DAOs Are Out, Borgs Are In
BORGs are the obvious choice to replace the highly flawed and ineffective DAO model
sdecoret/Shutterstock modified by Blockworks
DAOs were originally conceptualized as leaderless crypto-native organizations governed autonomously by communities of token holders.
Today, hardly any purported DAOs truly fit this original description — and the term’s overuse has reduced it to a meme.
It’s time to re-think Web 3 governance. In its recent white paper, Delphi Labs reimagines a new type of crypto-native organization as a balanced synthesis of trustless on-chain automations and traditional legal structures.
This hybrid governance model, aptly dubbed a BORG (or CybOrg), stands to redefine Web 3 — and eventually many other industries.
The flawed DAO model
The DAO model, as currently conceived, is fundamentally flawed.
Few, if any, self-identified DAOs even approach being decentralized or autonomous. Most are essentially unincorporated businesses that are offloading regulatory liability onto token holders. For example, in two recent court cases, officials in the United States insisted that token holders of bZx DAO and Ooki DAO may be personally liable for legal violations by their respective core teams.
Even DAOs that are credibly attempting to decentralize still depend heavily on their core teams.
In truth, it simply isn’t possible — technologically or otherwise — to effectively govern a complex organization without centralized human decision-makers.
The cybernetic organization
The advent of decentralized blockchains and artificial intelligence (AI) has made possible a new type of organization: the trust-minimizing BORG.
In the words of Delphi Labs, a BORG is “a traditional legal entity that uses autonomous technologies (such as smart contracts and AI) to augment the entity’s governance and activities.” The paper adds that “BORGs do not merely use autonomous technologies… BORGs are legally governed by autonomous technologies through tech-specific rules implanted in their charter documents.”
Unlike DAOs, BORGs are compatible with established regulatory frameworks, and can be assimilated into companies’ existing bylaws. In fact, almost any entity — from venture-backed startups, to publicly traded companies, to investment funds — can become a BORG. What matters is that its traditional off-chain legal structure, at least in part, is also enforceable on-chain using trustless, self-governing smart contracts.
Delphi Labs anticipates that BORGs will partly serve as “DAO-adjacent” entities. However, BORGs’ greatest impact is likely to be on traditional enterprises.
Invasion of the BORGs
BORGs’ utility spans practically every business function where the incentives of stakeholders and human intermediaries are imperfectly aligned.
One example cited by Delphi Labs is “tokenized preferred stock that embeds a complex set of liquidation and dividend logics.” This is a compelling idea, but it only scratches the surface.
Ultimately, the entire complex edifice of corporate governance, with all the costly frictions it entails, could potentially become the domain of autonomous BORGs.
BORGs can unlock immense efficiencies. Rather than risk costly proxy fights, a corporation can hard-code its charter into smart contracts, and immutably bind itself to on-chain shareholder votes. Instead of filing burdensome disclosures, management can outsource financial accounting and reporting to self-directed AI.
Asset management faces even greater disruption. From quantitative hedge funds to index-tracking ETFs, any investment strategy that isn’t highly context-dependent can likely be managed more efficiently — and securely — by a trust-minimized BORG.
BORGs are neither democratic nor technocratic by nature. They are neutral, and can be calibrated to varying circumstances or goals. For example, one corporate BORG may be programmed to treat shareholder votes as authoritative; another may treat them as one of many inputs in a dynamic optimization function.
Similarly, BORGs are perfectly capable of conforming to government regulations. However, as blockchain-native entities, they can potentially be rendered impervious to state interference.
BORGs are more than an aspirational ideal. Fully decentralized and autonomous organizations may still be far off, but trust-minimized BORGs are viable today. It won’t be long before BORGs begin reshaping countless industries. Web3 should take the lead.
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