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Choir room

Decentralized Autonomous Organisations: reshaping work ahead of the platform-curve?

Decentralized Autonomous Organisations: reshaping work ahead of the platform-curve?

 
Frank Hoogendijk, lawyer at Osborne Clarke/research assistant KU Leuven – Jan Ronse Institute
Division: Law
 
In our contribution/presentation, we will consider a new development in line with the platform economy in more detail, namely Decentralized Autonomous Organisations or DAOs.
The primary purpose of this contribution/presentation is to frame DAOs in the broader (technological) development that resulted in this phenomenon. Then we discuss the features of DAOs and analyse these from a (primarily Belgian) corporate and labour law perspective. Thereafter, the relevance of DAOs for (legal) practice will be considered. Here we also elaborate on a few legal challenges in this regard and attempt to raise some relevant issues for further research.

I. Background: from centralized managed companies over platforms to DAOs

Centralized, hierarchical organisations have long been the dominant form of cooperation in our society. Such organisations are characterised by a central management, a formal hierarchy with defined roles / powers and standardised procedures imposed top-down by the central management throughout the organisational hierarchy.1
However, modern, innovative (often digital) technologies have “disrupted” our society in recent years. The emergence of the platform economy is possibly one of the most important recent disruptions. Such platforms are facilitators/intermediaries and allow numerous new economic interactions. Well-known companies operating these platforms include Google, Amazon, Facebook in the West and Baidu, Alibaba, Tencent in the East (GAFBAT). Nevertheless, also (and perhaps especially) consider platforms in the so-called peer-to-peer (P2P) economy such as AirBnB, Uber, Lyft, etc. These platforms connect consumers so that they can offer goods/services to each other.2 They thereby actually become pro-sumers.3 A common feature of these platforms is that the added value of the platform is connecting the stakeholders (producers, consumers and/or prosumers) to each other and facilitating their interactions in ways that were previously impossible.4 The drivers behind this value creation are thus primarily the platform users.5
The technological developments described above have thus made it possible to “disrupt” numerous existing centralized business and management models. In particular, the latter requires a paradigm shift.6 We can see that, by means of these technologies, a shift began away from a centralized, hierarchical approach to a more decentralized and “flatter” organisational culture.7 Some management methods based on this “flatter” organisational culture are becoming increasingly popular. Consider, for instance, the known Agile & Lean methods. The core concept of these methods is that the current complex (business) world can be managed better by “empowering” small(er) teams by giving them the required autonomy (and responsibility) to take decisions and perform tasks (of have these performed). Instead of having to go through the entire hierarchical ladder within the organisation for every task.8 This would not only improve the time in which decisions were taken but also their quality.9
1 M. FENWICK, W.A.KAAL, E.P.M. VERMEULEN, Why ‘Blockchain’ Will Disrupt Corporate Organisations, ECGI Law Working Paper N° 419/2018, October 2018, 1, https://ecgi.global/sites/default/files/working_papers/documents/finalfenwickkaalvermeulen.pdf.
2 Think initially of UberPop, but Uber has, in the meantime, positioned itself as a professional service provider via UberX. See in this regard: F. HOOGENDIJK, J. VAN HERREWEGHEN, “Recent Judgment Marks a New Era in the Uber(X) Saga”, 21 February 2019, https://www.osborneclarke.com/insights/recent-judgment-marks-new-era-uberx-saga/.
3 R. BOTSMAN, R. ROGERS, What’s Mine Is Yours: The Rise of Collaborative Consumption, New York, Harper Collins Publishers, 2010, 304 p.
4 M. FENWICK, W.A.KAAL, E.P.M. VERMEULEN, “Why ‘Blockchain’ Will Disrupt Corporate Organisations”, ECGI Law Working Paper N° 419/2018, October 2018, 7; P. HINSSEN, The Network Always Wins: Hoe Overleven in een Onzeker Tijdperk, 2015, Leuven, Lannoo Campus, 231 p; T. SALIMI, 2018 and Beyond: Tokens Are Slowly Eating the Firm, https://www.coindesk.com/2018-beyond-tokens-eating-firm.
5 P. HINSSEN, The Network Always Wins: Hoe Overleven in een Onzeker Tijdperk, 2015, Leuven, Lannoo Campus, 202.
6 S. DENNING, Why Mindset is Driving the Age of Agile, Forbes 2018, https://www.forbes.com/sites/stevedenning/2018/08/20/why-mindset-is-driving-the-age-of-agile/#338a326b5631.
7 E.P.M. VERMEULEN, Blockchain Platforms Will Make Us Happier, Medium 2018, https://hackernoon.com/blockchain-platformswill-make-us-happier-8e460eb2ce74.
8 E.P.M. VERMEULEN, Blockchain Platforms Will Make Us Happier, Medium 2018, https://hackernoon.com/blockchain-platformswill-make-us-happier-8e460eb2ce74.
9 H. JACOBS, The future of corporate governance and the role of directors, 26 July 2018, 3, https://www.jacobshenri.be/stories/2018/the-future-of-corporate-governance-and-the-role-of-directors.
Another extremely important aspect concerns the involvement of other stakeholders than the management and employees. The producer, consumer and/or prosumers are also actively involved in value creation and, therefore, also the value of the company.10
Furthermore, people are increasingly working on “projects” on an independent basis, certainly in the IT world.11 These are not only young people (millennials), but everyone who can identify with a type of “project-culture”.12 These projects are sometimes set-up by companies. These projects sometimes lead to a life outside the “traditional” business world. Open source projects, i.e. in which, in principle, everyone can contribute are especially popular. Hence, the dividing line between formal employment and information contribution is therefore becoming increasingly blurred.

II. Decentralized Autonomous Organisations: a next phase of platform thinking

The platform economy has already greatly disrupted the paradigm where a centralized, hierarchical approach was used as a leitmotif. This process is likely to continue and may even be taken to a new level. Blockchain technology and especially smart contracts may be essential in this.13
Decentralised Ledger Technology (“DLT”) or “blockchain” is a technology that may potentially play a major role in the context of this evolution in digital transformation, not only operational or in terms of the business earnings model but also in terms of the (sound) management of companies.14 In this way, there is a move from a centralized, hierarchical organisation model to a platform model and ultimately to a decentralized model. The various steps in this (r)evolution of thinking around the management/governance of organisations may be visualized as follows:

This final step concerns Decentralized Autonomous Organisations or DAOs.
A Decentralized Autonomous Organisation may be described as a computer application that runs on a blockchain, i.e. a decentralized network, in which the management and decision-making rules (“status”) are defined in smart contracts.15 DAOs can be programmed to operate autonomously.16
10 M. FENWICK, W.A.KAAL, E.P.M. VERMEULEN, “The “Unmediated” and “Tech-driven” Corporate Governance of Today’s Winning Companies”, TILEC Discussion Paper No. 2017-009, 2017, 4, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2922176.
11 Engineers and technologists often think in terms of projects. A project is something they work on at their job or in their free time. And they’re probably contributing to several different ones at any given time. (…) The idea behind these projects is that people will collaborate on a peer-to-peer network. It’s about openness and allowing people to contribute as much or as little as they want while maintaining a vibrant ecosystem for people to opt into.” S. RADOCCHIA, Understanding D Corps As The Future Of Decentralized Autonomous Organisations, 10 October 2018, https://www.forbes.com/sites/samantharadocchia/2018/10/10/understanding-d-corps-as-the-future-of-decentralized-autonomous-organizations/#4bb8e20050bc.
12 M. FENWICK, W.A.KAAL, E.P.M. VERMEULEN, “Why ‘Blockchain’ Will Disrupt Corporate Organisations”, ECGI Law Working Paper N° 419/2018, October 2018, 19-21; E.P.M. VERMEULEN, “5 Ways Businesses Can Thrive in an Age of Disruptive Technology, a Millennial Culture and a Sharing Economy”, Venula, 15 March 2017, https://magazine.vunela.com/5-ways-business-can-thrive-in-an-age-of-disruptive-technology-a-millennial-culture-and-a-sharing-5e1db813e0fe.
13 The concept of smart contracts already existed before the blockchain concept. See: N. SZABO, Smart Contracts: Formalizing and Securing Relationships on Public Networks, First Monday 1 September 1997, http://firstmonday.org/article/view/548/469. However, in this article we have started from the concept as defined under section [●], i.e. in which smart contracts are based on blockchain technology. Also see: A. WRIGHT and P. DE FILIPPI, “Decentralized Blockchain Technology and the Rise of Lex Cryptographia”, 2015, 58 p., http://ssrn.com/abstract=2580664; H. SCHWEINITZ, How the Board Can Make the Most of Blockchain, INSEAD Blog, 2018, https://knowledge.insead.edu/blog/insead-blog/how-the-board-can-make-the-most-of-blockchain-10261.
14 M. FENWICK, W.A.KAAL, E.P.M. VERMEULEN, “The “Unmediated” and “Tech-driven” Corporate Governance of Today’s Winning Companies”, TILEC Discussion Paper No. 2017-009, 2017, 28; A. TINIANOW and C. LONG, “Delaware Blockchain Initiative : Transforming the Foundational Infrastructure of Corporate Finance”, Harvard Law School Forum on Corporate Governance and Financial Regulation, 16 March 2017, z.p., https://corpgov.law.harvard.edu/2017/03/16/delaware-blockchain-initiative-transforming-the-foundational-infrastructure-of-corporate-finance/.
15 M. FENWICK, W.A.KAAL, E.P.M. VERMEULEN, “The “Unmediated” and “Tech-driven” Corporate Governance of Today’s Winning Companies”, TILEC Discussion Paper No. 2017-009, 2017, 46.
16 Allen & Overy LLP, Decentralized Autonomous Organisations, 2016, 1, http://www.allenovery.com/SiteCollectionDocuments/Article%20Decentralized%20Autonomous%20Organisations.pdf; A. DE BACKER and V. DE BOE, “Smart contracts in de financiële sector: grote verwachtingen en regulatoire uitdagingen” in Computerr. 2017, issue 252, 3; H. JACOBS, The future of corporate governance and the role of directors, 26 July 2018, 3-4, https://www.jacobshenri.be/stories/2018/the-future-of-corporate-governance-and-the-role-of-directors.

III. The new DAO project-economy: gig economy on steroids

DAOs (could) make it possible to work together without the intervention of a central, trusted third party.17 This opens many new doors.18 For instance, in theory, DAO’s could enable persons to offer ride-sharing services without the intervening of a company operating a ride sharing platform: both the user and the rider would entrust the DAOs with the task to record and perform a series of steps materializing their transaction (ordering a ride, calculating the best itinerary and selecting the driver, notifying both parties, validating the end of the ride after arrival, paying the driver, etc.). Hence, a DAO could enable “Uber-without-Uber”. This way there would in theory be no commissions/fees to be paid to the “plaform-in-the-middle”. The performance of the transaction would rely on the execution of “smart contracts”, the coding of which is ensured by the DAOs with the trust of its users. Both the passenger and the service provider would benefit from such arrangement.
Furthermore, it is interesting to highlight why DAOs could also be relevant for traditional, centralised, companies. Companies (and even departments within companies) used to be highly isolated silos. For instance, often no other company was given insight into its operations (and certainly not with regard to R&D). Companies anxiously protected their intellectual property rights. Today, we see the emergence of a more open culture. At least, this trend has started in a few sectors and particularly in the technology sector.19 Decentralized Autonomous Organisations could also be a next step (or step sideways) in this development.20
Yet, there are also countless legal challenges with regard to the rights and duties of participants in such a DAO. For instance, would a DAO which enables “Uber-without-Uber” be considered as a company in itself? What would be the liability of the participants to such a DAO offering such services via the DAO?
In any case we see nowadays a lot more people working outside of the traditional employment model, i.e. without a (formal) employment contract (cf. above regarding the project culture and the platform/gig economy).21 The involvement of DAO could enable the emergence of a whole new era of this way of working.22 Hence, this results in numerous questions around the employment law status of people working in projects in the context of the DAO, as well as liabilities of the participants in a DAO. Can token holders of a DAO be regarded as shareholders? Can DAO-participants which perform tasks “for the DAO” or “via the DAO” be regarded as self-employed persons? All of this is also influenced by a complex interaction between international private law, employment law, company law, intellectual property law, etc.
The platform economy has brought along numerous legal challenges. This will also be true for this new, decentralized form of cooperation.
17 M. FENWICK, W.A.KAAL, E.P.M. VERMEULEN, “Why ‘Blockchain’ Will Disrupt Corporate Organisations”, ECGI Law Working Paper N° 419/2018, October 2018, 11.
18 “Decentralised Autonomous organisations (DAOs) are one of the most anticipated applications of blockchain technology. After all, this is the first time in history we homo sapiens had the means to coordinate in a trustless and anonymous way to make collective decisions for a certain cause.” V. GABA VINEB, The State Of The DAOs, 17 April 2019, https://hackernoon.com/the-state-of-the-daos-b7cba318460b.
19 One good example of this shift relates to the difference between the vision of Steve Ballmer, former CEO at Microsoft and Satya Nadella, the current CEO at Microsoft, on open source software. In connection with Linux, an open source operating system, Steve Ballmer said: “[Linux] is a cancer that attaches itself in an intellectual property sense to everything it touches.” (Chicago Sun-Times on June 1, 2001). However, Satya Nadella, on the other hand has made open source one of Microsoft’s spearheads. Ironically enough, Microsoft supports Linux on its Azure platform and has numerous joint ventures with open source projects. In the meantime, Microsoft has acquired an open source developers platform, Github (for over 7.5 billion US dollars). (see in this regard: https://datanews.knack.be/ict/nieuws/microsoft-koopt-github-voor-7-5-miljard-dollar/article-normal-1156393.html; https://www.techzine.be/blogs/13862/microsoft-koopt-github-voor-75-miljoen-dollar-waarom-dit-een-briljante-zet-is.html). Also see: S. NADELLA, G. SHAW, J. NICHOLS, Hit Refresh: the Quest to Rediscover Microsoft’s Sould and Imangine a Better Future for Everyone, New York, Harper Collins Publishers, 2017, 288. Also see: M. FENWICK, W.A.KAAL, E.P.M. VERMEULEN, “The “Unmediated” and “Tech-driven” Corporate Governance of Today’s Winning Companies”, TILEC Discussion Paper No. 2017-009, 2017, 7-9, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2922176.
20 T. SALIMI, 2018 and Beyond: Tokens Are Slowly Eating the Firm, https://www.coindesk.com/2018-beyond-tokens-eating-firm.
21 Y. STEVENS, “Social Security and the platform economy in Belgium: dilemma and paradox” in B. DEVOLDER (ed.) The platform Economy, Intersentia, Antwerp, 2018, 259- 286.
22 “The notion of a DAO that is operated and governed entirely on-chain is the epitome of the communal business model. As entities of this nature gain adoption, the labour force of the future may look less like a “9-to-5 job economy” and more like a “gig economy” on steroids.” T. SALIMI, 2018 and Beyond: Tokens Are Slowly Eating the Firm, https://www.coindesk.com/2018-beyond-tokens-eating-firm
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