17
A New Decentralized, Autonomous Economy
With digital money, digital assets, and public decentralized digital infrastructure, a key set of benefits arise that vastly improve the nature of commerce. More market participants, reduced friction, increased transparency, reduced risk, and increased capabilities create new possibilities for the global economy as we know it. New production capital invented during the Age of Autonomy® brings forth a new set of tools and infrastructure for an entirely novel system for how we go about commerce and business – a system that looks nothing like the system we have today. And it's just around the corner. This new economic system addresses the large issues we're faced with today and extends to create capabilities not previously thought possible.
Now, when we say autonomous economy, we don't mean that the entire economy is one big robot with no people participating in the production of products and services. More people will be involved and more human interaction will occur, not less. It's the way we will contribute that is transforming. New tools are being innovated and brought to market just like new tools were used in the last technological revolution, the Age of Information, with the Internet: email, the web, software as a service (SaaS), the massive increase in intellectual property (IP), domain names, smartphones, wireless networking, 4G telecommunications networks, intranets. New tools, in the form of new products and services as well as new production capital, paved the way for the paradigm shift we experienced over the past four decades. The way people worked utterly transformed with the Internet and everything that came with it. So too will the new autonomous economy bring about such a transformation.
In this chapter, we will talk about the new decentralized digital economy. In this economy, new money can have sound money principles. Bitcoin is the application of sound money principles in digital format, like gold is the application of sound money principles in an analog format. Money is required, but not sufficient in a new decentralized digital economy: more financial services are possible, and an entire production and economy are possible with the advent of blockchain technology.
Sound Money, Required but Not Sufficient
In the new decentralized, autonomous economy, sound money is required but not sufficient. To the Bitcoin Maximalist, I say consider this: sound money, invented and applied by Bitcoin, is an extremely important innovation in and of itself. It will have strong and wide‐reaching effects. Being able to implement an economy on top of sound money principles will help the global economy get away from the damaging effects of having the world reserve currency being fiat currency. Billions more people will be able to participate in the new economy because they will be able to transact on the new public financial infrastructure provided by Bitcoin and a few other Layer 1 blockchains. They will have access to simple financial services like having an account (a wallet) and being able to store value and send value anywhere around the world. That's powerful. They can also earn interest on their capital, if they so choose, by lending it out and creating an interest rate, which generates cash flow from their capital (i.e., their stored value). Anyone with a phone and Internet connection can create a wallet and start to transact. For the billions of people who don't have access to basic financial services, this will have an enormous impact for themselves and the world at large.
However, it doesn't end there. Sound money is required, but not sufficient. An entire decentralized financial system can be built with the power of smart contracts. We can build trust‐minimized, permissionless, decentralized public financial infrastructure that provides all the basic financial services. From fractionalization of ownership, through creating, distributing, and holding digital assets (i.e., tokens), insurance, exchange services, derivatives, and all the basic services that banking, insurance companies, asset management companies, and venture capital companies provide today. With sound money, debt, and ownership interest in the form of holding digital assets, you've now got a full financial system that required no permission and no third party, which means – no counterparty risk.
Financial Capital versus Production Capital
In my first book, I build a lot on Carlota Perez's work with her book, Technological Revolutions and Financial Capital. In her book, she details a framework for what occurs in all technological revolutions, and she outlines five long‐wave economic cycles that have occurred in the past 200 years. She also distinguishes the difference between financial capital and production capital. Financial capital is primary paper assets, like stocks, bonds, and money, that allow agents to store and grow wealth and generate passive investment income. Production capital is new assets that allow an agent to produce goods and perform services. Most times, each new long‐wave economic cycle (and technological revolution) creates new forms of production capital.
During the Industrial Revolution, new production capital might be factories and raw materials. During the Age of Information, it might be domain names (.coms), intellectual property (IP), and SaaS websites. During the Age of Autonomy®, I expect new production capital to come in the form of decentralized autonomous organizations/corporations, autonomous protocols, open‐source crypto projects, and on‐chain governance infrastructure.
Production Capital Supporting the Autonomous Economy
There are many ways production capital will occur in the autonomous economy, and this topic could truly be a book all on its own. As a teaser, we want to explore just a few of these to provide an understanding of how these new structures will begin to transform the ways we interact.
DAOs and DACs: A New Structure for Organization
Associated to blockchains, decentralized autonomous organizations (DAOs) and decentralized autonomous corporations (DACs) are a new method for groups for people to organize around ideas, investments, work, or goals. DAOs and DACs are just a set of wallets and smart contracts themselves running on a platform Layer 1 blockchain. DAOs allow people to come together for a specific reason, whether that's as an investment club, to manage a particular crypto project, or as a group of people with shared goals. Same with DACs, although DACs have an associated legal entity, a corporation residing in a specific jurisdiction, for tax purposes and legal protection.
During various past long‐wave economic cycles, human capital was organized differently, whether it was during the Industrial Revolution when people came out of the fields and into manufacturing plants or during the Internet Age when people worked for venture‐backed startups or their own single‐person S corporation or LLC. New structures for how labor will organize typically come with the new period and the Age of Autonomy® is no different.
As of the writing of this book in late 2022, two types of DAOs are in operation. Some DAOs manage a blockchain or crypto project (e.g., MakerDAO), and there are DAOs that act like a venture capital firm (e.g., DuckDAO). We have also seen single‐use DAOs, the best example of which is Constitution DAO, an organization formed to purchase an original copy of the United States Constitution. This is an example of how peers could come together as a group and, with an average contribution of $217, collaborate to raise $47 million. Although the group failed to win at the auction, it was a successful example of peer‐to‐peer collaboration in this new structure.
For the most part, that's the extent of the use of DAOs. But in the not‐too‐distant future, I think we'll see DAOs used for Age of Autonomy® enterprises to manage and participate with production capital. We'll cover that in the last chapter of this book.
Smart Contracts and Autonomous Protocols
Smart contracts provide the robust capability to programmatically interact with wallets, tokens, DAOs, other smart contracts, protocols, services, AI, and just about everything you want to build in the Autonomous Economy. Autonomous contracts form a particular type of smart contract that focuses on autonomous management and execution. For example, in the world of DeFi, there is a DeFi service called Curve (token, $CRV). One of its features is to poll various other liquidity pools and yield providers and always provide the highest interest rate for a particular stablecoin. This protocol executes and manages itself (i.e., it is autonomous) to provide the best yield within the Curve ecosystem. It is a function that can be called by any other DeFi service or smart contract.
Autonomous Governance
We discussed governance tokens and their relevance to DeFi, but we see them as much, much bigger, really a cornerstone of the Autonomous Age. Governance tokens are a specific type of digital asset. In my first book, I go into some detail about outlining the various crypto asset classes. Governance tokens create their own type of crypto asset class because they have a unique set of properties. In some ways, governance tokens are akin to equity, as they both provide a right. Equity is an enterprise's right to cash flows after all expenses are paid. Governance tokens provide a right, but a different right – a holder of a governance token has the right to vote within the associated on‐chain governance platform. Most on‐chain governance systems are currently one token, one vote. However, that may change as governance systems get more sophisticated. We posit that as a particular crypto project ecosystem and network grow and appreciate, so too do the rights to govern it. Only the governance token asset comes with a right.
Many new crypto projects use governance tokens as a part of their token economy. Owners use tokens to incentivize particular behaviors and actions that contribute to the service's economy – the internal activities that occur and contribute within that blockchain.
On‐chain governance is a set of services provided through web pages and smart contracts that allow holders of the Curve governance token to initiate proposals and vote on which of those should be adopted. In the Curve example, users must first lock up their tokens in a voting escrow vault (you can see this at https://dao.curve.fi/locker). A user then connects their wallet and interacts with the system. For Curve, users can review and act on specific proposals after they lock up their tokens for voting. You can see an example of current proposals in Figure 17.1. We're not going to go into detail about each proposal, which isn't well detailed in this diagram, but the point is to illustrate that each specific proposal has votes that are calculated (yes/no) and lead to whether the proposal is accepted or rejected by the community of governance token holders.
Figure 17.1 Governance Page for Curve Financial – Voting on Proposals
Proposals are how a blockchain service gets upgraded, altered, and maintained. Users may propose a new feature or function. They can also suggest different economic settings for how the system operates. Some DeFi projects allow certain thresholds to be voted on that impact the financial economics of the DeFi service. It's also possible that users may vote on how the income gets distributed. On‐chain governance provides transparency just like the open‐source nature of the blockchain projects themselves. If you want to see the exact code that the Bitcoin miners run, you can see that on GitHub, where most crypto projects maintain their open‐source software. Transparency at every level removes opacity and uncertainty. Removing uncertainty removes risk, and eliminating risk adds value. Having on‐chain governance creates a systematic methodology to how a blockchain operates, and that, in and of itself, creates value. In the Autonomous Economy, on‐chain governance provides a critical method for how users and DAOs interact within their specific community and their particular ecosystem.
The Autonomous Economy Realized
The global economy operates synchronously. That is, transactions are happening in real time, and generally people are waiting for a transaction to be processed. Once complete, they go on their merry way but, until then, they are on hold. (You can see this any time you go to the grocery store.)
In spite of this we're also starting to see more and more automation trickle in to how we make purchases. These are asynchronous in nature. A couple of examples might be turning on bill‐pay to automatically pay a bill or setting up recurring purchases on Amazon. These things happen at the time they are supposed to happen, and they aren't waiting for anything else in order to process the transaction.
New Tools Create New Possibilities
As we progress with new economic tools and infrastructure, the economy is simultaneously moving toward an autonomous economy. That is, we have agents acting on our behalf, making real‐time decisions, then transacting based on those decisions. Autonomous operations are automation 2.0 – making decisions in the field and operating toward a goal or set of goals. An example of autonomous operation that's right around the corner is autonomous driving. The vehicle is observing its environment, making real‐time decisions, and then acting, in this case driving, toward the goal of making it to a set destination. The Autonomous Economy is the transacting of business by an agent on our behalf with minimal human intervention.
As public financial infrastructure gets built out and more widely adopted, via blockchains and digital assets, more economic activity can occur with less human intervention required. IoT sensors generate massive amounts of data. AI turns that data into knowledge. Robots operate autonomously to achieve set goals in the physical world. Then blockchains, with digital assets, can turn knowledge into economic activity without human intervention. Autonomy is the ultimate competitive advantage, as it allows for more economies of scale. The autonomous economy is what's possible when the Age of Autonomy® delivers on its designed vision.
The nature of autonomous design makes possible several improvements to what exists today. One is the 24/7, always‐on nature of software. No longer do we care if a store is open 9 a.m.–5 p.m., Monday through Friday, with limited hours on the weekends. Or not open on Sundays, like many stores here in the South. Economic activity can occur with much less friction – being less costly to operate and with fewer rent‐seeking go‐betweens. No longer are you waiting in line for someone to check you out in a synchronous transaction process. Now, with asynchronous processing as a part of the design, people can initiate a transaction, go about the next thing, and then get notified once a transaction is complete. Transacting can be more secure, although risks can exist if systems aren't designed well. One example is privacy. If we aren't careful, surveillance could intrude on these new financial systems. This is where Web 3.0 comes in, so that everyone owns and controls their data and who has access to it.
New Types of Owners and Ownership
Transformation in the autonomous economy also brings forth new ownership capabilities. In September 2020, the first AI‐based CEO was announced to head up Chinese metaverse game company NetDragon WebSoft, which is valued at nearly $10 billion. Ms. Tang Yu, an AI‐based robot, will oversee operations for the company. Now, what if AI‐driven robots and agents could own property? This is entirely possible now with the production capital built in the Age of Autonomy®.
New production capital, in the form of autonomous protocols, smart contracts, DAOs, governance tokens, and on‐chain governance, now make it possible for an AI agent to own and control money and digital assets. The West's capital system is enforced through its legal system. As such, capital and property are associated with personhood. Here in the United States, the Fourteenth Amendment to the Constitution gave certain rights to people. Then, the1886 case Santa Clara County v. Southern Pacific Rail Road concluded that corporations were “artificial persons,” which granted them most of the same Constitutional rights as their “natural” persons brethren. It is not too hard to see this definition extend to a different type of “artificial persons,” an artificially intelligent robot or agent.
DACs, DAOs, and AI agents will be able to own and control assets within the new economy. This brings about a revolution of what's possible. Famed crypto investor, author, and advocate Andreas Antonopolous talks about extending this possibility to also have smart resources and smart property. This concept embeds the programmatic capability of smart contracts inside ownership‐represented NFTs to bring any software functionality to resources and property, both digital and physical.