If crypto was a videogame, DAOs are the final boss. Cryptocurrencies, NFTs and DeFi are reinventing money and finance, and DAOs will build on these primitives to create powerful new digital organizations. These organizations will take many forms, but the ultimate addressable market for DAOs is to become crowd owned nation states.
The biggest DAOs will grow into full functioning digital societies, where trust is encoded with strong property rights, clear dispute resolution laws, and an economy where people can freely trade without friction. When Qiao Wangrecently posted a series of tweets on the power of digital nation states, it was remarkable to see how he is instinctively describing the Decred DAO. Qiao is one of my favorite thinkers in the crypto space, and the below analysis will study how Decred is primed to thrive in all each of his desired attributes of digital nation states.
Let’s examine each of the qualities, and how Decred satisfies them:
Quality #1: Property rights via encryption
- Decred is an L1 DAO with strong property rights guarantees. Unlike DAOs which rely on other protocols, the Decred DAO has its own blockchain, its own DEX, and its own wallet.
- Decred’s native currency ($DCR) is scarce, private, and can be stored in the DAO’s native wallet (Decrediton).
- The Decred blockchain is secured by a hybrid Proof of Work + Proof of Stake consensus, which provides additional security compared to standalone PoW or PoS.
Key Takeaway: Decred’s property rights guarantees include inflation protection, seizure resistance, and censorship resistance.
Quality #2: Laws via smart contracts.
- DAOs will need to enforce laws without violence or a reliance on central coordinators. For this, they will need clear dispute resolution processes enforced by smart contracts.
- Decred has a working governance and dispute resolution process where laws are decided via skin in the game.
- While other DAOs use third party voting tools like Snapshot, Decred has its own proposal and smart contract based onchain voting system (Politeia).
- Decred is already respected for its governance system, which includes proposal voting and decentralized treasury management.
Key Takeaway: DAOs will need a process for governance without requiring 3rd parties. Decred already has a solution for this.
Quality #3: International trades via DeFi.
- In a multichain world, DAOs will need to be compatible with trade across different currencies, and interoperability will be a key part of trade ecosystems. Atomic swaps are the purest way to exchange one cryptocurrency for another without centralized intermediaries, and Decred was part of the world’s first atomic swap trade in 2017.
- Decred is uniquely primed for interoperability because of the Decred DEX. DCRDEX will enable a seamless exchange of value between Decred, Bitcoin, and the Ethereum ecosystem, and this will soon include $DCR pairs for stablecoins like USDT.
- DAOs will need p2p payments. Decred is the only other protocol other than Bitcoin to seriously integrate Lightning Network. The Lightning Network daemon (lnd) is based on a Bitcoin implementation created by Decred Devs, who are also former Bitcoin Devs.
Key Takeaway: DAOs will need to permissionlessly store and exchange value. Decred already has an early solution for this.
A final quality of sovereign digital nation states: Perpetual Funding
There is one more quality to add to Qiao’s list — solving for perpetual funding.
In the physical world, nation states with strong supply chains are better off than nation states who rely on others for financial or operational assistance. Similarly in the digital world, the biggest DAOs will be self sustaining, and will minimize the reliance on external coordinators.
This is actually one of Decred’s strongest design features — unlike other DAOs which are funded by an LLC or a corporate foundation, Decred is entirely self funded, and has the equivalent of a sovereign wealth fund.
10% of the value of each new block reward goes into a decentralized treasury, which can be voted upon by the constituents of the Decred DAO. People who have skin in the game with $DCR can vote on proposals to allocate these treasury funds. So far, these investments have given Decred strong property rights, strong governance, and strong self-sovereign infrastructure. When you look closely, these are the ingredients of the digital nation stack.
The market cap for the biggest DAOs may one day rival the GDP of entire nation states. Decred has the ingredients of a sovereign digital nation state. In the words of Murad Mahmudov, Decred will be the biggest DAO.