really helpful walk
through of the basic principles and some of the philosophical
consequences of the dao structure. I learned a lot, and
I very much enjoyed the conversation, and I'm super grateful too.
Thank you so much for your time. Thanks. Yeah, this
was really good. Happy to be on the show. We'll
be right back. I was really fascinated by this conversation
(41:17):
with Eric Vorhees, and I really am grateful to him
for sharing it with me. On the one hand, he
really helped me understand some of the basic structure of
what a tao is and how it functions, and I
hope that his explanations were of value to you listeners
as well. I remain interested in trying to figure out
for what taos are good and for what taos may
(41:38):
not be good. I am fascinated by the question of
whether they are more or less efficient than traditionally existing corporations,
and whether they are more or less flexible than those corporations.
The other theme that came out very strongly in this
conversation was the question of whether taos ultimately are connected
to a libertarian ideal of evading governmental regulation. Eric seems
(42:00):
to think fairly strongly that they are. It's not that
he's saying that the only advantages of taos are its
ability to avoid regulation, but he is saying that what
makes a doo worthwhile distinctive, unique and original, and to
his mind, attractive, is its capacity to array people in
freely entered into contracts free of what he calls government coercion,
(42:21):
but I and others would think of as governmental regulation.
I was reminded of the fact that in the crypto
world as well, many of the early innovators were very,
very focused on the libertarian and I would say, to
some degree utopian aspects of the idea of currencies that
could operate outside of governments and outside of states. My
(42:42):
own view is that there may be many benefits to
taos that have nothing to do with its capacity or
lack of capacity to evade regulation. I promised to continue
to explore this issue in future episodes until the next
time I speak to you. Breathe Deep, think, deep plots,
and with the holidays upon us, definitely have some fun.
(43:05):
If you're a regular listener, you know I love communicating
with you here on Deep Background. I also really want
that communication to run both ways. I want to know
what you think are the most important stories of the
moment and what kinds of guests do you think you
would be useful to hear from. More so, I'm opening
a new channel of communication. To access it, just go
(43:26):
to my website Noah Dashfelman dot com. You can sign
up from my newsletter and you can tell me exactly
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(43:48):
is Sophie Crane mckibbon. Editorial support from noahm Osband. Theme
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(44:09):
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