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gm fam, fresh off the press:
▹ Week's Top Signal
▹ New Crypto Regulations
▹ Chase Chapman on DAOs
▹ Jump Crypto on Token Design
▹ Vitalik Thoughts on "Network State"
▹ Yuga Labs Otherside Demo
▹ ... much more
Plus: Market Pill, What else is Poppin'
Let’s get into it.
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Last month, U.S. Senators Cynthia Lumnis and Kirsten Gillibrand launched the Responsible Financial Innovation Act, a comprehensive set of regulations covering crypto taxes, stablecoins, and more. As policymakers and crypto operators alike have had time to invest, discussion around the bill picked up significantly this week.
The bill’s coverage of DAO’s is of particular note. The bill proposes amending the tax code to incorporate DAOs, defining them as organizations governed on a distributed basis, are properly incorporated, and use smart contracts to generate collective action. This would certainly provide legitimacy to DAOs, but could also potentially create incorporation requirements for all DAOs who want this legitimacy.
All in all, legal experts are still unclear on what the tangible implications for DAOs would be, and these implications would evolve as the bill goes through the legislative process. However, even within the ecosystem, policy and legal discussions are still critical to ensuring organizations can continue to grow and thrive.
For example, following a16z and Paradigm’s efforts, PrimeDAO released an essay this week analyzing the landscape of legal options for different types of DAOs and the various tradeoffs that exist with each. This information is constantly changing, and will continue to do so as we await the results of the legislative process outlined above.
TAKE NOTE
DAO regulation is coming, but it’s not here yet. While we keep an eye on regulatory processes worldwide, we as an ecosystem will still need to tread carefully and make our best efforts to ensure we are staying within the bounds of the law while continuing to innovate.
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Soulbinding Like a State. There has been lots of talk around soulbound tokens in recent months, which stems from a larger ongoing conversation around on-chain identity and reputation. This piece from Gordon Brander asks: is acceptably non-dystopian digital identity even possible? Gordon explores the idea of “legibility” as described in the book Seeing Like a State. He argues that at scale, legibility can be disastrous to complex systems because our “maps” of systems are designed for specific use-cases, not to be as comprehensive as possible. The internet is always at scale, so why would we expect digitally-native identity to be a net positive? User Controlled Authorization Networks are outlined as one potential building block that combats the trend toward on-chain legibility. This is an extremely important conversation to have as we continue to explore new use-cases for on-chain reputation.
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DAOs as Playgrounds for Growth and Development. This essay from Siddhearta of BanklessDAO casts DAOs in a new light: as “playgrounds” for exploring design challenges in areas like governance, economics, and personal sovereignty. They argue that cohort-based learning courses within the context of DAO “guilds” and working groups could facilitate the playful act of learning and imagination that allows members to “build the life they imagine. These regenerative, infinite games could play a key role in DAOs writing the story of the new economy, while enabling members to truly grow with organizations rather than for them. More experimentation around human-centered engagement in organizations is certainly a win, and what Siddhearta describes is a bit more meta: experimenting with models to facilitate personal experimentation.
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Decentralized Media In web3 Is Not What You Think It Is. In decentralized organizations, narrative is everything. Steph from Seed Club drives this point home, arguing that media in web3 is the meta-container for everything related to the DAO or tokenized community’s narrative network effect. Given the distributed nature of contribution in these organizations, this means that media is also responsible for execution and organizational vision, not simply “branding and marketing.” This is why it is so critical for every DAO or tokenized community to have a media arm – failure to tell your story to the people who need to hear it, and to give others in the community the opportunity to share their perspective, will lead to the failure of any decentralized organization.
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Evolutionary Organizations. Complex systems require inefficiency in order to improve. In this piece, Chase Chapman argues that “being wrong often is the only way to be right.” Premature optimization is the downfall of many DAOs because operators are afraid of failure. However, this fear often costs the organization much more in the long run. Starting simple, failing often, and evolving intentionally is the framework that Chase proposes for building a decentralized organization. This is why modular DAO tools are so important – locking an organization into a set of tools and processes early on can slow progress down significantly. Instead, allowing different parts of the organization to experiment with different methods and pools and converging on what works is probably a better approach.
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Governance is about action, not decision-making. Spencer Graham makes a powerful statement to kick this essay off: “The common misconception that governance is primarily about decision-making is wrong, outdated, and dangerous.” Governance is about taking action with shared resources, not simply deciding how a different agent in the organization will use said resources. The idea that governance = decision-making is no longer the case in a world with community-owned and digitally-activated networks. Spencer argues that if you ignore the actual goal of governance – taking action – you're liable to create a system that is exposed to capture, just like our broken governance systems in place throughout society today. This is a fantastic reminder for anyone building DAOs and tokenized communities.
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Token Design for Serious People. Token design has gone ignored in most DAOs today. This piece from Jump Crypto offers a thesis around “good” token economic design, specifically focused on user rewards, and uses it to analyze common token economic models. They outline some key principles, including that tokenomic models should focus on delivering common goods that could not be realistically provided without coordinating the network. These models should also reward positive-sum activity rather than rewarding extractive behavior. As far as examples go, network gas fees on L1s embody these two principles perfectly. On the other hand, the essay is critical of DeFi staking models like Olympus DAO. All in all, there isn’t anything surprising in this piece, which hopefully means we are maturing as an ecosystem – we have a general idea of what makes a good tokenomic model, we just need to build and experiment with lots of them!
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Yuga Labs Otherside Demo & Litepaper. In May, Otherdeed NFTs representing land in Yuga Labs’ Otherside metaverse, were released, selling out the available 55,000 lots within three hours. This week, Yuga Labs released its litepaper for the Otherside, a “starter guide” to its “world-building metaverse platform,” which is currently in development. Despite criticisms of Yuga Labs (most relevant here being their massive VC raise with no “exit” to community), the document champions open development, user-generated content, and interoperability in its online world. The company then kicked off a 4300 person demo of Otherside that was met with plenty of praise. It will be interesting to see to what extent Yuga will be able to live up to the language of their litepaper while still returning a venture-scale return for their investors.
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For Season 2, we at Water & Music are tackling the metaverse — perhaps one of the buzziest, most polarizing concepts in modern technology. Our goal with this season is to build out an actionable roadmap for the music industry in the metaverse, highlighting where artists and their teams can start experimenting with cutting-edge tools and experiences today. You can follow along with our S2 research here, and learn more about our membership here.
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Market data on the last 7 days. Last updated July 18, 2022
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Updates from the DAO
— Cohort 2 of the W3CR is starting this week! Make sure to stay up to date in the W3CR Discord channels, on Twitter, and on the FF blog/newsletter.
— Terminal by Forefront saw some updates this week to add new communities and metrics! Check it out at terminal.co
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Firelight
— You can check out the weekly synthesis post for the W3CR here.
— Open Studio #4, the final edition from Cohort 1 of the W3CR, is live!
— This week, Allie walked us through her experience going into the community with her playkits and chatting with parents and children alike.
— Entes shifted his project, and went back to the basics around the why of his work and what magic he can make happen during the W3CR.
— Alex had a breakthrough moment with her song on a livestream, and incredible experience of pure joy that we all were lucky enough to be able to share with her.
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◎ Check out FF Signal for more headlines
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