DAOs are hot right now. In the world of blockchains if you bring together a couple of people who share profits, voting rights, or create some form of community it’s almost impossible not to be called a DAO. But the idea of a decentralized autonomous organization has a long history. Around 160 years ago the concept of the cooperative took shape in Britain. In a country industrializing at a fast pace, workers came together to form groups that shared responsibility and found ways to match industrialists who turned their businesses (mostly factory-work related businesses) into corporations. Of course, this long history of the DAO isn’t a new framework, but I will have a look at the what the purposes, struggles and general history of the cooperative movement can teach DAOs and those thinking of setting up a DAO.
Blockchain and Web3 tools, solutions, and services are akin to the changes seen in the 19th Century driven by the Industrial Revolution. If you look at Manchester, in the UK, in 1801 you found 85,000 people. By 1851, this number had grown to over 400,000. The areas surrounding Manchester had industrialised at an equal pace. Towards the end of this 50 year period a couple of major changes had taken place that still shape our economic society today. All three actually have their root in the year 1844.
Let’s briefly compare this history to more recent developments:
So humans get their best work done when they operate together as teams, or squads if you prefer agile terminology. We’ve been doing this for a very long time and major social-economic changes often impact how we organize ourselves. In the Middle Ages we had guilds, in the 19th Century we turned to cooperatives and now, in the 21st Century, we operate in DAOs. If indeed the idea of a DAO is closely related to that of the cooperative, then what can we learn from the latter’s growth from 28 skilled workers from Rochdale to around 720 million cooperative members worldwide in 2021? Let’s have a look at the key moments of growth for cooperatives in the past 180 years and how that compares to DAO-led developments.
Of course, our 28 Rochdale pioneers were not the first to organize themselves into a cooperative. However, they stuck in history as a defining group because they set out rules, principles and codifications that allowed others to build on what they did. For them it was mainly about helping out fellow workers and establishing a community that was capable of creating pecuniary benefit and led to improve the social and domestic conditions of its workers. Of course, others who took up this initiative had other incentives and goals.
From 1844, our next step leads to Germany, where the first cooperatives – some say Engels kickstarted these – centred around helping indebted poor in rural Weyerbusch. The need for excessive loans and the conditions to those loans found their roots in early capitalist ideas arising from industrialisation. Friedrich Wilhelm Raiffeisen started a project in 1847 that allowed farmers to receive small loans on favorable conditions for repayment. The other main figure at the beginning of the cooperative movement in Germany was Franz Hermann Schulze-Delitzsch. Where he differed from Raiffeisen was that he wanted the cooperatives to remain free of state help. Raiffeisen, conversely, increasingly engaged with Prussian government structures for aid. By 1895 this had resulted in a state-owned cooperative bank. Schulze-Delitzsch, who had died in 1883, and his followers did not approve of any state help and instead focused on self-help. In other words, by the end of the 19th Century, and after unification, Germany was home to two main divergent strands of cooperativism.
As I jokingly said in the opening paragraph, almost anything that happens collectively on the blockchain is called a DAO recently. But it’s worthwhile thinking about various forms of DAOs and how they compete together. For example, back in 2014 Vitalik Buterin wrote a short terminology guide on the differentiations between DAOs, DACs, DAs, and DCs. He focuses heavily on the ‘automation’ implied through ‘autonomous’, or in what way humans move from the center to the edge of decision-making. Related to the above German example of cooperatives going in two different directions it’s useful to look at the differentiation between a DAC (Decentralized Autonomous Corporation) and DAO.
“[A] DAC pays dividends. That is, there is a concept of shares in a DAC which are purchaseable and tradeable in some fashion, and those shares potentially entitle their holders to continual receipts based on the DAC’s success. A DAO is non-profit; though you can make money in a DAO, the way to do that is by participating in its ecosystem and not by providing investment into the DAO itself.”
Buterin himself already acknowledges that this distinction is murky because even the internal capital of the DAO, expressed in its own coin, will go up when the DAO becomes more popular and thus increase in value almost like a dividend. Leaving that murkiness aside, it’s clear that any attempt to decentralize organisations today faces the same dichotomy faced by cooperatives in the late-19th Century.
State-help in blockchain terms should be seen as any help that isn’t transparent. The pure-bred DAO is totally transparent and reveals itself through their blockchain of choice. And while we need web2.5 solutions to increase adoption rates for Web3 solutions, just like Raiffeisen felt it was fine to use state funds if it helped him achieve his own goals towards cooperation, this will ultimately lead to competing elements.
Post-World War II, the cooperative movement, which had already for decades been institutionalized into the International Cooperative Alliance (ICA), found itself struggling with the original principles set out by the Rochdale Pioneers. Even though these principles had already been amended in 1937, they needed another set of changes to reflect an ever-growing number of non-consumer cooperatives. For the current purpose of this article let me highlight one renewed principle:
The economic results arising out of the operations of a society belong to the members of that society and should be distributed in such a manner as would avoid one member gaining at the expense of others. This may be done by decision of the members as follows: a) by provision for development of the business of the corporation; b) by provision of the common services; or c) by the distribution among the members in proportion to their transactions with the society.
The reason I highlight that part is because currently most DAOs would require expanding this principle again. On the one hand, voting in a cooperative was, and is, based on one member equals one vote. Most DAOs work on a vote distribution based on token ownership. More significantly, however, is the mention of the common services. Of course, there are DAOs which keep this in mind, but a key element to any DAO is that they automate certain governing processes.
There’s an element of cooperation in this image of a DAO as a truly autonomous organization. However, the idea and especially the ideal behind many DAOs go much further and potentially bring the human closer to the decision-making process again. One example of an expression of this is Project DisCO, where DisCO stands for distributed cooperative organization.
The project started in response to DAOs as they formed a couple of years ago: focused on investment. Project DisCO’s main focus is on the commons and in doing so they link heavily back to the ideal of cooperation. This comes back in their manifesto, where they dedicate a full chapter to historical precedents for decentralized models.
One important way Project DisCO updates the principles set out by the Rochdale Pioneers, and modernized throughout the years by the ICA, is by priming DisCOs for federation.
“This dynamic resembles how TCP/IP allows a network of networks, the Internet, to function. Each node can be based on small group trust, intimacy and mutual support while still achieving a larger impact through federation.”
This harks back to an issue that Raiffeisen tried to solve in the mid-19th Century by talking about villages as a synonym for the cooperatives. He did that, because he felt that any cooperative would need to resemble a village. Any group bigger than that would start to cause problems. Over the next couple of decades he was proved right as his own organization expanded and failed at keeping that commons connection alive.
Bringing musicians, fans, or your organization together as a DAO isn’t that difficult, but what the above asks is to think about why you do that. Furthermore, it asks that when you have an answer to the why, you realize what the history is you’re building on. The why then becomes a how do I interpret a DAO and what it stands for? Am I looking to bring people together to create something new that will benefit them as a whole group? Or am I bringing people together to share ownership of something we would not be able to achieve as individuals?
Whatever your reasons, if it builds on the long history of the DAO then it might lead you to reassess the principles that have been codified for almost 180 years now. While DAOs’ first iterations took humans towards the edges of decision-making, cooperatives took economics and brought it to a human scale. DAOs can do the same for any community coming together in a decentralized, or better yet distributed, manner. Music is often already a collaborative effort, but to take all those elements of collaboration and decentralize and distribute them will work better if the historical struggles of cooperatives are learned from.