Alex
With the startup that I'm doing now, that story was: early in the year, I was just doing a bunch of hackathons with a few friends. Did the Solana hackathon, some $ETH hackathons here and there.
Brennan
Oh, exciting.
Alex
And then yeah, just kind of got into crypto really, got really interested in the space. And then I was set to go… I was set to leave Lunchclub and go back to school actually. So I was like, "I want to grow up now." But I already signed the papers to go back to school; I already paid my school, actually, as well. And then, I don't know, the team and I—the hackathon team, or the crypto team—we just kept on talking every week. We would have these calls… Every other day, we started having these calls about these exciting ideas we wanted to build and then we were like, "Okay, let's actually build one of these, all right?" And we started to explore this idea a little further, and then we started getting some investor interest. And then at that point, we were like, "Oh, shit. This is getting a little bit more serious," because I guess we were kind of thinking, "We could just build this on our side. It's not too big of a deal. We can continue living our lives." But once we… we can't, in good heart or in good faith, take someone's money and go to school and have a job and stuff. So we were basically thinking, "Okay, if we're going to accept funding, that's it. That's when we have to drop out and really focus on this." And then as a team we were like, "All right, let's do it." So everyone quit their jobs, everyone dropped out of school and here we are.
Brennan
Wow. So how many of you are there?
Alex
We have four co-founders.
Brennan
Four co-founders. Okay.
Alex
Yeah, team of four. We just hired our designer recently, so team of five.
Brennan
Awesome.
Alex
Yeah. It's really exciting. And then, I guess, during that time, or right before we started working on this seriously and got investment, I was organizing a co-living house. I knew I had to be in SF because of Minerva, right? The school that I was going back to. And then… one thing I learned about myself this year was I really enjoy being with other people. I think… I lived a few months alone in Mexico. I didn't quite like—
Brennan
Not a fan?
Alex
living alone. Yeah. I think one thing is like, when you live alone, you have to be really intentional about hanging out with people. You have to say like, "Hey, let's like meet at this... Today, let's do this thing." But then with the house, I really like it because I can just walk in the living room, sit there and then, oh, someone else will sit there and then we'll just have a great conversation. And you get these kind of serendipitous moments that arise that I really enjoy. So yeah, I think that's one of the main reasons I wanted to organize this house and find a few people. Connie, as you know, is staying there. Some of the people I found on Twitter, some other friends that I had, we just got a house together.
Brennan
Isn't Twitter like the most powerful thing?
Alex
It is, dude. It is so ... It's so crazy. It's so crazy. I-
Brennan
I could never have imagined that the most powerful tool for everything is just Twitter. Because it's such a trivial app, right?
Alex
It is, it is.
Brennan
Any developer worth their salt could make it in like two days.
Alex
Yeah. I love how you put it like that, any developer worth their salt. That's really funny. But yeah, and it's also like it's very hidden, right? LinkedIn is very clear like, "This is for professional networking. You have to meet people here and stuff." But Twitter is very like, "Oh, you tweet, right?" But then what do you see on Twitter? You see Donald Trump tweeting or you see Kanye West putting out a tweet. But I just didn't realize there, such like… there can be strong communities there and strong people there, interesting people there.
Brennan
Yeah. I think it's interesting because it… it just sort of falls from the medium because the medium is just: you're putting out the text. And so it can be anything, right? You know? There's definitely politics Twitter, and then there's music and celebrity Twitter, and then there's tech Twitter and they're just distinct.
Alex
Yeah, exactly, exactly. I just meant like as a non-Twitter user, looking from the outside, it doesn't seem like a really [inaudible]
Brennan
You're not like, "Oh, where am I going to find friends and people to live with and like people to work with? Oh, I'm going to go to Twitter!”
Alex
Exactly. It's very deceptive in that way.
Brennan
Yeah. No, it's great though. So Utopia Labs, you're building tools for DAOs, right?
Alex
Yes, sir. Yeah.
Brennan
Okay, and it's like payroll, and— so I've been sort of following along with the ConstitutionDAO thing this week (I’m sure you have been too). And it's like… I don't know. It seems like it's very analogous to a corporation, except in code, and so I imagine... are you just building out a lot of analogous tools and processes or is it like something more, I don't know, original?
Alex
Yeah. So Brennan, that's exactly, I think, one of the deeper questions that I've been exploring just myself and with the team as well. I think maybe this is one we can dig deep into a lot of this [inaudible]
Brennan
Oh, yeah. Let's go!
Alex
about economics and stuff. So I think one thing I was thinking about was… I think there's this idea of skeuomorphism. I don't know if you're very familiar with—
Brennan
Yeah, just like real-life-looking-ness? Is that the right one?
Alex
Yeah. I was listening to a podcast where someone was using it in terms of like... for new tech. I think like, for example, with the internet approach, right? A skeuomorphic approach is like, "Oh, you can out brochures on the internet. You can, I don't know, put your kitchen recipes on the internet.” And it's like… that's not exactly the power of the internet, right? The power of the internet, you don't just put random stuff that are in the real world on the internet. You can have a marketplace, you can have social networks. These are the things that people didn't realize in the beginning, when the tech was created. And I feel like we’re at a similar stage in web3 and blockchain where I think a lot of people are trying to just say, "Hey, what are we doing right now, and how do we bring that on chain?" I think it's interesting because it's like, "Is that the right way to approach it?" It's like the equivalent of just putting brochures on the internet. That's like a lot of what our team is thinking about, is what is like the web3 version of this? And not just like putting this into web3, but a new take on how people cooperate, and how people work together. Which is what a DAO is, right, you have to cooperate and work together.
Brennan
Yeah. It's a really interesting question. Because yeah, these new mediums, it seems like they're going to be something fundamentally different. But they have to get started, right? It’s hard to dump it. When you're talking about that, I remember the latest modern skeuomorphism I can think of, which is the icons on the original iPhone. You had all these icons and they're just like pictures of stuff. The camera is a picture of a camera, the newsstand is a picture of a shelf. And I remember watching Jobs' iPhone unveiling, and he was showing how you can go to a website and you can zoom in on stuff. The example he used was the New York Times, which… their website back in the day was literally the newspaper rendered in the website. It was the exact same layout. But we had to have that before we could adopt newer things. I guess, it's like... it's path-dependent because like… sure, we could build big things but how do we make sure they're the right thing to build? And how do we get users? And—
Alex
Yeah, exactly. Yeah. I think one thing I'm more exploring is like in terms of… so right now, there is a very set standard for how corporations are created. Like… a classic startup, they follow the same kind of structure… and corporations as well. I guess a lot of what I'm thinking about is like is there a different way that this can be done? And is there a different way, a more effective way that can be done that DAOs can experiment with? For example—this goes back to this skeuomorphic idea—is I think currently, a lot of our product, just because it's the easiest, low-hanging fruit... It's actually from a very customer-centric lens, or point of view. We're looking at DAOs right now and talking to DAOs, "Okay, what is your problem?" Right? And kind of solving that problem for them. So I guess a key—let me just tell you a little bit more about what we're doing—basically, DAOs right now are like 10 to 20 people. And we want to— at 10 or 20 people, it's not too hard to manage. But a lot of DAOs right now are starting to near the edge of like a hundred people or a thousand people even. And when you get to that stage, it's quite hard to manage that big of a group of people not only in terms of like how do you pay them, but also like how do you communicate with them? How do you build a community with them? How do you manage what they're doing and stuff? So we want to be that tool that helps them scale at that level, and that's a lot of what we're exploring. So right now, as we are launching our beta and putting out our product, we're really, really focused on: “what are your customer problems?” So we're just talking to a bunch of DAOs and we're just asking like, "Hey, what are you struggling with?" and solving that for them. And what we've noticed that a lot of DAOs right now are very like web2 in structure. I mean, there are some notable exceptions, but most of them are very like, "Hey, we take a classic startup or a classic group, but instead of classic things, we have a native token and we have… We're paying in $ETH and $USDC” and stuff like that.” That's why our product so far has been more along the lines of like, "Okay, how do we help you with just putting your corporation on crypto?” kind of thing. But we've been thinking a lot about like, "Okay, what are the non-skeuomorphic things that we can do? What are the new web3 ways to create a corporation?" One point, an example of this is we're exploring how do people determine each other's salaries, right? In a traditional business, it's like the CEO or the owners hire and the owners decide the salary, right? It's like a top-down approach. And we're thinking with web3, could you have like, a peer consensus model where your peers are able to rate you, your work and that work translates to your compensation? And that is a fundamental shift in how things are done, right? So we're trying to see if that is like… how we can experiment that way, not only for payment, but how governance works as well. Instead of having the classic shareholder structure or like a pyramid hierarchical structure, we can explore a different model. So we're thinking a lot about that. But the one thing that comes to mind that I've been a little bit… that's kind of being gnawed on me is like maybe those… So Adam Smith's free market hypothesis is just like “you have a bunch of people trying a bunch of things and the best will survive,” right? The most efficient, the most valuable companies will be the ones that are most significant in the economy.
Brennan
Economic Darwinism, basically.
Alex
Exactly, right? And I'm thinking, so America… or even that kind of economy has been an experiment going on, right? And if there was a more efficient way of paying people, if there's a more efficient way of cooperating, I'm just wondering why haven't we seen those ways proliferate or be more significant in our economy? So for example, a DAO could be think or thought of as like a workers cooperative, right? Where employees own equity and they're able to make the choices, and stuff like that. If that version of a corporation is actually very effective, then why don't we see more of those in society and in our world today? And if we don't see those, does that imply that they're actually not that effective, that the current structure is the most effective?
Brennan
I don't think it necessarily implies it, because there can be confounding factors. And this sort of relates to what we wanted to start talking about, which is the idea of market socialism, like what's that and how does that relate? And I think that there's certainly confounding factors in that…
Okay, imagine you have to be a leader, and you're a leader and you want to start a company, right? It's a lot more advantageous for the leader under the traditional capitalist model to be the traditional capitalist, to be Bill Gates, own like 80% of your company even though you have a few thousand employees. If you can get away with that and if you can get away with paying your employees salaries, you really want to. But I think what we're seeing is actually a move towards this kind of more cooperative, more market socialist approach. Because, I mean, look at startup land. It's sort of a soft version of that, you know?
Alex
Mhm. It is, yeah.
Brennan
Most solid, ambitious, competent people don't want to go and get a salary. And if they do, it has to be like a really obscenely high salary, right? If you're going to Apple or Amazon, you're getting paid like nearly half a million dollars nowadays. But the alternative is like… they'll work for you for cheap if they can get part of your company, right? And so I think it is almost like a natural takeover of the economy by these pseudo-co-ops. Because they're not like a full co-op. There's not equal ownership because the founders take a whole lot more risk, right?
Alex
Does a co-op necessitate equal ownership as well, or—?
Brennan
I don't think so. I think it's just like worker ownership. Because the idea is… who owns the company? Is it the one person who started it and, by historical accident, happens to have all the shares? Is it investors who managed to buy the company, you know? Is it the workers? And it seems to just rationally follow that if the workers… if they have an incentive to produce, then they're going to produce compared to when they don't have an incentive to. If they own… So yeah. I don't know. Maybe way back in the day, there was a lot more... I mean, part of it is like governmental forces. The capitalists very much were in charge in the early 1900s. You sort of have the… very militarized responses to like co-ops and to anything that says anything Marx. But I think we're starting to see that wane a bit, and if the—I happen to believe that the market socialist model is more effective, right—if you distribute ownership, you are going to get more production. And I do think that's bearing out, and you see... Giving equity is ubiquitous in the tech industry nowadays. There was this company. I think it was MailChimp? A few months ago they IPOd or they sold and they hadn't given any of their employees any equity, only cash salary. And it was just like… the entire tech industry was just shocked to the core like, "What in the world is this?" And the tech industry is the only industry that's really like that, that gives a lot of equity. But I would argue that that's leading to the tech industry swallowing everything. Right? Because what we figured out is basically market socialism, and now tech companies go into vertical after vertical and just completely just dominate. I don't know.
Alex
Interesting. Okay. So I think… a lot of points you brought up were super... like something I’ve thought about deeply as well. I think one thing I want to do first is clarify the terms.
Brennan
That's important with this!
Alex
Yeah. So a co-op can be just defined as like everyone interfacing with the company owning some part of the company, right, where it's not—
Brennan
That's more or less my understanding, yeah.
Alex
It doesn't really have to be equal. Everyone doesn't have to be… it’s not a flat hierarchy, but everyone at least has some ownership. And market socialism is like a market that's only made up of co-ops. Is that a good definition?
Brennan
That's how I define it. That's how I understand it. It's basically the idea of… so what Marx preached back in the day was like “workers should own the means of production.” Because that's what aligns the incentives. And the argument is that capitalism—defined as the person who owns business being the one who gets all the profits and they pay salaries to everyone under them—that's not going to be very incentive-aligning because they just want to get lots of production and not pay their people, and their people want to get paid and not produce. That doesn't align. But then also, authoritarian socialism doesn't align, which is basically the government owning the means of production. So you have “a different person owning the means of production,” you have “the government owning the means of production,” and that doesn't work either because, again, incentives aren't aligned. You're basically a slave. And the idea is that taking the literal interpretation of workers owning the means of production—you as a worker, if you're working for a company, you own part of the company; or if you're a customer, you own part of the company, (that's a good angle too)—then that basically, combined with economic Darwinism and free markets and... that would be, in my opinion, the most effective way to run an economy simply because it's the most aligned with incentives and reality. So I see it as in between the two, which… most people are arguing for one of the two. I don't think it's really commonly seen as an option that you can have, “yes, free markets are good at allocating capital between businesses,” but also, “that doesn't necessarily mean that one person has to own the business.” Right?
Alex
Yeah, yeah, for sure. I totally agree with that, and I think... One of my main concerns when I was thinking about co-ops is like, they're possible today and why aren't they more prominent? I think one thing I realized was like, wait, the tech industry is very—
Brennan
Yeah. It's all co-ops!
Alex
Yeah, it's very, very prominent and they are a prime example of co-ops. But it's interesting. Would you characterize something like Google and Apple as a good representation of what you think co-ops are? Or do you think it's like, "Oh no, no. It’s a bit more than just giving someone like 0.001%."?
Brennan
Yeah, yeah. I mean, it's just hard with scale, right? Because the bigger the scale of the organization, the more divorced you are from the results of your efforts. And so, I think… This is naturally why startups are so much more powerful leverage-wise than big corporations, just because 10 people who are really aligned with each other and who own a big chunk of the output, they can just tear. Whereas if your employee number 200,301 at Apple, what does it really matter how hard you work? The more people there are, the less… There's actually some research that's been done on this, which is basically like the marginal productivity of a person literally goes down by a power law scale as you add more people. So basically, if you have one person, they'll do a certain amount of work. If you have two people, they might do like one and a half times as much work as one person. If you have three people, they might do like one and three-quarters times as much work. Right? And so you get this diminishing gains. But the thing is… you need some threshold of work to get done to do something meaningful, so you have to eat the efficiency gains. You're like, "Okay, we have to employ 200 people if this is ever going to happen." But I think computers are bringing—and the leverage of computing and stuff—is bringing down a lot of that necessary size. Where did that line of thinking start? Oh, yeah, like what size.
Alex
I'm wondering ... Yeah, I'm wondering, do you think that that's like a limitation of co-ops? Because I think when I think about co-ops, I do see a few hurdles that I wonder how these are going to be solved… not hurdles, but like inherent kind of drawbacks of having a co-op. One of them, as you mentioned, is like at scale, can they actually work for an efficient organization? Again, if I had like 200,000 people and they all get equity, does that actually make an efficient company?
Brennan
Yeah. It's a good question. I think regardless of your model, scale hurts. It hurts a lot for individual efficiency. But I guess you have to... I don't know. It's a function of risk taking in that if you join Apple as the 200,301st employee, you're not taking really any risk, like… You would be if you started a company, just tons. If you're employee number 10, it's less but still quite a bit. A hundred, a thousand. And so your reward should be commensurate to the risk you take. So there's going to be less reward. But assuming equal rewards between like, "Do you get paid $200K in cash, like $USD or do you get paid $200K in $AAPL?” then it's like… it seems like marginally, you're going to be more... There's no reason you would be less aligned with the company if you get Apple stock, right?
Alex
Yeah, yeah, for sure. I think one of the things I was thinking about was like… one of the other inherent limitations I see to having these co-ops is like basically the idea where it's... I think the best-built companies, [best] run companies are like founder-led. Right? I think it’s for a variety of factors. For one reason, it's like if a founder wants to make a choice, they could just say like, "Let's do this because that's why I started the company,” and that's the only reason why that I need to give. Whereas a professional CEO, in running a company, would be like, "Oh, I need to think about..." I can't just say that, right? I can't just say [inaudible]—
Brennan
You're not truly in charge, right?
Alex
Yeah. You have to say like, "Oh, I'm going to make this pivotal choice to do this because it'll maximize shareholder value and whatever, whatever, whatever," which is one of the reasons why we see Facebook being able to make a hard direction turn into Meta and stuff, because it is so founder-led. And I'm wondering having it founder-led also, it's a few things. Number one, it allows the company to... It allows the corporation to take risks, right? Because the founder can just swallow that and be like, "Oh, I want to do this and I can take risks." Number two, it actually allows... it allows for counterintuitive ideas to succeed. So when Steve Jobs decided to release something that people thought was really, really dumb—the iPhone or something like that, or AirPods was an example as well—it's like people thought it was really dumb, but it ended up being a very huge success. And a lot of that was because you had these counterintuitive ideas. One thing I'm thinking about in a co-op is, I guess, this might not actually be a co-op, but in more of like a flat organizational structure where a lot of like... For example, a lot of DAOs right now, you have like governance tokens. And these governance tokens allow people to make choices on behalf of the organization. [I’m] thinking like, "Okay, aren't you having the company succumb to tragedy of the commons, or like the median idea wins?" If you have a leader with a brilliant idea but all ideas are subject to a vote of the populace, then it's like… would any risk-taking, visionary ideas, counterintuitive ideas actually get pushed through?
Brennan
Well, I think that there's also a selection bias in that if a company is led by a really strong founder, the people who join are going to be, in some degree, filtered for their support of that founder. I would imagine... But I don't think that makes them any less dictatorially run because I would bet almost every employee at SpaceX and Tesla would just... basically just chooses to give Musk a blank check to do whatever he wants. I mean, it helps that he manipulated, or he organized a two-tier share structure—at least at SpaceX—so he has dictatorial control, he has like 60% or something. But I don't think that democracy necessarily means middling compromise. You know? I think it can mean, "Look, this person has a bold vision. We want to get behind him." And I would also postulate that democracy within a company probably also looks a lot different than democracy inside a country because you have a lot greater power of exit. So there's a lot more selection. If you're not happy with how Musk is running SpaceX, you just quit. Right? And you're fine. Whereas in the US, if someone's in charge and running it into a cliff, there's not much you can do. And so there's more people who are going to stay there and stake their heels in and scream “no," whereas at SpaceX, if you don't like what the company is doing, you just leave. It's easy.
Alex
Yeah. That's actually a really interesting point. I guess too along these lines… bringing it back to our earlier conversation… I was thinking like it seems like in our current market, or in the history of the economy, there's been a lot of these experimentations with these different co-ops and stuff. And I think… will that… as a company, to think about our product, should we think about revolutionizing or creating some new web3 way for people to cooperate, whether that be an organizational structure and governance structure, in even compensation matters, something like that? Or should we just be like, "Hey, listen, the market has done its thing. It's already filtered for the best and the most efficient ways to organize"? So why don't we just take that and bring it on crypto instead of trying to think about some new paradigm shift… where we're going to have a new corporation that's going to... is structured this way and open governance and stuff like that like, "Hey, let's calm down there. The market hasn't done this thing. Let's take that and bring it on crypto"?
Brennan
Yeah. Well, I mean, that's sort of... assuming that the field is the same, right? Because sure, with the current playing field, all else equal, the current survivors are going to have... it’s going to be decent, right? So as we have it... and note that this is even changing. Every… winner is like a relative thing, right? Because you have the one with the most market share, you have the way that's growing the fastest, you know? So basically, the way I see it is like… you don't want to just be like, “we're going to make tools that can support Apple's internal processes on the blockchain," right? Because who cares? What's important is that the blockchain might radically change the playing field such that a different optimum could be found. One obvious thing: all trends, all salaries, and everything is completely transparent in a web3 company. You cannot hide salaries. And so this is a huge change even from startups where… I don't really know… I'm at a startup. I don't really know my co-workers' salaries. I have no clue… I know the bounds [of salary], but I have no clue how much equity my coworkers have. And it's like historically, you've been completely in the dark about salary, because it's not exactly in the company's interest to publicize that kind of thing. But if you're on a blockchain, you can't hide that. So immediately, if what's convenient right now is the CEO decides top-down like, "Okay, this is how much everyone gets. And if someone's being really difficult, you can give them an extra $20K a year, but just don't tell anyone, and we really want to hire them,” right now that works because everything's opaque. But in the future, when the full org structure and the full comp structure is transparent, I think you're going to have a lot more impetus towards some more objective form of compensation, like either based on peer review, or based on performance, or based on... I mean, unfortunately, the Schelling point) here so far has been seniority. Because in union-dominant environments and in the government, we have this condition which is that pay is equal. And as a result, everything's based on seniority. That's the compromise everyone has come to, which I think is pretty bad, but that's just how it is. Basically, I think at least in this one way, the playing field is going to be completely different in DAO-based governance versus even like Delaware-based governance in that compensation is totally transparent. And so from the beginning you have to work with that. You sort of have to adopt that. And if you're building payroll, if you're building compensation structures, your entire world is going to be different.
Alex
Exactly. That's exactly what I'm trying to think about. I think that is definitely like one side that I definitely agree with. I think crypto does change the playing field. What's worked in the past may not work in the future, right? And that's kind of the idea being non-skeuomorphic, it’s like, "Let's look at the new playing field that we have that this new tech enables. Let's have us iterate and find the best solution using this as our current instead of the old way." But on the other side of my brain, I'm thinking about… these innovations, when you talk about DAOs and stuff, aren't exactly technological at heart. A lot of these are like... the tech enables things like organization and stuff like that. So one argument I'm thinking about is: I can have a startup that is fully open. I can literally post my accounting records on the wall for anybody to access. I can write down, on the whiteboard, everyone's compensation. And if this was an effective way to run a startup, maybe we would've seen… why isn't this the de facto way to run a company nowadays? Is it really because it's on a somewhat different playing field, it's with the traditional LLC corporation, $USD, fiat-based structure? And then, hey, you're right—maybe when you go on chain where everything is transparent, that'll actually be more efficient. Or is it really just because that doesn't work? It's not actually that effective. So that's what I'm wondering: what's the reason for that? Is it actually—
Brennan
It's a good question.
Alex
going to change the playing field?
Brennan
Yeah, so if I'm an employer, right? If I'm Mr. Top Hat and Monocle, I don't want my employees knowing what each other make because then, I can wear them down separately in negotiations and they can't say, "Hey, this person, I'm better than him and he makes 50% more than me. What the fuck's up with that?" And it saves me a whole ton of headache to have everything opaque. So if I am Mr. Corporate, I don't... if this is the only change, why would I ever move to a DAO-based system? That'd be really stupid. I would not like that. I think the whole thing is like pros and cons though. If there are other benefits to having a DAO-based system, say, the ability for everyone to contribute really easily, everyone to hop in… I think with ConstitutionDAO, we're seeing… it's basically being run by like 15 startup founders who hopped in. You can't hire these people, right? But by running it as a DAO, you're now able to get the kind of talent and the kind of hype and the kind of buy-in that you wouldn't be able to get otherwise. So that's where it's just like... that’s one form of the equation, right? If nothing changed except salaries being transparent, corporations probably won't switch to it. And you honestly probably will not see many corporations ever switching to DAOs. What you'll probably see is startups starting on DAOs and kicking the pants off everybody else, assuming that it is a better system. And it might not be, and it might get just ground into the dust. But if you're making that bet, you're basically saying that the whole paradigm is shifting. And that's where, as you're realizing, it's important to start with the small companies because most change happens through replacement and through deletion and through elimination. The way Apple gets reformed is Apple gets out-competed and becomes irrelevant. It's not that Apple's like, "Okay, actually, everyone who owns an Apple stock can now receive this airdrop. Just look at this address," and like, nope, they’re not gonna do that, ever.
Alex
Yeah. I totally agree. I think there's a quote by Max Planck, I'm sure you've heard of it as well, “progress in science doesn't happen with a scientist learning that there's a new truth, but it happens with… the old scientists die with their old truths and the new scientists are brought up with the new truths.”
Brennan
Yeah. That's great. The version I've heard is that “science advances funeral to funeral.”
Alex
Yeah, exactly. That seems to be true.
Brennan
A little less diplomatic.
Alex
Yeah. That's funny. I think that it's actually true in business and corporations as well. Well, what are your gut takes on DAOs? I don't know how deep you have gone in the space, but I'd love to hear what your thoughts are on what you’ve heard of.
Brennan
I have not gotten very deep. Honestly, it's only been within the last week or two—first with the $ENS airdrop, and then with ConstitutionDAO—that I've been like, “okay, high alert, there is something here." So you're like months ahead of me in that respect. I think I'm able to jump up to the theoretical forefront very much because I have read an obscene amount of things on politics and economy and history. So I can immediately grasp and explain the implications of it, even if I don't know exactly what the current state of it is right now. So basically, I can't answer very well because I really don't know of what the leading DAOs are, how big they are, what issues they're struggling with. You're probably a lot more equipped than me on that issue.
Alex
Yeah. I think that the more and more I dive into the field actually… I mean, I come from a more tech… or I came in with a more tech-focused thing. I'm like, “oh, like this tech is so cool. It enables you to do things." But more and more, I think like the tech is probably just like a vessel for this more economic, political, governance—
Brennan
It seems like incentive innovation is the main thing… with DAOs, you can innovate on incentives. And I do think that... sorry to interrupt, but I think that that's going to be the big outcome, is it's not going to be people like us big-braining about like, "Okay. With DAOs, what's the best way to compensate?" But I think what's... one of the biggest products of companies that are built on these is in 30, 40 years… basically, we can now engineer compensation structures and we can engineer organizational structures and organizational incentives in a way that only lawyers have been able to do beforehand.
Alex
Yeah, 100%. Yeah. I totally agree with that.
Brennan
Which enables experimentation, which means okay, capitalism… authoritarian capitalism, if you will, with one person at the top, that didn't work very well. Authoritarian socialism with the government owning everything and everyone being a slave, that didn't work very well. My hypothesis is like some kind of risk-adjusted equity compensation for everybody in a co-op style model is what's best, but I might be wrong. Whatever it is, this is… the experiment is going to run. Right? There are going to be people who try to make DAOs as like a dictator, there are going to be people who try to make DAOs that are completely equal, and there are going to be people who just... maybe it's an appeal if someone like Musk makes a DAO and it's like, “here’s my vision. And look, I have 60% of voting shares for perpetuity. Nobody can touch my vision, want to come invest?" That might be an appealing option. Right?
Alex
No, I totally agree. I think you actually hit it on the nail. That's the conclusion I came to as well. It's like we can try to big-brain this, but at the end of the day, what's so promising about DAOs is it allows this iteration or this experimentation that we… I mean, I don't think that it's currently possible, or that has been possible historically, on governance and stuff like that. Actually, yeah, do you think this way wasn't possible? Like this experimentation with the governance—
Brennan
Everything's possible with a certain amount of effort, right? So if you wanted to, you could hire a lawyer for like a million dollars to write up a completely novel compensation scheme before you even start your company, but that's really stupid and who would do that? So I think nowadays, it's just like it's economical and it's a lot more possible because any smart engineer can spend a month learning Solidity and read an economics textbook and be like, "You know, I think this is the way to do it," and then just program something and bam, anyone can use it. That's the other thing about DAOs: a lot of these structures and formulas are permissionless. It's a composition of new primitives, and so it's going to be endless iteration and tweaking. Basically, I think we have the question right. I think the question—“what’s the best way to compensate and what's the best way to govern?”—I think that's the question that we’ll see the emergence of DAOs answer through market competition. But yeah, I don't think that we're capable of answering it here, only gesticulating and being like, “it can't be authoritarian capitalism, it can't be authoritarian socialism.”
Alex
Yeah. No, I totally agree with that. I totally agree. Just to play a little bit of devil's advocate… you’re right, there are some very big economic and legal barriers right now to experimenting with [as] much freedom as there is right now in the crypto space. But if there was a benefit in doing that, using Adam Smith's evolutionary theory, wouldn’t we see more corporations today that… or do you think like… It's not impossible. It's still possible to experiment in that way. So does that mean that today's market representation of corporations is actually a pretty good indicator of what's most effective?
Brennan
Well, I say yes and I say it doesn't mean what you think it means. Because today's market is... again, it's dominated by... the biggest I-don’t-know-how-many companies are tech companies that compensate their engineers with equity. The fastest growing grocery chain in the US (to my knowledge) is WinCo Foods, a complete co-op. You see throughout the American economy examples of co-ops just doing spectacularly well. In fact… I forget what the statistic is. I didn't do my research again before this. But the survival rate of new businesses is at least two-digit percentage points higher than the survival rate of single people starting businesses, right? So co-ops are already a lot more durable and… I would say, yes, the economy is a hint to the future, and that reinforces my idea that the future is employee ownership. And again, I don't think this is like sole employee ownership. I think what we're going to see in the future is almost everyone being compensated on two tracks, in two different currencies. One is like a stable currency that you can depend on to live, and one is like a speculative currency which is based on the profits of your enterprise, right? For me, right now, I'm being compensated in $USD and Synthesis stock. For someone in a DAO, they might be compensated in Ethereum and their DAO’s token, or $USDC and their DAO’s token, or Bitcoin and their DAO’s token. So I think you're going to have the safe and the speculative. And then basically, every new employee is going to be given a slider where they're like, "Okay, you have like X number of points to allocate to either $USDC or Synthesis token," and you can drag the slider and it's basically risk reward, right? I mean, that's literally how it works in a lot of startups. So when I was first negotiating for Synthesis, I was... they give you like five options of like, “this much stock, this much salary; this much stock, this much salary." And I was like... I knew what was coming, so I said, even before anything, “give me the most possible equity." Right? Because there are benefits to ... And this is one of the benefits of if you have a low cost of living—one reason I'm in Oregon—and you can take a quarter of the salary of somebody else, then you're going to get a lot of... you’re going to get a lot more tail-end compensation. If I were to arrogantly place myself in your shoes and be like, "What kind of payroll systems should I do?" I would do something like this where people are given a certain number of points and they can basically move a slider to allocate like, "I want more $USDC or I want more token."
Alex
That's actually a feature that we're building.
Brennan
Okay! Well, there you go. Yeah… because you can't only have tokens to live, because they could go to zero or they could go to like 1%, and then you starve to death, and you can't work anymore, so you have to leave and get a job. So you have to be compensating people, at least those who aren't independently wealthy, with some kind of stable, put-food-on-the-table, pay-rent token.
Alex
Yeah, for sure. Hearkening back to your point about or the stuff about iteration stuff, I think one... to stop playing devil's advocate because I feel like I've been doing that and talking shit too much, but I think one push towards this explanation more and more or this co-op more and more is like the fact that we're going to see a lot of things that are automated. Because right now, a lot of jobs are... why would I want to ever give them equity? If you're just serving burgers at McDonald's, the corporation doesn't really want to give you equity because you're very replaceable. But I think with the growing trend of automation, we're going to see less and less of those jobs. And with more global globalization, there's going to be a harder demand for talent. I think that all those trends push for more of a kind of DAO-like structure where you are going to need to have more than just cash to actually incentivize someone to join you in your mission and stuff, which I think it’s definitely pointing towards. Because I think both of those are very, very clear indicators and I think the tie between them and a more DAO-like future is pretty clear in my mind as well.
Brennan
The thing I would distinguish is it's like, “how much leverage does an employee have?” Because the more leverage they can have, the more you want their incentives tied to the success of whatever they're doing. If you have a CEO, you want to be paying your CEO almost entirely stock, ideally, options, which are only upsided stock, right? So they don't even really get paid very well if the stock goes down 50%. And I might be wrong, but I think that's what happens now. Well, I mean, this is a... so Elon Musk took a compensation package from Tesla in 2012 and again in 2018 where basically, his entire compensation is in like 4X… I don't know my financial terminology, but basically options where their strike price was like 4X the current Tesla strike price. So he got this... It's basically worth zero in almost all circumstances, but in the case he gets Tesla stock up there, he's literally getting paid like $3 billion a year. And it worked! And the thing is it's like… as a stockholder, what's your downside? Because you're paying him out. But on the other hand, your stock just quadrupled, so what does it matter? So I think you're going to see a lot more like the higher up in the organization you are, the more you're paid in calls and high strike calls. And then… as you were saying, if you're a burger flipper at McDonald's, if you're really motivated, you might flip burgers like 10% faster. But there's not ... If you're paid all equity, it doesn't matter, you're doing the same job. It's just routine, it's work in, work out. So that's where I think a lot more for like engineers where it's like, "Okay, what feature are you building? And how much do you care about the quality of that feature and it not going to shit right after you stop working on it?" If you're a marketer… how do you motivate these people to do their best and to make the best possible decisions? The way is you align their incentives.
Alex
Yeah. Yeah, for sure. So I didn't know that you delved into crypto space before. When did that happen for you?
Brennan
Let's see. I've only really had money since... I got my first real job in March 2020 right as the pandemic hit. For a while, I was maxing out retirement accounts and just saving. I got up to a down payment for a house, and then I started having excess money and I was looking around. At the same time… this was like September 2020. The current Bitcoin bull run was starting. And so it was Bitcoin, like 15K or something. And so I just started looking into it, and reading and reading more and more, and—being a technologist and having these absurd hobbies of reading economics and history and politics all the time—I was like, "Okay. I understand this at a visceral level." It's like total conviction. So I put most of my savings… I actually cashed out one of my retirement accounts which I had previously maxed out—because I couldn't invest it in Bitcoin at the time—which has paid off pretty well. So that was that. And then ever since, I've generally been following the crypto space. I think I really started understanding the power of smart contracts in early summer [2021] like, "Oh crap. You can just put anything on the chain." And so I got some Ethereum and some Solana because Ethereum's the incumbent and Solana seems like a better technology. For anyone listening, don’t… this is not advice, please. And then just last week or two, I feel like it's fully—“chunk”—sunk in the power and the importance structurally in society of DAOs and crypto-based compensation and power and finance and... because it's really just like stock. And they'll tell the—
Alex
Don’t… make sure the SEC’s not listening, right?
Brennan
Yeah. Nobody likes to tell the SEC that, but it's just stock. Well, okay, it's not just stock, it's more, because it's stock and it's a currency. So it's like as if I could prepay for my Apple purchases five years from now from buying Apple stock now, and it would appreciate and I could pay for the purchase… it's just the same currency, which is cool. But it really just... I would argue more than anything that... so everyone's arguing that cryptos are... “they’re currencies, they're not stocks.” But I think the truth is actually that stocks are currencies and we just haven't really recognized that before. Anyway, I think it's opened and built a whole new field, so I've been interested in it now.
Alex
Yeah, for sure. I do think this space is like right up your [alley]… knowing your interest in economics and politics. So I think it definitely is super cool that you’re digging into it. I'm curious what you think is the most promising aspect of maybe just crypto or DAOs in general? Or what excited you a lot?
Brennan
It’s Turing complete money, and that doesn't really mean anything to anybody who doesn't know both what money is and what Turing completeness is… so sorry, anyone who's listening! But basically, it's like… Turing completeness is… I don't even understand it fully. It’s this idea of full self-referentialness. It's the idea that because our brains are Turing complete, we can understand anything. And if we focus enough, we can learn and do anything. Computers can reach in and change their own code, they can change their own operating… that, and also like a firm understanding—not understanding; a firm belief—in exponentials, which are something that nobody can understand. So this is a big exponential, right? And I can see that this is programmable money. And right now, it's like Bitcoin competes with wire transfers and it's like, "Oh, wow. What’s the utility in that?" But I think with smart contract-enabled languages like Ethereum, you can do stuff like experiment with governance structures. And this is literally like the first thing that we figured out how to do differently. Everything is composable, everything is extensible, every new thing that is built is a primitive for the next person to work with. I think we're just going to see this—
Alex
I see that. That's compounding it.
Brennan Yeah. It's like compounding upon compounding upon compounding. Everything I know about compounding—about everything, pretty much—just screams at me that this is obviously, just trivially how the world's going to run in like 20 years.
Alex
Yeah. Honestly, the thing is I'm so upset I got into this field so late.
Brennan
Yeah. I'm like, "What the hell?" Even for ConstitutionDAO, I volunteered to build their website two hours after my friend Theo volunteered to build their website. And he got it and now he's like building it and he's going to be... I am not sure if I'm allowed to say—well, I'll put it out after Thursday—he’s going to be at the auction on Thursday, right?
Alex
That's awesome.
Brennan
Just like randomly out of nowhere… man, everything happened so fast. So the way I see it is… it seems like we're late because so much has happened. But I think the potential here is just so astronomical that we're actually super early. I think this is literally going to be more impactful than the internet. Because think about what we've made, okay? So think about the big innovations. So we have this programmable money where you can have the money in this program to move around. We have made… fungible tokens. "Oh, I can make this thing and send it to you and you can send it back and I can have a balance." If you think about it, this is like a CS 200 kind of project. It's like the most trivial possible application, right? And then we're like, "Okay, well we have fungible tokens. Now, we have non-fungible tokens. Look, you can send these around and they don't stack! And look, you can attach a URL to them, so now they can represent something!” And this is this giant NFT craze, but it's just, "Oh, I can send this thing around with URL." But we are barely scratching the surface. We are only starting to tinker, because these are like the two trivial implementations… If you're thinking of writing an academic paper on like, “what are the implications of like Turing complete money and the consensus mechanisms we've come up with and this kind of thing?”… You're making a bullet point list. You're like, “Hmm, we could make fungible tokens. Hmm, we could make non-fungible tokens," right? So that took you like 10 minutes. And where is this going? Again, it's infinitely composable. So I think that we're... I think it's just starting.
Alex
That's a really good way to put it. We're still so early. Well, what do you think are some of the more... some of the other bullet points that you couldn't write down?
Brennan
I don't know. Again, I'm just starting to scratch the surface into it. And I think I do have an advantage because… being a nerd, I'm coming at it from this super theoretical angle of like, “man, look at the economic complications and the political implications and everything." And so… I don't know what else right now.
Alex
I mean, to be fair, that is a billion dollar question, so if you ever do it, you should definitely capitalize on that.
Brennan
Exactly. And the beautiful thing is I can do that, and I can do it over and over because if I just take nights for a month and have a really good idea, and then I write a contract, then congratulations, I've created a new primitive. Yay! And then I can just move on to the next. So I don't know what it will be. But this is one of those things that it's really hard for humans to understand Turing completeness, it's really hard for humans to understand compounding. And this is like all of that wrapped in a bundle just waiting to explode. I do truly think that... it sounds like I'm talking complete hyperbole, but I do think this is like one of the most powerful things that humans have and will have invented.
Alex
Agreed.
Brennan
So… who knows? Maybe I'm wrong. I don't think I'm wrong. If I'm wrong, everything I know about the world is wrong. So I have bigger problems than losing a lot of money.
Alex
That's true. Yeah, yeah.