We live in times of not one, but multiple interconnected paradigm shifts. Changes are affecting:

• How we define our jobs and careers
• How we form communities and associations
• How capital is raised for new enterprises (and how savings are invested)
• How companies are formed
• How new products are born

Each of these is worthy of a separate investigation, although some are self-explanatory. So we’ll focus here on one of the most consequential:

• How new products are born

Increasingly, we are seeing the traditional production sequence: 

A team (company) -> product -> customers -> community (die-hard customers) -> memes

To visualise it you can imagine a typical car-producing or phone-producing company. Eventually, at the tail end of the sequence, they do end up with a community of aficionados that, among other things, produces memes about the objects of their fascination.

That paradigm is being inverted into:

memes -> community (DAO) -> a team -> product -> customers

A typical example of the new paradigm is the Shiba Inu token. It started as an explicit joke, coupled, of course, with hopes of the inventor(s) and early speculators to get rich quick. However, memes have lives of their own, countless are produced and it is far from predictable which one will take off. But once one does, people will speculate on it if they can (if there is a token). With Shiba Inu there was, and they did, and the price exploded.

Once that happened there was suddenly a critical mass of humans who had congregated around the joke. Some of them were newly rich, some had technical or organizational skills. A DAO was born. What happened next is quite extraordinary: the DAO set out to… build products? Among those are a token exchange, an NFT collection, and more.

Some of those products then had customers who had come for the product itself, not for the memes. And thus was the new production sequence completed.

DAOs in such examples act as an online analogue of traditional companies, coordinating volunteering and paid work (often micro-amounts of work).

The interesting question is: why is this even possible? And how did it come about?

The answer is that “the traditional production sequence”, based on the (evolving) concept of a corporation, had good reasons to exist, grounded in the material conditions of the world.

But the conditions of the world have changed. A lot.

Over the last few centuries the number of people needed to produce all the food for feeding other people had been decreasing until it hit around 5% of the workforce today. What happened to the rest? They were freed to work in factories and produce the various material cravings of humanity. But their share has been decreasing too, to ~15% today in advanced economies. That in turn freed workers to shift into the service economy.

Then, with continued advancements in service sector productivity (led by computerisation) workers gradually shifted from industry-supporting service sector jobs into jobs very remote from aiding the fulfilling the material needs of humanity (food, clothing, shelter…). Such jobs are those in tourism and those whose purpose is entertaining other people (games, music, video…).

Which brings us to today. The efficiency of the world economy continues to improve and the people that are being “freed” from various types of work wind up pursuing interests online.

It is there that they become the modern proletariat, not hungry nor cold, but underemployed and underpaid, waiting for the new memes of production to capture their imaginations and set them to work. This happens through online communities. Those have been around for decades, but the recent invention of crypto tokens has supercharged them and given them the ingredient that they were missing in order to be able to harness and direct the labour of their members.

As fewer and fewer of us can take care of humanity’s material needs, memes and online communities might become the prevalent manner of organizing humans to produce things. With DAOs, we are witnessing the beginnings of what is likely to become a major phenomenon.

Let’s start with an example. According to the Court Examiner’s Report, the (now bankrupt) crypto lender Celsius spent over $500 million buying back its token CEL, for which it had only received $32 million during the ICO. According to the same source at least $75m of the $500m was upper management dumping their tokens. That would have been a horrible deal even if the company survived.

But while the CEL token was probably not the reason why the company failed (BlockFi failed too and didn’t have a token), the token was in many ways toxic for it. That is by no means specific to Celsius. Below is a list of ways having a token harms every project that has one:

1. The most obvious one — due to the US regulators’ overreach, token sales to US citizens puts the company into permanent danger of being investigated for breach of securities laws.
   
2. In the absence of tradable shares, company tokens assume some functions which shares normally have in the stock market. Namely, they are seen as a health gauge for the firm. As per the Efficient Market Hypothesis, share price is assumed to incorporate all the publicly available information about the company and its prospects. If there are good news, share price rises, if the share price is falling it must be because something bad happened, or is about to, and the insiders are dumping.
   When the company’s token is falling more than the market in general, the market assumes bad things are happening with the company. This happened with CEL and was one of the reasons why the company was spending its scarce resources defending the price of the token; it was aware of its signalling function. (Preventing a sharp drop of token price is especially important for the type of company that is vulnerable to bank runs, but not just those.)
   
3. The token pits insiders against the unsuspecting public (huge information asymmetries there). Insider trading is inevitable. Even when the odds of it being prosecuted are low, the setup is morally problematic.

4. The token allows investors to get out early by dumping on the public, and if the public is not there to buy, on the company itself. It thus reduces the incentives for investors to be long-term committed.
   
5. The token distracts employees who are inevitably constantly checking and discussing the token price, and whose mood and job satisfaction can also fluctuate wildly with that price.
   
6. It distracts the company itself because it has to figure out things like market making (a paid service that is very expensive and extremely hard to get right), exchange listing (a large lump sum payment), and so on, instead of focusing on its core business.
   
7. It incentivizes the company to mark-to-market the tokens it has in treasury, artificially inflating its balance sheet, creating a moral hazard (the management can take on more risk because of the strong balance sheet).
   
8. It creates a bunch of fanatics in Telegram rooms that constantly complain about the token price, even if it is rising but not rising fast enough. These are dubbed “The Community” and are in reality as much a burden on the company as they are a marketing tool. 

The list just never ends. A token is like fire, a good servant but a terrible master. It can raise funds, spark interest and ignite early adopters, but it threatens to consume the whole enterprise and burn it down, which happens more often than not.