Composability in and between Organizations: why and how Corporations and DAOs should interoperate
In this post, we investigate how the evolution of smart contracting is creating new possibilities for companies and DAOs to cooperate in line with the market trends that are pushing for more composability, more modularity in software, and value propositions in general.
This piece has been written based on conversations with my good friend Eugenio Battaglia and part of the team at Prime DAO, especially Alp Ergin and Mert Ozdal
In this post, we investigate how the evolution of smart contracting is creating new possibilities for companies and DAOs to cooperate in line with the market trends that are pushing for more composability, more modularity in software, and value propositions in general. Backed by research, analysis of recent trends, and some conversations we had recently, we speculate that – in the near future – corporations and DAOs will have more cooperation opportunities and that in general, there’s substantial continuity between the two and – in reality – DAOs are to be seen more as “organizational development strategies” that will be more apt for certain parts of the upcoming software and services value chain. To do so, we’ve investigated some of the latest releases of Prime DAO also born from cooperations with Token Engineering Commons, BlockScience, and other interesting players from the DAO/Web3 Space. If you’re a manager, or founder and want to understand how to frame this new set of enablers in your strategy please reach out with the Form at the end of this post or through our contact form. We’re often organizing training and strategy-making sessions to help corporations, startups, and no-pèrofits to understand how to be more legitimate in developing their strategies in new ways, according to new trends that require openness, transparency, and enablement of ecosystems.
The signals that pressure towards unbundling and transcending the organization as we know it (a siloed, integrated, complicated, and extensive set of people directed towards certain predefined and planned outcomes) are growing and coming from different directions: analysts, startups, web3, and blockchain players.
We’re catching such signals as we do our curation work, and our research with customers and our methodology adopters, when we run our podcasting sessions: in this post, I’ll offer a quick update on some of the emerging reflections we’re having at Boundaryless on how to look into organizations and markets, and how to make sense of what’s possibly coming up on the horizon, from the perspective of how we shall be thinking about modularity, the role of teams, crossing organizational borders and more.
More in detail, a couple of key trends emerge and deserve attention: first, the evidence that individuals and teams (units, squads, …) have a mounting role in the organizational landscape, and second, a further potential evolution toward more modularity and composability in products. The two trends rhyme in a circular relationship between the growing importance of the team-based unit of value creation and more modularity in the market:
- on one hand, building composable components is a task at hand for relatively small teams (or aggregation of teams);
- on the other hand, a growing capability of teams to transcend the need for an overarching organization (a trend that has been spotted and analyzed widely, as a consequence of the unbundling of the Fordist bundle and the emergence of an ecosystem of support services) may be driving the emergence of a more composable market as an effect of the new patterns of communication emerging, this in accordance with Conway’s law (a market where the team becomes more powerful will be more likely made of team-producible outcomes, i.e. components).
Most of the marketing fuss over the last couple of years has been putting attention more on the empowerment of the individual (most notably under the overarching team of the “creator economy”) than on the empowerment of teams. However, to a deeper look, the recognition that teams were becoming the core unit of value creation and that they should have been unbundled from the organizational constraints as much as possible, has been spotted in the organizational innovation (and software development) space for years now.
It was not later than 2002 (quite ahead of time) when Bezos shared a company-wide mandate, where Amazon conductor expressed clearly that teams had to change the paradigm, starting to behave like small, self-contained organizations, with clear “actionable” boundaries that could be externalized. Despite Amazon was so pioneering, and despite these organizational choices being so powerful granting Seattle’s giant such a head start and market dominance, other organizations took a while to catch up. Only now, almost 20 years later, we are seeing market-based organizational models (based on units and teams powered by shared services) such as the ones we’re praising and helping organizations adopt with our #3EO toolkit.
If we had to recap on the key traits of the Entrepreneurial, Ecosystem-Enabling ways of organizing (3EOs) that we are researching, promoting, and developing at Boundaryless, based on emerging experiences such as that of Haier, Amazon, Flagship Pioneering, Buurtzorg and even some emerging DevOps practices such as Team Topologies, and more, they would be:
- empowering small units with purpose autonomy and giving them full accountability, most likely of P&L (as with Haier’s Rendanheyi Micro-Enterprises);
- providing scale optimized platform-enabling services so that teams can focus on their core product/service/business model;
- seeing organizations as strategic venture incubators, investing capital, and aiming at churning out self-sustainable P&L positive units;
- encouraging cross-divisional and, even more generally, an inside-outside partnership between units belonging to the organization, and outside players, for the formation of alliances aimed at creating new products and services (as with Haier’s Rendanheyi EMCs – Ecosystem Micro-Community contracts that help the organization pool capabilities and resources around launching new customer-facing scenarios).
Indeed, not all these are 100% adopted in the same ways across all these organizations: we had the chance previously to draw parallels and comparisons in our piece Converging towards a Common Protocol of Organizing that we suggest the reader catch up with.
As a fascinating point of convergence, we now see similar trends emerging in the DAO space. This new organizational development space is emerging directly from the discovery of new technological enablers such as blockchain, and the possibility to leverage token design to generate a new set of incentives. Since 2016, the idea of Decentralized Autonomous Organizations has been played out by many smart founders that have explored how new organizational opportunities are made possible by the affordances of decentralized, token-voting-based decision-making, smart, self-executing contracts, fully programmable information transparency, self-sustaining protocols, sovereign identities, cryptography and more. As a consequence, this field provides us with a fertile background for the creation of new products, services, systems, and paradigms.
This new wave of organizational development started in the domain of finance, as decentralized finance – or #defi – lending itself to fully leveraging the “programmable” nature of such a set of new technologies, given the fact that finance is a fully abstract and intangible market. Furthermore, finance is effectively a foundation to the bootstrapping of other markets, a common language that can enable – and has always enabled – two organizations (or more, see markets) to cooperate and exchange value. The breadth and depth of DAOs’ domain is in fact growing steadily, with new forms now being embraced in scientific research (with #DeSci), or in data infrastructures (with #DefIoT), and more.
One of the most interesting players in the DAO web3 space is PrimeDAO. Prime’s mission is to create “next-generation coordination tools to connect DAOs which are recognized to be growing in power but remaining isolated as digital organizations”. The need to recognize more continuity between DAOs (and extreme composability between the products that they create) is very strong in the DAO ecosystem ethos. In a recent conversation we recorded with Tracheopteryx for an upcoming episode of the Boundaryless Conversations podcast he said something that struck me as obvious and at the same time revolutionary: he referred to being at ETH Denver – one of the biggest DAO conferences in the world – talking to other people building products in the space and feeling like being “part of the same team”.
(BTW, Tracheopteryx is a pseudonymous contributor of multiple DAOs, focused on building better tools and better models for DAO governance and work coordination, whose work we featured already in our post on #web3 bootstrapping)
Such a strong need for DAO To DAO interaction tooling emerges then from two major drivers: first the inherent composability of web3, where open and transparent data and programmable interfaces provide strong affordances for composability, and – on the other hand – from an ethos that seems to characterize this new space, that pushes to go beyond agile and the teal movement, and hints towards:
- overcoming market competition towards more cooperation;
- getting more skin in the game for contributors expressed mainly through the ideas of “permissionless” participation (making the self much more sovereign) and through the easier connection of financial and governance incentives with work (contrarian to a salary, potentially tokens can embed any kind of utility and rights, including actual equity-like ownership)
Coming back to Prime DAO, let’s look into how some of the artifacts that Prime is bringing to the DAO ecosystem bring DAO to DAO interoperability and cooperation to the next level. We also highlight how the work of PrimeDAO seems to rhyme with some other experiences and primitives that we’ve seen emerging in the #3EO, progressive, market-based space of more traditional organizations.
Launching new ventures in a permissionless ecosystem: a parallel with VAMs
One of the tools that Prime is building is Prime Launch. With Prime Launch, newly launching DAOs can choose to finance their launch in two main ways, that mirror the two most recurring choices for initial funding currently being used in the DAO space.
- Prime Launch Seed: a fixed supply, fixed price token release (in exchange for capital, most likely in the form of stable coins),
- Prime Liquid Launch: a Liquidity Bootstrapping Pool, a token launch that leverages a dynamic and more resilient market-discovery price mechanism through a bonding curve that disincentives hoarding, and pump and dumps, speculative dynamics. Token sales through an LBPs also allow the DAO to end up with a Liquidity Pool that can be immediately instantiated as an automated market maker on a decentralized exchange allowing people to trade, stake, and farm the native token.
Prime Seed Launch offers new DAOs a way to define how a new token is created from the DAO (that may be assumed to represent certain governance, utility, or equity-like rights) and can be swapped with another token, the value of which is normally more stable – often a stablecoin. Newly minted DAO tokens being released can have different traits, including elements of cliff (“an amount of time during which contributors who have received tokens cannot transfer them”) and a vesting schedule (“an amount of time, beginning after the cliff, during which a contributor’s purchased tokens unlock linearly”).
The alternative approach that Prime provides for the initial capital raising is – Liquid launch – which makes use of Liquidity Bootstrapping Pools (LBPs). Understanding the core ideas behind liquidity pools and liquidity bootstrapping pools is essential to understanding tokenomics and DAOs but is probably too meaty to be explored here. For the sake of the interest of this piece, we can think of an LBP as a way to raise capital through a token sale (that could represent a percentage of the total token supply) going through a process of price discovery. Instead of pre-setting the price of the token it as you could do with Seed Launch (or even following such a step) the founders of the new DAO can reserve a certain amount of tokens to raise capital in fairness and according to demand and supply for the token, but without being exposed to bots and whales (large capital holders) that could artificially inflate and deflate the price of the token. More on LBPs here.
s we’ve seen, incubating new ventures is an essential part of 3EOs and there are parallels between tools such as Prime’s launch toolset and other existing 3EO approaches to seed funding new enterprises. Value Adjusted Mechanisms, the complex and versatile incubation contracts that we propose in the 3EO setting, as inspired by Haier’s Rendanheyi’s practice, are normally more nuanced than simple seed token-based rounds and feature more freedom to design incentives and link them to outcomes. More specifically, with VAMs, investors are not only capable of investing in exchange of equity but there’s also a granular set of objectives – both quantitative and qualitative – that the venture managers (the founders) commit to (so-called leading goals). If achieved – such results – can unlock further elements of upside for the founders, and give them more skin in the game in the incubated venture. Those elements are salaries, bonuses, rights on future revenue distribution, and even – of course – convertible options or equity boosters.
It may be possible to think of the evolution of Prime launch smart contracts in a way to integrate smarter programmable rules that may account for certain performances of the product, for example, future changes in the token price, liquidity, or more complex schemas such as for example the burning rate of a dual token that may be related to the product usage adoption. Having these more granular ways to assess the performance of the incubating entity could then be linked to further allocations of tokens from an initial or future treasury, follow-on investments from founders, and more.
Funnily enough, despite programmable money being on the side of the DAOs, the first to make more complex and “programmable” seed venture funding contracts have been in the context of traditional (if only Haier can be defined as such) corporations.
Integrating more quantitative and qualitative elements and more complex rules for value adjustment in the execution of smart contract-based, token-based launch processes may seem complex, but solutions such as trusted oracles – that could provide a bridge between sampled qualitative information elements and the smart contract – and conditional token release schemas (that for example can commit future funding to certain objective measures) could be successfully and rather easily integrated into the model. Imagine for example adding a trustable source that can sample the product’s Net Promoter score and impact token distribution, revenue distribution, or equity. I believe we can expect smart-contract-based, token-release-based funding schemas to evolve in the direction of integrating more qualitative, and quantitative complexity, and stepped conditional releases of complex sets of rights rather soon.
Co-investing into funding unit teams with Proposal Inverter: a parallel with EMCs
Another interesting primitive that is emerging in this discussion space around DAO to DAO coordination is that of the “proposal inverter”.
The proposal inverter represents funding primitive that “enables multiple groups or individuals to collaborate on common proposals, inverting the typical Proposal/DAO relationship to facilitate cross-DAO initiatives, such as co-funding shared research.”
In a few words, the proposal inverter provides a way for multiple DAOs to fund a team/squad that commits to certain outcomes. Essentially this is a mechanism for a staged progressive release of committed funds to teams. It’s called proposal “inverter” as it “inverts” the traditional relationship between researchers and DAOs allowing instead of one DAO to fund many proposals, multiple DAOs to fund a shared one. In one of the few posts that is possible to find online talking about the (insider info: still in the works) proposal inverter, besides an explanation of how funds can be split inside the recipient team, the writers offer some interesting bits regarding how the proposal inverter can provide some essential capabilities to the DAO ecosystem.
They identify the following, all very important, features:
- Persistent, cross-DAO semi-automated payments infrastructure
- Funding shared research initiatives
- Supporting Community Management & Care Work
- Economies of Scale in DAO/Squad Specialization
- Funding a collective liquidity pool
among all these, I want to quickly focus on points a, b, and most specifically d. These point in a very interesting direction: that of seeing squads potentially emerge in the space between DAOs, getting initial research funding and evolving in a way to become sort of persistent shared capabilities that multiple DAOs can co-incubated and later use. According to the writers, the proposal inverter approach:
“holds the potential to unlock economies of scale by allowing groups of contractors who operate between multiple DAOs to specialize and then cross-support each other as needed […] In other words, these collaborations could support not only shared research foundations, but also shared community processes, infrastructure and contributor base.”
Proposal inverter can be then seen as partially resonating with VAMs (as introduced above) but also with the key ideas behind the EMC artifact: the Ecosystem Micro-Community Contract of which we gave a more complete description here. The EMC is essentially a multi-stakeholder, multi-party (N to N) contract that is part of Haier’s Rendanheyi – and one of the primitives codified in the 3EO framework.
In terms of scope, EMCs seem much broader: they go well beyond the simple commitment of funds and cover many more dimensions of resources allocation including committed work, management of IP, etc…and, as in the case of VAMs vs Prime Launch, they provide much more freedom to regulate how the outcomes that the incubating team that leads the multi-party agreement will deliver will impact the contract execution. These include linking the reach of certain outcomes, and objectives, to the release of equity, and rights on future revenues of the new entity that could emerge.
I’m confident that the combination of launch, proposal inverter and other primitives that Prime and other players are developing right now, such as for example Prime Pools and Deals (essential ways to pool and share ownership of entities across DAOs) can extend the capabilities of Launch and Proposal inverter to mimic the capabilities of VAMs and EMCs, also impacting the way the ownership of tokens and its returns are distributed across a different parent, investing entities.
Now, why is this discussion around such new emerging primitives in DAOs interesting – more generally – for the organization development landscape? Because the two worlds are rather easy to interface, much more than people usually think about. Technically speaking, for an organization to interface with DAOs it only needs to use a so-called multi-sig wallet. A wallet is essentially a place where keys to move tokens can be secured, and thus can embed all the rights that are bound with that token. Different from a DAO, multi-sig wallets are clearly managed by offline/off-chain decision-making processes that will be required to align all the key holders that can “unlock” a multi-sig (standing for multi-signature) wallets.
Furthermore, technologies already exist to connect the “real world” with the world of programmable organizations, and they are oracles (as mentioned above, solutions that can allow information coming from trusted sources to be used as an input), stablecoins that effectively represent real-world currencies in the digital, on-chain environment, and other primitives.
The major challenges for a gradual integration will likely be only cultural then.
If we make an effort to relate this conversation about DAOs and the overlap and convergence with the existing organizational and product landscape we can make some speculations. As the reader may know, the Wardley map below represents a simplified version of the current product landscape, as influenced by platforms and marketplaces.
Marketplaces tend to aggregate participants, connect them to standardized transactions (for example in payments), and provide them with software tools and services to support them in the execution of their key workflows. These two major value propositions are normally powered by identities and reputations that are all custom and vertically integrated by each platform marketplace provider. We can also generally see marketplaces as a mix of filtering and curation (presentation, discovery) and the underlying social graphs.
If we look into the evolution we can expect in this part of the market, we can expect that – as a result of the progressive unbundling driven by the adoption of web3, and more generally the modularization trend that also Sangeet Choudary captured so well in his recent work on the Building Block thesis (stay tuned for an upcoming episode on our podcast where we discuss that), we could expect that:
- marketplace progressively unbundle into a presentation layer (filtering and curation) that will provide access to a standardized universal social graph;
- componentized, standardized transactions will embed more and more elements, as more primitives of marketplaces (such as insurance and other embedded finance elements) will be provided as programmable modules;
- identity and reputation will be increasingly detached from vertical integration and provided as powered by composable protocols (think about Lens protocol, a composable social graph and social interaction protocol that is gaining ground in the web3 space);
- composable protocols will provide access to components and standardized commoditized services;
- differentiation will be provided mainly through UX (filtering and bundling) powered and backed by specialized services and emergent software tools that will, as well, progressively be modularized in the interest of cross-contextual adoption.
This dynamic will essentially bifurcate the product spectrum into a space where custom-built ontologies will be created capturing and responding to innovations, and commoditized, universal ontologies will exist and progressively integrate more functionality, domain information, and increase composability, driving efficiencies and tearing down walled gardens.
In this landscape, for organizations to learn how to cooperate with DAOs and sometimes use a DAO/protocol pattern to componentize some of their key services and products will be essential to maintain the capability to influence industries and markets as – most likely – such patterns will be central to the “right” part of this landscape.
As composability, modularity and openness penetrate the market, using traditional defensibility mechanisms such as network effects and social graph control, technological or data lock-in, using locked complements in conjunction with open standards (such as what Google did with Play, keeping it a locked complement of the otherwise Free Android OS) will become harder. Brands will have to learn how to build legitimacy by either creating composable, open layers, sharing the governance of enabling protocols and services, or simply by using trustable components built by the ecosystem (a la lens protocol).
In the convergent context, we just described, for organizational developers and product designers will be essential to look into the new set of primitives that we briefly discussed in this post, and that are emerging at the conjunction with unit-based, market-based organizing, and open, permissionless and autonomous ecosystems as the ones currently being explored and nurtured by Prime DAOs and other web3 players.
There will be a time, soon when app stores, thin platforms, operating systems, and integration layers: all of those will be built with open protocols, and governed through democratic governance by DAOs. Your organizations should start to catch up with such language, primitives and tools (reach out directly for not-yet-public Web3 strategic integration training).
Note: we expanded on some of these topics in a previous post you may also want to catch up with: Can DAOs be Entrepreneurial Ecosystem Enabling Organizations?
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