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2018 and Beyond: Tokens Are Slowly Eating the Firm
Tekin Salimi is a corporate lawyer and principal at Xastris.io, a blockchain advisory firm specializing in regulatory, capital markets and ICO execution services.
The following article is an exclusive contribution to CoinDesk’s 2017 in Review.
One of the most fascinating outcomes of the 2017 gold rush into open-source protocol development is the growth of “community management” – a business function that combines elements of marketing, business development, investor relations and human resources.
Community managers are being hired en masse. Their job is to oversee all matters relating to a blockchain project’s community of supporters. This includes interacting with core developers, contributors, investors and even end users. The role of the community manager is vital to the success of a protocol; so vital that a ‘cottage industry’ has propped up overnight to offer community management as a service.
Pay anywhere from tens to hundreds of thousands of dollars and a contractor will manage your project’s Slack and Telegram channels, Reddit posts and marketing strategies (which may include, for example, “air dropping” free tokens to potential contributors).
Even more interestingly, community management is somewhat disrupting traditional notions of how business organizations should operate.
Due largely to the proliferation of freely tradable cryptocurrencies and the use of new incentive games such as developer bounties, there is a growing adoption of, what could be described as, the “communal business model.”
What is the communal business model?
One distinct characteristic of this model is blurring the line between formal employment and informal contribution.
Through the use of bounties and payment via inflationary funding, anyone around the world may contribute labor to a blockchain project and be rewarded through a dilutive issuance in that project’s native currency. Rewards are most commonly offered for tasks such as coding, logo design, website design, white paper translation and more.
In theory, so long as the value realized in a token’s market price by virtue of the work exceeds the value diminished through dilution, any labor sourced and compensated through this model is a net benefit to all token holders.
The use of bounties also bootstraps the development process by mobilizing and incentivizing a much broader group of participants. From management’s perspective, bounties enable the company to meaningfully vet prospective hires through a “trial run” before committing to the offer of full employment.
Unsurprisingly, blockchain projects using these mechanisms today often consist of distributed teams of contributors from around the world, and – anecdotally – have low attrition rates.
Another characteristic of this model is that transparency often trumps confidentiality.
Try spending time in a project’s Slack channel and you may be surprised by the amount of seemingly proprietary information a core team will share. This is uniquely enabled for blockchain development projects due to the open-source nature of the code base in development.
Often, a protocol’s adoption relies more on network effects (i.e. strong community backing) than it does on proprietary information or functionality, so there is an inherent incentive to reduce the information asymmetry between a project’s core team and its support community.
Case Study: Interactive Coin Offerings
The interactive coin offering protocol co-authored by Jason Teutsch (Truebit) and Vitalik Buterin (ethereum) is a great case study of the communal model in practice.
Through a publicized announcement of the white paper, 73 developers joined Truebit’s Slack channel including representation from the Ethereum Foundation, Zeppelin, ConsenSys, Modular, Shapeshift, five acclaimed developers from the USCC coding challenge, and many more.
The group quickly self-organized to build the first implementation of the smart contracts with various parties contributing to the protocol, code, testing, security audits and UI/UX design.
The implementation can be found in Truebit’s Github repository.
DAOs as communal businesses
It is possible that open source development is merely the first use case of a communal business model.
In coming years, decentralized autonomous organizations (DAOs) might utilize the transparency and censorship resistance properties of blockchain technology to pursue their business objectives in new ways. This would blend the traditional roles of managers, employees, shareholders, creditors and customers.
The use of on-chain voting could enable DAOs to implement a liquid democracy model to decentralize managerial decision-making. And similar to the case of protocol development, mechanisms like bounties, inflationary funding and tokenized/automated dividends can be used to incentivize and reward a DAO’s workers.
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.
Opening the closed firm model?
Community management is sparking a paradigm shift. One that may, in time, influence even the most “closed” industries to re-evaluate their approaches.
I focus on the example of law firms, as it is the case I am most familiar with. Law firms are business entities that, historically, have had little to no economic incentive to coordinate or cooperate with one another. In fact the opposite is true. Law firms are motivated to safeguard and silo intellectual resources, as very minute and nuanced information is often what differentiates the value proposition of one firm from another.
Nevertheless, we live in a world in which most forms of intellectual labor (including legal work) are being increasingly commoditized.
So, it seems plausible that new “open” approaches may demonstrate the economic benefits to collaboration in certain contexts (such as a nascent regulatory industry like blockchain). The SAFT Project is a great example of a co-ordinated approach in such a context.
To be clear, I don’t expect the firm model to go away overnight – or likely ever. But blockchain technology presents an important opportunity to experiment with open models in traditionally closed arenas.
Many thanks to Robbie Bent (Truebit) for his feedback on earlier drafts of this piece.
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Author: Tekin Salimi
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