Policy makers: let DAOs play with Nathan Schneider

My name is Nathan Schneider. I'm uh a professor of media studies at the University of Colorado Boulder. Uh who who here is from Colorado? All right, all the rest of you all, welcome. This place is fun like this, but it's even more fun when there's a bunch of cows and horses and fiddles here.

Uh come back for the uh for for that show, too. I want to talk a little bit about the moment that we're in in terms of our relationship between the world that is being created in crypto ecosystems and the existing policy environment, the relationship and the recognition. This is a really important moment because the hammer is coming down hard, right? FTX, SPF, all the three-letter words, right? mean that policy is going to matter in a really really big way um in the world uh that that we're all building right now.

And I'm really concerned about that. And that concern comes out of the reason why I'm here, which is that I'm interested in collective ownership, in economic democracy, in solidarity economies. I've been working with cooperatives which are like Dows before Dows for a long time and let me tell you the current policy environment for them is not working. I got some friends in the audience for instance who know that uh uh firsthand is that right now cooperatives in the digital economy and in many other economies businesses that are owned and governed by the people who use them are getting creamed because we have a policy environment that doesn't direct funds to them that doesn't isn't made for them and I worry that Dows are vulnerable to the same problems that if we simply apply the existing policy infrastructures to the kinds of things that many of us here are trying to build. It's not going to go well.

And I've seen that firsthand with cooperatives. I don't want to see what's happening with cooperatives now also happen to the better kinds of Dows. So far, Dows have been a really important space for the development of experiments around how people self-govern. This is super important. I you know again I work in the in the world of cooperatives also sites of self-governance there isn't as much creativity happening there as there is happening in Dows right now we need to make sure that that space of experimentation is uh can continue um and can continue in healthy ways can continue in ways that will really share value and power with the people who need it most the people are producing uh the ideas and the work uh that is uh uh you know driving um the things that we love.

And I'm going to propose a kind of controversial strategy for how we might seek to achieve those two ends. First, making sure that we have spaces in policy to protect the good things that we're doing. And second, that we encourage in our own spaces the good things, the the shared ownership rather than a replication of yet another centralized investor controlled tech economy like the one we already have and that's the one where that we're in the process of getting right now. Just as in web 2, VCs and other forms of centralized capital are taking control of this ecosystem in really really big ways. One historical metaphor for thinking about this is a is a a a much hated law that is currently before the Supreme Court, section 230.

This is what has enabled uh online social media to exist. It protects um platforms from being liable for the content that others post on it. Without this, we would not have a web two. I think we need to think about h what web 3 needs in order to create an appropriate sandbox, a place for um Dows to play and to continue the space of experimentation that has been so exciting to so many of us while also making sure to protect against uh the the the very real abuses that can enter into this space. A vital um uh uh point of pivot for this question is around recognition.

And this is happening in a really big way right now. Just uh uh very recently, I learned about it yesterday, Utah just adopted a new law to permit um uh uh recognition of Dows uh through a model called the Koala model law. Here in Colorado, we've really excelled at this. This whole conference is run on a cooperative uh model using a a Colorado statute called a limited cooperative association. Sporkdow is a cooperative registered with the state of Colorado.

That's been a really wonderful thing that recognition gives us a lot of power enables us to translate tokens into in-person conference and um we need to take seriously how that interface uh occurs. We also need to provide cred credible assurance that um that the the space that we get to play is um not going to create SPF FTX type abuses. One vector that people are exploring is this question of incorporation or recognition. Do we incorporate like we do here in Colorado with the LCA model or do we simply get the state to recognize Dows as legal persons as this new model in uh in Utah enables? Regardless of the model, I think it poses, you know, in each uh uh approach, you need some way for the things happening on blockchains and in Discords or wherever um uh the DAO's life is happening to be legible to the rest of the world.

I'm going to offer a few strategy a few kind of baseline um uh rules that I think are necessary for this kind of approach. The first two I think are kind of obvious. The third might not be. The first is transparency of operations. So this just means like a public company that it is legible what a DAO is doing.

Its transactions are visible. its governance process are visible. It can be audited both by humans and by machines. This is something that's really a potential competitive advantage here. We can do that a lot easier than other kinds of entities.

And so this should be kind of a no-brainer. Actually, right now, uh I work with the metaggovernance project. Our Dowstar project is working on developing standards to make this easier for DAO factories to make transparency a built-in feature. Second, sufficient decentralization. This is taking a a suggestion from the Securities and Exchange Commission, which I think did a very reasonable thing in suggesting that for to be exempt from securities, you need to um have demonstrate that your protocol, your token has decentralized ownership, that you're not just pretending to be decentralized because you have a token, but that in fact ownership is distributed widely.

Um, and I think we need actually higher standards uh for this to to expect that if you're going to be recognized as a as a as a DAO and accorded the the the rights to um uh to operate and to self-govern that you need to demonstrate that it's not just one person running the show creating a kind of shell. This is the one that I think is going to be uh uh more dangerous. I think that we should consider insisting that a real DAO is a DAO controlled by the people who participate in it, not by investors, not by people who are simply seeking economic gain. They can participate as investors. They can participate financially, but they don't have control.

This is something that we do in cooperatives all the time. For instance, Namaste Solar, a worker-owned co-op that installs solar PL panels here in Colorado. When they raised funds, they used a mechanism called preferred stock. Investors get their returns there. Those returns were capped, but those workers never lost a bit of control.

Interests were aligned, not divided. I think we need to uh expect that if Dows are going to be uh accorded rights as um spaces of self-governance and decentralization that they also be spaces of participant control. Another benefit of this for Dows is that one thing we learned from the cooperative world is that if you have participant control, there is a an opportunity for a securities exemption. So it it becomes another gateway for accessing the superpowers of community ownership. But I think we need to start drawing some lines.

Investor ownership is sinking its teeth too deeply into this space and we need to make clear both to our to each other and to regulators that this is going to be uh a world that is controlled by participants where value is going to participants. Finally, one thing that we really need in the cooperative world in the in the rest of the economy and also here is real investment funds designed to support community ownership. We've done this with rural electric cooperatives here in Colorado. There are 40some electric companies that are owned and governed by the people they serve because we have federal provisions to finance those things. We need to recognize that we're not going to get community ownership unless we have finance for community ownership.

So both in in public spaces and in the development of our um of our own ecosystem, we need to be intentional at that about that. Looking at examples like variant fund for instance that are specifically designed around a thesis for enabling community ownership. All of this is practice. We are at very early stages here, but the rules and norms we set for ourselves right now are going to matter potentially for generations. Let's take this very seriously.

Look out for the dangers ahead and uh uh design for the world that we want to build. Thank you. Look, uh I'm going to get off the stage. If anyone wants to chat, I'll be over there. [Applause] Bey [Music] target.