Web3 has given rise to a number of innovative business models. In particular, decentralized autonomous organizations (DAOs) have started gaining traction as Web3 and the creator economy comes to fruition.
Natalie Salemink, CEO and founder of Prismatic — a tooling and treasury management platform for DAOs — told Cointelegraph that DAOs are internet-native organizations that utilize smart contracts to facilitate coordination and governance in pursuit of a common goal.
When it comes to traditional businesses, though, one of the most interesting aspects a DAO structure can provide is leadership based on computer-generated code rather than individual authority. The idea of operating a business without any central governance has become especially intriguing to brick and mortar companies struggling to incorporate fair rights for workers.
For instance, Starbucks, Amazon and Apple employees are currently uniting across America to form unions to ensure that retail workers receive fair benefits and humane working conditions. Yet, some members of the Web3 community believe that DAOs could serve as another way for employees to receive equal representation.
For example, Daniel Carias, co-founder of TheCaféDAO, told Cointelegraph that TheCaféDAO seeks to disrupt the corporate coffee shop model by serving as one of the world’s first brick-and-mortar business DAOs. “The idea for a brick-and-mortar DAO developed from a Reddit post I posted in August 2021,” said Carias.
Given the unique nature of a brick-and-mortar DAO, Carias’s Reddit post caught the attention of several other individuals who agreed that a physical DAO, rather than a digital DAO, could be an innovative business model. For instance, Dustin Tong, who also serves as the co-founder of TheCaféDAO, told Cointelegraph that Carias’s Reddit post was the only search result he found when researching “brick-and-mortar DAOs.”
After discovering the post, Tong joined TheCaféDAO’s Discord channel, where the community eventually decided to create a physical coffee shop based on a DAO governance model. According to Carias, TheCaféDAO was established to solve a real-world problem rather than just serving cups of coffee to a community of people who believe in Web3 models:
“We are solving a societal issue, which is how to give workers true ownership over their work. I believe that a DAO structure could help ensure this. I know that worker cooperatives and labor unions currently exist, but I believe that DAOs could serve as a happy medium.”
Like traditional DAO protocols with clear goals, voluntary participation and distributed ownership, Carias explained that TheCaféDAO aims to provide ownership to anyone who enters its coffee shop. The first instance of this will be demonstrated at TheCaféDAO’s pop-up taking place at the Seattle nonfungible token (NFT) museum from April 30 through May 1, 2022. “Customers who purchase one cup of coffee can immediately become co-owners of TheCaféDAO and steer the future of the business,” explained Carias.
Tong added that while the economics behind TheCaféDAO is still in development, the DAO will use a combination of Ethereum signatures and blockchain technology to ensure that everyone who makes a purchase at the Seattle pop-up location will be offered ownership of the DAO. He said:
“We are starting off by tracking every purchase made using Google Sheets. We know this is centralized, but we are going to be very public about each transaction. We are also providing a simulated distribution of our coffee tokens to everyone who makes a purchase at our upcoming pop-up. The coffee tokens serve as a piece of ownership into the DAO.”
Moreover, Tong explained that holders of coffee tokens will be able to vote on decisions regarding how the DAO is governed and managed.”The DAO can do what it wants with the tokens based on votes from customers and employees. The tokenomics model here is that ownership is created off the profits generated from the DAO.”
Staying true to traditional DAO ideals, Tong also mentioned that DAO ownership is voluntary, meaning that only customers who wish to participate in the DAO can do so. “We are only collecting Ethereum signatures and tying those to a Discord handle for customers who wish to partake in governance.”
While TheCaféDAO is still an emerging concept, Carias pointed out that a DAO model applied to a brick-and-mortar business demonstrates the flaws in today’s corporate structure:
“Traditionally, corporations are a hierarchy built from the top down, but now we are seeing workers push back and form unions or join existing unions to counterbalance that power imbalance. But, we believe there is another option that no one is talking about yet, and we are trying to carve that out slowly through TheCaféDAO.”
Change corporate governance
Although it’s unclear if TheCaféDAO will be successful, the concept certainly does have potential. Shedding light on this, State Senator Chris Rothfuss, minority leader in Wyoming’s State Senate, told Cointelegraph that the idea behind a brick-and-mortar coffee shop DAO does make sense, even if the DAO itself is not tangible.
“While the shop will serve coffee, the business model with ownership stakes translates to a governance approach based on an algorithmic model as to how decisions are made and how corporate governance is translated through underlying smart contracts,” he said. Given the logic behind algorithmic management models, Rothfuss further noted that he believes DAOs are a natural evolution of brick-and-mortar businesses:
“With a DAO corporate structure, businesses will be able to optimize in a way that wasn’t possible before. Management can be automated in a more efficient way that doesn’t have to directly engage human decisions on a moment-by-moment basis. I do see this as the future and think we will get to a point where almost every business will have DAO components integrated with it, depending on the need.”
Rothfuss helped draft the legislation for DAOs to be recognized as corporate structures, or limited liability companies, in Wyoming. “The first DAO in Wyoming was registered on July 1, 2021. We now have over 250 DAOs registered in Wyoming,” he said. While innovative, the senator further recognizes that DAOs have the potential to bring more opportunities to America’s workforce:
“Nothing provides a better opportunity to bring workers into the value chain while ensuring them with the right to influence outcomes and share in profits or benefits than a DAO structure. A DAO could very well be the union of the future.”
In addition, a DAO structure allows for customers to partake in governance for the first time. Yat Siu, co-founder and chairman of Animoca Brands — a Hong Kong-based gaming and venture capital company — told Cointelegraph that most for-profit companies view customers as a resource from which value must be extracted.
“This is the classic capitalist zero-sum approach based on ownership and governance by a few. But in a DAO, growth tends to both originate and benefit the very group that is typically targeted for value extraction in zero-sum scenarios: the customers,” he explained. As such, Siu believes that DAOs are more likely to deliver value to all constituents involved. “The customers are also stakeholders and, therefore, have the potential to increase standards of equitability and fairness in the business.”
While a DAO structure may provide traditional workforces with greater rights on multiple fronts, these business models will likely take months or even years to develop due to regulations and corporate governance structures already in place.
For instance, Rothfuss shared that the State of Wyoming spent five years passing over 30 pieces of blockchain-friendly legislation to serve as the foundation for enabling DAOs to be effective in Wyoming:
“The work of the uniform law commission in the past year has paved the way for how we’ve been able to do things in Wyoming, but we still have to make sure we are properly reflecting property, currency and the authority of smart contracts under statute to be legally binding.”
That being said, Rothfuss is aware that while other states in America are interested in passing DAO legislation, the proper underlying laws must be in place to accommodate for this growth. “Many states will want to adopt the law like Wyoming did, but will likely have bad outcomes because they skipped to the finish line without doing the hard work,” he said.
In regard to traditional business models, some Web3 innovators believe that DAO structures simply won’t resonate, resulting in slow growth. Sam Peurifoy, CEO of Playground Labs — a company developing DAOs for play-to-earn gaming environments and core contributor to the Kapital DAO — told Cointelegraph that he doubts DAOs will be more common than traditional businesses:
“For DAOs to be more effective than traditional businesses they need to be on-chain, real, full-governance DAOs, not just off-chain Facebook-poll style distributed communities. There's not much immediately obvious application for such real-world entities, yet. But one can imagine a world (terrifying or not) filled with autonomous drones plugged into a sprawling network of smart contracts executing business operations autonomously at the behest of tokenholders.”
Although this may be the case currently, projects like TheCaféDAO are certainly a step in the right direction, even if they take time to develop. Tong explained that while the DAO model may not resonate with everyone, it’s an efficient system for individuals looking to gain ownership within their workplace. “I do believe DAOs are a better way of doing things. They are not easy to form yet and we have run into many difficult decisions, but once we understand how to effectively execute as a DAO this model will ultimately be applied to similar industries.”