Blockchain for Decentralized Autonomous Organizations (DAO): Covid-19 Impact

The persistent Covid-19 pandemic is challenging all our norms. We are starting to see huge financial losses in many sectors. But most importantly, we are witnessing mega-shifts that will have profound impacts, once the dust settles. A recent article from McKinsey clearly articulates the post-Covid-19 cultural revolution impacting organization of all sizes:

Many leaders are reflecting on how small, nimble teams built in a hurry to deal with the COVID-19 emergency made important decisions faster and better. What companies have learned cannot be unlearned—namely, that a flatter organization that delegates decision making down to a dynamic network of teams is more effective.

As we discussed in an earlier article – May 2020 (has it been that long?) – the Covid-19 lockdowns and shutdowns of businesses and government will change us – are changing us. In this article, we are revising and expanding upon an essential trend powering autonomic enterprise: Decentralized Automation Organizations.

The Covid-19 pandemic is a Black Swan event par excellence. Many industries such as manufacturers, pharmaceutical companies, and restaurants re-defining and re-organizing themselves for Covid-19 products and services. Innovative startups are re-aligning their services to accommodate constantly changing Covid-19 constraints.

Becoming an autonomic enterprise in motion is not an option

Recently, Cisco’s former CEO, John Chambers, indicated that 50% of Fortune 500 companies would not exist in 10 years. The importance of Culture got accentuated in the post-Covid-19 era. Transformation starts with Culture. The conventional “Org Chart” did not inspire agility, change, or empowerment in the pre-Covid-19 age. Post-Covid-19, it has been challenged and stressed to the limit. It is a model that is no longer working – especially with the newer, technologically savvy, independent-minded, and entrepreneurial younger generations.

The Covid-19 organizational trends encompass smaller & flatter org charts, virtualization, and innovative teams – all with an added emphasis on integrity and empowerment.

Flat Organizations

Organizations are becoming flatter – often not by choice. More than ever, the lockdown, interruption of supply chains, and the emergence of virtual work shifts are accentuating the need for innovation, entrepreneurship, and autonomy, especially through challenging the archaic hierarchical organization structures towards more decentralization and innovation empowerment at the “edges.” 

The top-down hierarchical organization structures are tired and passé. They do not inspire innovation or digital transformation. Employee empowerment has been elusive and hard to achieve within a rigidly hierarchical organization. 

Flattening organizations with increased communication, collaboration, and empowerment is an irreversible trend

Jacob Morgan contrasts several emerging organizational models in the Future of Work. Emerging models include flat and holacratic organizations (vs. bureaucracies and hierarchies – and we know how well those functions!). Challenging traditional management around circles for specific projects and objectives is both liberating and transformational. The Covid-19 pandemic provides a wonderful opportunity for organizations to re-assess their rigid structures and flatten their organizations.

Virtuality

Virtuality is another irreversible trend that has gained incredible traction in the Covid-19 era.  Collaboration and virtualization tools such as Zoom and Slack – often essential for work-from-home-  have had an incredible run: 72% of consumers had their first-ever virtual care visit during Covid-19. The virtuality shift is complex and multi-faceted. The nine-to-five in the office “normal” is being reset: Employees want greater flexibility in the percentage of time they spent at home vs. office – the breakdown is 51% office and 49% home.

 Virtuality also has an inter-organizational dimension. The notion of “virtual enterprises” or their predecessor “virtual corporation” has been around for a while. The core idea is the ability for organizations to deliver customized products and services quickly and globally. This was an amazing vision coming from the early 1990s. Another term that is used synonymously or embedded in the connotation of a virtual enterprise is the “extended enterprise.” Basically, “a loosely coupled, self-organizing network of firms that combine their economic output to provide products and services offerings to the market.”

The extension beyond the organizational boundaries involving inter-enterprise collaboration is becoming critical in the Covid-19 era. The extended enterprise needs to function as a coordinated whole – preferably seamless to the consumer or customer. The core premise is creating very flexible and dynamic organizations that can rapidly satisfy customers’ or consumers’ demands and needs.

As Mike Welsh points out: For a virtual organization to function, geographically dispersed teams need the ability to communicate effectively. But that’s only half the story. Decision-making has to be delegated and decentralized as well — and that means using data to shake up your culture.

How could organizations achieve intra- and inter-enterprise decentralization?

Enter Blockchain and Decentralized Autonomous Organizations.

Blockchain

As of the writing of this article, Bitcoin (BTC) has hit $17,000. It is incredible to realize that this successful cryptocurrency’s governance is decentralized. Blockchain is the underlying technology for Bitcoin and most other cryptocurrencies. But Blockchain is much more than that. Through intra-enterprise transactional collaboration, Blockchain could empower geographically distributed networks of teams.

As we discussed in Blockchain for Master Data Management, Blockchain can also be a good backbone for many extended enterprise applications. For instance, the Covid-19 pandemic highlighted the vulnerabilities in supply chains. Blockchain is one of the critical technologies that could address Supply Chain problems.

The digitally extended enterprise can use all parts, products, suppliers, warehouses, inventory, documentation, tracing, and financial transaction masters stored on the Blockchain to function as an efficient and optimized pipeline. Through Blockchain, organizations can enact governance, share data, and make autonomous decisions on the Blockchain.

Decentralized Autonomous Organizations (DAOs)

What are DOAs? Here is a good definition: “A Decentralized Autonomous Organization (DAO) is an organization where the rules of operation and organizational logic are encoded as a smart contract on a blockchain … DAO’s […] formulation combines blockchain technology, organizational structures, legal entities, workflow execution, governance/voting, incentive structures, and contribution/work.”

Decentralization is at the core of the crypto-currency revolution, and its importance is increasing in the post-Covid-19 era. The Bitcoin Foundation’s Manifesto states: “the technology is completely decentralized, and the founder does not head up an organization that sets the strategy, governance, and standards.” In fact, Bitcoin was the first Decentralized Autonomous Organization (DAO). There is no centralized hub or authority that owns and runs “the Bitcoin.” The governance is by consensus through Bitcoin Improvement Proposals (BIPs). Contrast this how various solutions are governed in, say, centralized financial organizations such as large Banks, with often archaic and rigid hierarchical structures. Now, there are many DOAs and a robust DAO ecosystem.

If you have been following Blockchain and cryptocurrencies – especially Ethereum – you would have been exposed to Decentralized Autonomous Organizations (DAOs). The governance, bylaws, and operation of a DAO use Smart Contracts executing on the Blockchain. In other words, code running an organization in a decentralized and distributed network. This approach has several advantages. It allows all the shareholders and employees or other stakeholders to agree and vote on decisions quickly. Since actual code is executed for running the organization, it leaves little to the imagination to interpret the governing policies. Furthermore, no central government or authority is regulating a DAO. As we shall see, this is also a weakness of a fully autonomous organization executing on the Blockchain.

“DAO” was introduced by Vitalik Buterin – the inventor of Ethereum. As he describes it in a decentralized organization guide: “it is an entity that lives on the internet and exists autonomously, but also heavily relies on hiring individuals to perform certain tasks that the automaton itself cannot do.” In his taxonomy of automation, including automated agents through AI, Buterin characterizes a DAO as ‘autonomous at the center’ but ‘humans at the edges.’ Thus, the operation, governance of the organization are done through smart contracts executing on the Blockchain. But humans are also participants and can be involved in A DAO is a Blockchain application.

There are many advantages and desirable features of DAOs. But there are also severe vulnerabilities and disadvantages.

Blockchain is about decentralization. Therefore, it is not surprising that Blockchain communities and cooperatives seek and pursue non-traditional models for cooperation.  

• Binance is one of the largest cryptocurrency exchanges. According to Cointelegraph, “the business has been operating as an international, decentralized team for over three years already. Remote working is an essential part of the Binance culture.”
• Open Source in software has always fostered and promoted democratic collaboration. These cultural trends are also giving rise to several community initiatives. Open Source communities are organizations that encourage communication and cooperation – which are, in essence, democratic and “flat.”
• The Ethereum Foundation encourages collaboration for “development and education to bring decentralized protocols and tools to the world that empower developers to produce next-generation decentralized applications (dApps), and together build a more globally accessible, more free and more trustworthy Internet.”
• Another exciting initiative under the Linux Foundation – that promotes Open Source projects, among them the umbrella Hyperledger collaboration for Blockchain projects.

DAOs go beyond mere consortia and collaborations and create governance and sharing capabilities on the Blockchain via dApps and Smart Contracts.

DAO Ecosystem

There are many categories of products and services that support Decentralized Autonomous Organizations. The following illustrates the DAO Ecosystem.

The  George Samman and David Freuden report on DAO: “A Decentralized Governance Layer for the Internet of Value,” provides a good overview of the various categories, tensions, and tradeoffs of DAOs.

The following provides the descriptions for the DAO Ecosystems categories:

• Non-Tech Grants: Giving out grants for social, economic, political, and community-based activities.
• Investment DAOs (for-profit): DAOs that invest capital into projects.
• Decentralized Governance: These companies are specifically working on building out tools and infrastructure to enable decentralized governance capabilities to be built into DAOs.
• DeFi DAOs (for-profit): These DAOs are building out different parts of the Decentralized Finance stack, aka “money legos.”
• Protocols / Organizations: These are the underlying protocols DAOs are being built on top of. Organizations/Companies are also creating DAOs for token holders.
• DSaaS (DAO Software as a Service): Software platforms that provide infrastructure to build out DAOs.

Here are some organizations from some of the DAO Ecosystem categories:

• DAOX: In the Non-Tech Grants Category: “Crowdfunding campaigns are launched using the Daox Protocol. Each DAO holds the raised funds and is managed by the transparent voting of its token holders.”
• Kava: In the DeFi category: “Kava is a multi-asset DeFi platform that offers stablecoins, loans, and other financial services for users of major cryptocurrency assets including BTC, XRP, BNB, and ATOM to name a few.”
• Dash DAO: In the Protocols/Organizations category: “In the Dash DAO, decisions are made by the masternode network, a decentralized and permissionless network that anyone in the world can be a part of.”
• Pocket: In the DSaaS category: “Pocket Network’s mission is to ensure the sustainable decentralization of blockchain infrastructure…the most complete system for blockchain APIs, by way of its all-inclusive relay network and crypto-economic protocol.”

DOA in Post-Covid-19 Era

Two major cultural themes impact the emergence of DOAs in this post-Covid-19 era: empowerment of the workers from the virtualized work-from-home experiences and the need to optimize cross-enterprise collaboration in the context of virtual or extended enterprises. DAOs address both these significant trends.

It is becoming clear the challenges organizations face to become responsive, agile, or – as our title suggests – autonomic are cultural. As the ecosystem illustrates, slowly but surely, DOAs are becoming a reality.

Therefore, the advantages of DAOs can be summarized as follows:

• DAOs Empowering the Modern Digital Worker: there are irreversible trends in workers or employees wanting to be more autonomous to become creative, productive, and enjoy their work. We saw that this not a new trend. It is one of the main characteristics of the cognitive knowledge worker. There are several DAOs, and others will emerge. However, government liabilities and recognition are still a considerable challenge – and will be for the foreseeable future. Blockchain’s most likely scenario for cultural change will be sub-organizations that leverage elements of a DAO approach. Smart Contracts for organizational, worker, shareholder, or even customer empowerment can accelerate and improve decision-making: the crowd’s wisdom

• DAOs Enabling Inter-Organizational Collaborations: There are mostly yet to be discovered opportunities for Blockchain assisting flat organizations. Supply Chain is one of the killer applications leveraging Blockchain. The extended enterprise involved in source-to-target of the supply chain needs to function as a coordinated whole. DAOs support the governance, visibility, and information as well as transaction sharing across the value chain. The core premise is creating very flexible and dynamic organizations that can rapidly satisfy customers’ or consumers’ demands and needs. DOAs can achieve this. Blockchain is essential for digital transformation. There is no other technology on the horizon that is decentralized, fault-tolerant, secure, and reliable for inter-enterprise master-data and information sharing.