Why DAOs will Eat Corporations
Note: Data in this section last updated July 3rd, 2022
What is Disruption?
The concept of “disruption” is overused and often misunderstood — many writers, consultants and researchers use the word to refer to any situation where a new player enters a market and starts to displace incumbents.
But the academic theory is much more nuanced — disruptive technology isn’t necessarily “better” (in fact, it’s often worse), it’s just so fundamentally different from the status quo that it can’t be replicated by incumbents or competitors.
In essence, a potential disruptor offers one critical benefit that its competitors cannot (and it does everything else much worse). This one benefit is enough though, as it gives the disruptor the ability to gain a foothold in an industry and, as technology improves, gradually eviscerate the market.
For a real-world example, we need to look no further than AT&T — one of the original disruptors.
In the late 1800s, Western Union dominated communications with a huge infrastructure of network cables and a massive consumer base. Although early telephones were largely inferior to the telegraph because their signals only traveled a few miles, the technology was much cheaper for short-distance communication and was therefore rapidly adopted by local businesses.
In a textbook case of disruption theory, Western Union couldn’t react because serving these local businesses would be unprofitable. This gave AT&T the niche they needed — as telephone technology gradually improved they were able to continue to take share from Western Union, eventually rendering the incumbent all but obsolete.
I believe that DAOs represent a classic case of disruptive innovation. Like most disruptors, they definitely have a ton of problems today – but they also offer several advantages that traditional corporations simply cannot match.
Could DAOs Replace Corporations?
While the thought of DAOs replacing traditional corporations may seem ridiculous at first glance, it’s important to remember that corporations – at least in the form we know them today – are a relatively new phenomenon.
The first privately-owned corporations appeared during the “Second Industrial Revolution” of the late 1800s to replace the joint-stock company model popularized by entities such as the Dutch East India Company.
These entities were disruptors in their own right, and leveraged new organizational forms and management theories to respond to the rapid economic changes driven by the global shift to automation and mass production.
In particular, they pioneered the use of standardized processes (e.g. the assembly line), regulated working hours, and rigid hierarchies to break down extremely complicated tasks into small pieces that individual employees could easily manage.
Corporations Were Designed for a By-Gone Era
While these systems worked exceptionally well for over a century, they have proven less effective in the information age, which rewards speed and agility over hierarchy and process.
To make matters worse, the rigid organizational structure of the modern corporation is also becoming less appealing to workers, who demand more connectivity, ownership and flexibility. Indeed, if you pay attention, you’ll notice three important “megatrends” shaping our economy:
Increased Pace of Globalization: The world is becoming more hyperconnected – 60% of the globe have access to the internet and Americans spend 11 hours a day online
Decreasing Trust in Corporations: Raised during the Great Recession, Generation Z is rejecting corporations
Increase in Freelancing: We continue to transition to a “gig economy” driven by temporary positions and short-term agreements. Freelancing increased 33% in 2021 and it is expected to account for over half the workforce in the US by 2027
Indeed, the corporation as we know it was designed for a by-gone era, and its structure is being assaulted from all sides by a changing consumer and labor landscape.
DAOs, on the other hand, appear to benefit from all of these trends.
For the first time in history, blockchain technology makes it possible to create an entity that is simultaneously flat, fast, flexible and global. Unlike multinational corporations of the past, this new entity won’t have to navigate a patchwork of local regulations, contend with international labor laws nor will it face restrictions on international currency transfers.
As such, DAOs could represent the most efficient blend of capital, labor and ideas that the world has ever seen, and may well become the dominant organizational structure of the Fourth Industrial Revolution.
What is the Potential of DAOs?
If DAOs do prove to be superior model of organization, it’s not completely unrealistic to think that many, if not most, Web3 platforms will adopt the structure. And if they work for Web3 companies, there’s no reason they couldn’t make significant inroads into Web 2.0 and “old economy” industries as well.
While how much is still up for debate, the fact that the total assets managed by DAOs is less than 1% of the broader crypto market and 0.01% (1/10,000th) of the total equity market means that there’s a lot of room to grow!
DAOs Represent Less Than 1% of the Cryptocurrency Market and 0.01% of Equity Markets
As such, DAOs could grow 100x from here (to $800B) and be roughly equivalent to 80% of the market capitalization of all cryptocurrencies
…they could grow 1,000x from here (to $8T) and be slightly smaller than the market capitalization of the top 10 tech stocks
…they could even grow 10,000x from here (to $78B) and be roughly equivalent to the global equity market today
Wherever this thing ends up, it’s important to watch as it has the potential to be both an existential threat to traditional corporations and a road to almost unlimited potential for investors, entrepreneurs and workers.
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