Crypto Cities, and DAOs in particular

Summer is a good time for academics to catch up on reading, and I’ve finally found time to go through this v interesting post on Crypto Cities by Vitalik Bukterin, who is always worth your time. (It’s also helpful for the Smart Cities course I teach at UCL).

My fast TLDR on the piece itself:

1. Local government is very undervalued as a political resource and force for change (sure is). It has the potential to be faster-moving and more radical than national government (indeed)
2. Exhibit A: there are many more local blockchain, local coin, NFTs and DAO experiments going on than I realised.
3. Some of these are coming out of the crypto community (eg CityDAO), others are – intriguingly – coming from local government (eg MiamiCoin).
4. Building on these, Vitalik thinks city leaders could potentially use crypto for: making existing local government functions more trusted/efficient (eg tax payments on chain), developing new forms of ownership (eg city coins), or trying out new forms of governance (eg DAOs for planning / zoning). He sketches out some ideas, building on the current set of pilots and some theory.
5. All this is very early days. And it could easily go very badly wrong, so needs small ‘self-contained experiments’ at first, and a cautious pace.

There’s a flavour of reinventing the wheel to some of the ideas being piloted and proposed in the post; and of looking for blockchain-based solutions where the issues are more structural, eg home ownership. In amongst all of that is what looks like some genuinely interesting and powerful tools to make local government work better. (Clearly I also need to go read Radical Markets when I have a moment.)

I’m also all in favour of experimenting with this stuff – and there are clearly room to do eg local planning, and more broadly local democracy, more effectively than many places do now.

Of the three crypto tools set out in Vitalik’s post, DAOs – decentralised autonomous organisations – feel like they have the most promise for city government settings. (This episode of Mat Dryhurst and Holly Herndon’s Interdependence is a great primer.)

We can think about DAOs as – “organisations on the internet” – online co-ordination, governance and decision-making devices, especially for assets in common.

DAOs push citizen engagement and aim to raise the transparency of decision-making. So, could be effective in cases where local governments want to get direct citizen voice but do this ineffectively, eg planing decisions / development control in the UK, where minority of loud voices has outsize influence on decisions – or where citizen voices are cut out of those decisions, depending on your POV.

Of course there are issues other than voice: not least, incentives to participate, factoring externalities and long term welfare into decisions. It is encouraging to see DAOs experimenting with voting systems that attempt to do this.

To push all this a bit more I also wrote out some more general questions, based on Vitalik’s post and Mat and Holly’s podcast chat. These are about DAOs in general, and a lot of these questions feel quite challenging for local government use cases …

• Q: Overall, what problems do DAOs solve that existing offline entities [public or private companies, LLPs, non-profits/social enterprises, clubs] don’t already solve?
• Q: DAOs are fundamentally complements to these older forms, e.g. that’s the spirit of the Wyoming legislation. Is that fair?
• Q: Are there particular contexts where DAOs are superior to the above? For example, I can think of four:

** industrial settings where organisations are rare and/or there’s a culture of informal collaboration, e.g. the creative industries
** transnational + online activities, where participants are distributed and unlikely to meet IRL
** activities where there’s no commodified product or service; and unlikely to ever be one
** settings where resources need pooling, but cash liquidity is also important.

• Q: DAOs seem to face various operational / structural challenges. Are these likely to be more or less severe than in offchain / old-school organisational forms, and why?

** How to fuse common purpose / align incentives? [are shared interests / altriusm enough, as in the OSS movement?]
** How to effectively take decisions? [credibility, accountability]
** How to enforce decisions / actions?
** How to resolve disputes / differences in direction? [e.g. just exit / fork with your resources?]
** How to maintain security over resources [e.g. guard against embezzlement, cf Genesis DAO]

• … i.e. it’s possible that some organisational workflows are so simple that you can write them out in an algorithm. But many are much harder than that! I’m not clear if existing organisation types do a particularly good job on any of these, by the way, but I am interested in whether DAOs are more or less vulnerable to them.
• Q: what could the DAO field learn from existing knowledge about companies, organisations, social movements? The latter seems especially important given that a) there’s a lot of DAO advocacy; b) DAOs themselves may organise around campaigning aims; c) there are multiple touchpoints between DAOs and the offchain/IRL world, including many that haven’t arrived yet; many of these will push DAOs towards formality; and d) DAO participants may align more or less inflexibly on each instance of c).
• Q: ‘AW: ‘it’s like the internet; people trust each other and it runs by rough consensus’. This is a great description of the early Internet (and maybe web3); it’s hard to recognise it as a description of the mainstream internet today. How do these dynamics survive a) scaling b) external drivers for formalisation?