DAO Economics - Balance Sheet Considerations

Transcript

okay this one is when you connect your okay and try to keep it around here you just have to

check okay hello everybody I'm so excited to be here at ECC this is like very surreal for me to get to be on this stage thank you very much for coming to my talk my name is Megan NAB and I run a company called vary ledger we build accounting software for web three businesses and wanted to share with you guys some learnings over the past year of working with Taos from the perspective of a balance sheet and like maybe a little bit more of a business perspective and also some ideas on the future of corporations going forward so so you guys know the organizations that

I've worked with recently that are sort of like the fundamental underlying for this talk Rd org which is a it's a developer shop they're for-profit company they're built on top of dau stack marketing dau which is a Moloch for a grant giving organization a Rocha v1 which was a party planning dau some of you if you are at Def Con may have come to our whiskey a tasting event and one hive which I've done it some consulting for so across different platforms I think you know it's generalizable Dao learnings so if you guys don't already know balance sheet is a type of financial statement it is a

really important document it's what Wall Street analysts used to value companies it's how you price initial public offerings and generally how you got a picture into the financial health of a company and if anybody is taken an accounting class or has gone to business school this is like one of the first things you learn it is a very simple formula that says assets are equal to the summation of liabilities and equity so this is a fundamental underpinning for business financials and it is a seemingly simple formula but lots of companies get it wrong just like a quick example over the past ten years you know just going back not

that far we've seen tons of publicly traded companies need to restate their financials because they got that very simple formula incorrect it's on the order of billions of dollars just you know a few large examples from the past decade it's a problem for shareholders they don't have an understanding of how much their assets are worth and it's a problem it ripples out to the global economy right we don't really know what production is and all of these companies are audited by some of the most premier like accounting firms in the world so we can see that like our accounting infrastructure system is just not

working very well and it's a problem that's not only siloed in corporate America or in the Western world we've seen accounting scandals happen in our own industry as well so how do we think about solving these problems and getting like a true financial picture into what's going on because assets being on chain is not quite enough right so here's our formula our fundamental underpinning and then you know how this sort of idea the balance sheet came about is you know when we look at the history of how companies have come to be in their current form right we can go back very far but starting at you know sort of fiefdom level right we had land

owners owning the means of production and exploiting their workers we had started to see in medieval times government's subsidizing public good institutions like hospitals and universities with the ultimate goal of providing for a better society but also being able to extract wealth more efficiently from its population and then you know very famously right in the 1600s the Dutch East India Company created the first joint stock company which was a way for shareholders to come together to sort of share risk and more efficiently allocate resources as well as you know maximize profits and companies like haven't really changed that much since the 1600s they really

follow the same basic structure and like if you go to business school it's not like they just teach you trends about like what is like cool in corporate America these days so it's like a very similar structure but one notable thing in the Western world is that companies have the same legal standing as people which to me is just bizarre you know a company has the same sort of rights that I do in America as a human being and much more power generally a lot more assets than you're given average person but as I've gotten to be involved in this environment and especially working with dows I really think that dows could be there are a lot of things right but they really can be

the sort of like next generation of what a company can be so let's dig into it a little bit here's our balance sheet formula but let's look at it a little bit of a different way right like the all of the elements of the balance sheet are sort of like in tension with one another and you're sort of standard company right so also when you go to visit school they teach you that the like main object of a company is to maximize shareholder value right so the point of every company unless you have a particularly motivated CEO like morally motivated CEO or mission driven right that is like the main pressure that

people running companies have to do right so very standard you have owners pumping assets into the company in return for equity and everything that kind of happens in between is you know for the most part a liability right so it's a cog in the machine trying to like maximize shareholder value and for the most part you know we've seen in modern history companies sort of like become more apt to giving out equity and things like that and trying to help their workers have more of a share and what happens in the business but it's still like very much a top-down structure and the things that happen in the middle right like your supply chains your employees tend to get squeezed especially if times are bad right we've

seen it in every financial crisis since you know forever [Music] ways that companies look to maximize shareholder value is by a horizontal and vertical integration horizontal integration quickly is just when companies buy other companies to become dominant in an industry that's not part of their core business so like Disney buying Pixar there's an example of that vertical integration is when companies acquire other companies to streamline their operational chains so like target owning manufacturing for their their like own branded products is an example of vertical integration so where do we in our cryptocurrency the etherium

environment sit when we're coming we're building new businesses to support the new technologies that everybody in this room is working on how do we sort of figure out how to balance this tension and history there is you know some people in the medical world have indicated that dows are really nothing more than a multi-sig right and to some extent like a big part of a dhow is that it's a multi-sig and it's just kind of fancy but I would say that a Dow is actually quite a bit more and fundamentally dows must integrate in their business structure just given how they move funds around right like if you want to get paid from a Dow you

generally right have to pledge and you become part of their equity section by obtaining shares to me like cows are actually like the fundamental like actual manifestation of what a balance sheet is and that's a very cool thing so what I would propose somewhat ironically is that Dow is actually grow by doing decentralized integration so in any Dow you have your core contributors right the people who are making the company run maybe they started it there they like main means of production but they also have customers right whether it's a grant giving Dow whether you're working

for clients these people by nature of interacting with a Dow become part of your cap table maybe it's only for a little bit maybe it's for a longer time but like you're actually integrating the people that you're doing you're working for into like your business you have suppliers - maybe it's just you know a github repo that you pay the subscription fee for maybe it's something else your suppliers become actual parts of your company which is really interesting professional services right I do accounting and in the example of D org I'm actually like a member of their organization even though I'm just a service provider and I receive equity

in the form of rep for my contributions so it's not a one-to-one transaction where I just deliver them they pay me I'm by nature of interacting with them I have a vested interest in their success going forward which is very cool the last thing and this hasn't happened yet but I feel like it maybe the future is you know companies need to pay taxes some places accept taxes in cryptocurrency right now in the United States at least and like the government right with doing that transaction they become part of your Dow - so you have this sort of like pandemic like effect with everybody that you interact with within your company when you use a Dow structure and to me the way that I see

it is you don't have that same kind of tension that you do within a balance sheet where it's sort of like a cog you know you're looking to minimize your expenses at the cost of your employees or your supply chains right you're actually building up created like a shared value system so this is my little aetherium logo shell you know looking back at the past year and even like into 2020 we've seen tons of product innovation like the stuff that you guys are working on in this room and you know generally at this conference and outside of it are amazing you know we've made so much progress in so many different areas and decentralized finance notably but

also things like marketplaces and gaming it's really cool to see but my worry from you know my sort of like back off his perspective being an account is we're really not innovating in our business structures we're kind of going back to the same things that we already know like you know that had been done for the past couple of hundred years and the web 3 ethos really doesn't fit that kind of structure any longer [Music] Dow's have been experimental technology for sure especially you know Malik Dow has launched a year ago and sort of created maybe like a rejuvenation in my opinion of Dow structures but I think now in 2020 we can move away from this idea that oh dows are kind of weird or

they have strange branding schemes they can be a fantastic tool for your business to create democracy and it also makes business sense at the bottom line so this is from my slides at Denver so sorry if you've already seen it but this is a look at D org so this is their compensation overview and it also represents the voting power in their Dow so they're running a fairly decentralized organization after less than a year in operation and that's very exciting the founding core contributors no longer have two-thirds voting power which is what they need to like pass

proposals and they you know are making money I think service clients in this industry they have a very traditional sort of like business opportunity that they have incorporated into a down structure and have been very successful looking at their overhead they also part of it is for being a developer shop but the DAO structure allows them to have really low overhead from a financial perspective and their use of like the doubt stack contracts only cost them 24 bucks last year so that's hundreds of thousands of dollars of value it's over 350 transactions that's way less than you would pay for like a month

using like PayPal or stripe or something like that so they're hyper efficient also you know one of the questions is like well we don't really want to use crypto because it's calm kated and there's taxes and blah blah blah maybe we'll lose it all looking at the Dior case study again they're like sort of gains and loss on each of their transactions they on average lost seven bucks it was mostly because of the dip in the price of aetherium but if you adjust it for their stable coin transactions it's less than a dollar and that is like really cool because if you were to use ACH transactions or wires or other sorts of money movement mechanisms it's like 50

bucks a transaction or more and it's really antiquated and it doesn't fit with this sort of like you know structure of a Dow so crypto currency risk not so much of a risk in my opinion but you have to manage it so thinking about how do you actually fold a Dow into your business there are a couple of considerations so that I came up with from my work with these organizations we'd be curious to hear like if you guys have any others but because you're creating a system of shared value from an equity perspective and from an assets perspective you need to think very like carefully about who you want to be

sharing that value with because not only are you paying them they're actually becoming part of your company and something that one hive in particular has been thinking about is do we create different sorts of classes of shares for the different contributions that people aren't making to the organization it's actually a really great way to sort of like organize yourself so that's a consideration is it a one size fit all or do you sort of customize it to the nature of the transactions you have also how volatile is your asset pool going to be by this I mean are you gonna have members coming in frequently are they going to be ragequitting quickly all of that is has an impact on how you think

about your sort of equity level structure and then also you know this is something that we talk about a lot from an accounting perspective is like watching your asset transformations so you there are great companies out there that help you move crypt around like Maltese for examples here they do great stuff watching that you're not moving in and out of like all of these different transactions makes things a lot easier for you from a treasury perspective so those are my takeaways I'd be curious to hear if you guys have others and just doubt it thank you any questions yeah and you want so

actually I have one we just have five minute questions so if you have one get your chance I have one question for you yes how do you see then the change if you start working with your suppliers your customers making part of the DAO how do you see the transformations of the shareholders within the organization is it more like I'm gonna incentivize them to come back or will they have to transform as well the way they interact with the dow in general yeah so how do you manage having all these people kind of be part of your equity stack do you mean exactly yeah yeah I mean this is like why you should be careful right

about who you choose to interact with because you know there's certainly a situation that comes by where a supplier may not redeem their shares for a while and then you have like a weird disconnect in the value but ultimately if they're people that you want to be working with I would say you want them to have like vested success in your future and it doesn't just have to be like a one-off sort of transaction so that's my viewpoint but you got to manage it - just like any cap table I thank you very much for your talk unfortunately I don't know much about dolls but I'm fascinated by it since I'm starting a company right now like the

name would be decentralized autonomous organizations that suggest that in a way they they kind of autonomously control themselves but I think that was not the point of your speech so like I won't understand if I'm building a company and I want to use this system now is it more capital-intensive than going to a lawyer and signing the papers and distributing the shares in a in a traditional way I mean like how much do I need to pay the developers to build this kind of system is it really competitive in to the traditional way yeah okay so two things I would say is that you can't just have a Dao and then not incorporate like it still lives as part of like a legal

jurisdiction so you still have to incorporate a Dao right like marketing Dao is a Delaware LLC D org is a BB LLC lots of cool stuff going on in Wyoming and blah blah but launching doubts has gotten a lot easier over the past couple months so for Maalik doubts their style house you can summon it Dao like quite easily java stock makes it easily easy for you to do as well so it's not like you have to build a development team to be able to launch it in your company I would just view it as like this is a back-office tool that you're using that can really streamline your sort your expenses but also your sort of like employee management so another quick

question like does it only work if no one in the company owns more than the 2/3 ownership you were talking about it like if you I mean the more it depends on each sort of stack that you use but generally the more people that you have as members and the more people that you're paying like the more decentralized your voting pool will be so if you launch it Dow it's just you and I then we each have 50/50 you know and you can think about structuring your shares differently too if you don't want it to be solely based on financial contribution so I know that meta cartel for example has given out shares for sweat equity which is very cool all right we don't have them for

more question thanks a lot [Applause]