DAOs are APIs for Organizations

Back when I worked for Twilio, I gave the first onboarding session every new employee would go through called “Twilio 101: How Twilio Works.” Every employee went through this talk their first day at Twilio, no matter what department they were in, and the goal was to give everyone a high-level explainer of what Twilio actually did, how it worked in at a technical high-level, and its placement in the market.

two clouds, the internet and telephony, bridged by Twilio

It ended up looking something like this at the end of the session. I explained that the Internet (the web) was this cloud that was really easy to work with:

  • It has a universal language (HTTP)
  • It was cheap (free, really) to get started with and had effectively no capital requirements for new entrants
  • Scaling operations had become as simple as moving a slider on a settings screen

Then, I explained there was this other, much older cloud: Telephony:

  • This cloud had a ton of different languages (SIP, GTM, etc.)
  • The hardware involved was very expensive and therefore new entrants needed a lot of capital to just get started (increasing risk)
  • Scaling operations required installing new hardware which was capital intensive, risky, and took a long time

So Twilio, in essence, was a product that simply took the messy Telephony Cloud and made it as nice to work with as the Internet Cloud.

The Twilio API takes a mix of software, hardware, and business problems that developed over a century in the telephony space and reduces it down to a pure software problem — and software gives organizations asymmetric abilities to scale. Now, instead of a large company having to spend millions and two years setting up a new call center to anticipate future needs, they could simply use Twilio SIP Trunks and scale up and down their call centers instantaneously – only paying for what they need that day.

two clouds, the internet and human organization, bridged by DAOs

Decentralized Autonomous Organizations (DAOs) can be thought of as an API that turns organization coordination problems into a pure software problem, much like the Twilio API with telephony. They take the messy world of human-driven organizations, with its multiple languages, disparate legal systems, administrative cost overhead, and human error, and use smart contracts and crypto economics to reduce them into software problems.

Programmable Organizations

Using Twilio means that instead of needing to be an expert in SIP and PBX boxes to launch a call center, all you need is beginner-level scripting ability in a language like Javascript. DAOs will make it possible to no longer need to be an expert in politics and human resources to launch an organization. All you need is an idea people can rally around, and some code!

Depending on the level of socialware your DAO use-case relies upon, you will still need leaders that are good with people and politics in the organization, just as you eventually need more experienced engineers to do more advanced things with Twilio’s APIs. But importantly, these are no longer the only people who can start successful organizations.

Less Trust Needed = More Scale

There are many types of organizations that wouldn’t be practical using conventional human organization, but DAOs can make possible.

For example, let’s say I wanted to create an organization whose purpose is to collectively bid on a limited edition movie prop at auction. In a conventional method, I might form an LLC and open a bank account, and perhaps use a crowdfunding platform to allow people to gather funds to make the bid collectively. However, there’s a large amount of risk here, because I could very easily be a scam artist, lying about who I am and my intentions with the intent to just run with the money (or simply mis-spend it and “never get anywhere”).

Sure, you could call the police and hope law enforcement tracks me down, but depending on the amount raised it may not be a high priority. Because this is a pretty obvious risk, the average person is going to be very skeptical about giving money to my crowdfund — even if they are very interested in the actual goal. The barrier to entry to starting this kind of project is rather high. I would need to have an established reputation in public as a trustworthy person in order to get enough people to trust me in order to pull this off!

This is because enforcement that I will do what I said I would do with the money collected happens after the fact, and with a system that has limited resources and reach.

Code as Law

Now, what if I instead formed a DAO to bid on this item? Let’s say, that this item was being sold as an NFT, that represents ownership of the movie prop. It’s easy to imagine a smart contract that is programmed to allow anyone to contribute money (in crypto token form) toward a collective pool to bid on this NFT — and ONLY bid on this NFT. This piece of software can be programmed such that if we fail to win the item, we all get our money back.

In this scenario, you no longer have to trust me in order to participate! In fact, anyone (even anonymous people) can create such a DAO instantly and anybody participating can 100% trust that their money will be used solely for the purpose of bidding on this item, and nothing more (assuming there’s no bugs in the code, of course).

Party Bid app

You don’t actually even have to imagine this kind of DAO: I’m just describing Party Bid which is routinely used to collectively bid on high value NFT auctions , and has been for a while now. When an auction is won, every member of the DAO (in this app, they are called “parties”) gets a crypto token representing their “share” of the item. In order to sell the item later, a majority of these tokens must vote to do so — there is no way to circumvent this, it’s enforced by code and math!

Code at the Core, Humans at the Edges

This is the “autonomous” part in the DAO acronym: humans are still very much involved, but they set certain rules in place when the organization is formed that are then enforced by unbreakable code. This allows for much larger scale than would be practical with organizations where enforcement of rules depends on an overworked legal system that can only act after someone has already broken the rules. If you think in terms of DAOs = programmable organizations, just as Twilio = programmable telephony, a world of possibility unfolds before you to vastly improve the human ability to coordinate and create a better world.

If you think DAOs need to leverage smart contracts and code-based autonomy a lot more and want to connect with others who think the same, and are working in the Ethereum ecosystem, DM me on Telegram @the_carlosdp