The Future of Corporations in the Age of Blockchains

Public blockchain infrastructure creates a new global public good in the form of a system of shared and immutable record-keeping, transactions and rules-enforcement. We've explored how this infrastructure opens up massive transformations in the basic building blocks of finance, including ubiquitous global value exchange with stablecoins, and advancements through programmable money.

Now we want to dive into some of the more profound possibilities that arrive with this technology, diving into the very essence of how we form organisations to create value, govern and coordinate economic activity. Going from the macro into the micro, we'll explore how blockchains are opening up completely new forms of global corporate forms.

We are privileged to be joined by leading academic thinkers, entrepreneurs and technologists who are the very cutting edge of re-defining the firm in the age of blockchains.

[00:00:09] Hello and welcome to The Money Movement, where we explore the issues and ideas driving this brave new world of digital currency and blockchains. I'm really excited for this week's show. We've got some great guests that I'm going to talk about in a minute, but I want to contextualize a little bit first. So we've talked a lot about global macro issues and how that relates to stablecoins and digital currency. And I know a lot of the discussion around cryptocurrency in general and stablecoins specifically is around sort of the currency side of this. What what does this do to the world of currencies, central bank currencies, non sovereign currencies? It has to do with, you know, are we creating a new payment system? What are these innovations? And obviously, we think that's really critical and important. But I think when we talk about the blockchain part of this. The implications are far, far more profound. And so part of what I wanted to do today is really dive deeper into some things that we touched on in a couple of the earlier episodes with other guests, which is how can this technology be used for reconstructing the very nature of corporations? What role can this technology play in reshaping how governance happens among collaborating people, among collaborating entities and really thinking about the technology disruption that's happening right now? This public infrastructure that's being built out as allowing for really fundamental innovations in micro economic institutions. So you have, you know, in economics, you've got macro economics and you've got micro economics. And micro economics is really the the theory of the firm. And I think really, for the first time in a really long time, we have a technology that's global that allows us to really reconceptualized the very essence of what corporate forms are, how they can be constructed, how they can be governed, how individuals and society at large can interact with them. And that's really exciting. You know, we use this early metaphore of the transformation of modern capitalism where innovations like the Joint Stock Corporation were created and then ways in which financial markets or capital markets could exist. Ideas like shareholder capitalism, et cetera, all grew out of this. And it feels like we're accelerating into a new world, a world of global digital corporate forms that are actually created in software and mediated by blockchains. And so today we're joined by three really exciting individuals, thinkers and innovators, including economics professor James Potts and the innovative co-founders of two really important projects, Luis Cuende, of Aragon and Aaron Wright of Open Law. And we're going to be exploring the future of corporations in the age of blockchains. So to help us frame the big picture ideas here, I'm very pleased to welcome Professor of Economics and Director of the blockchain Innovation Hub at RMIT University, Professor James Potts. Welcome, Jason. [00:03:41][212.1]

Jason Potts: [00:03:43] Thank you, Jeremy. Good to be here. I really appreciate you joining us. Australia Time. [00:03:50][6.5]

Jeremy Allaire: [00:03:50] I'm very impressed and I think all the viewers here are going to be thrilled with your willingness to do that. [00:03:57][7.2]

Jason Potts: [00:03:59] Yeah, it's just like getting up for an early morning flight. It's good to be here. [00:04:03][4.0]

Jeremy Allaire: [00:04:03] It's fabulous. Well, thanks so, Jason. I know you've been exploring really foundational ideas for how corporate forms might evolve in the blockchain era. And there's a lot in that sentence and what that means. But, you know, you've been really exploring these ideas. Maybe talk to us for a moment about your journey in getting there and what some of those high level thoughts have been. [00:04:30][26.4]

Jason Potts: [00:04:31] Yes. So the basic question we've been asking ourselves is this is not just, you know, what sort of new products so we're going to see in an economy in consequence of blockchain and crypto currencies. But what is this going to do? What is this technology going to do to the structure of the economy? And economists have long been thinking about this with from the perspective of what we call their transactions costs or this question of the economics of gove rnance to all economic activity takes place in firms or markets or or in government. And the determination of where it takes place is a function of the costs of organization, the costs of information, the cost of using markets. And as we think as well, the costs of trust. And since the Industrial Revolution, what we've seen is that most most industries in most economies are made up of some things get made in firms because firms have scalable economies and they can exploit sort of the advantages of management and organization and hierarchy to do things very efficiently. And then other things are coordinated in markets because markets are very, very good at using distributed information and coordinating with with price mechanisms. And then governments do other things. When you've got market failure, where you've got to have externalities like pollution or other sort of things that markets or firms aren't very good at coping with. And as of high level view on this, is that for the first sort of 250 years of modern capitalism, we've had firms, markets and governments as the as the sort of coordinating devices. Now we've got blockchains. And what this means is that some of the activity that used to take place in firms, markets and governments will move to blockchain . And the question is how much on what margins and why? And massive overview of this is that this pushes more activity into markets. Large corporate hierarchical firms will start to shrink and and desegregate into smaller forms. And some of the activities that governments used to do will also shift to blockchain. So we'll end up with just front a sort of effectively a more market oriented smaller firms, more agile and more globally distributed economic structure. And it's an enormous transformation. [00:06:46][134.9]

Jeremy Allaire: [00:06:47] And this is, you know, in many ways what you're describing is we we have this arc of the Internet, right. We've got the past, wherever you want to say, 30 years. And it's it's connected everyone, everywhere. And it's sort of that that it's a decentralized system. It's it's allowed for greater degrees of communication, coordination. Mobile devices obviously have unleashed, you know, more in some ways more distributed forms of of collaboration and corporate interaction. So it sort of had this sort of layer of the Internet already driving us, accelerating this this this new kind of arena. But there's been this missing piece, which is, you know, how do you create the substance of what a corporation is, you know, on in software that is enforceable in software that can work on the Internet. And it feels like the theoretical evolution that you're seeing and the technological evolution that's happening with this public watching infrastructure is it's really all allowing us to, as you said, kind of rethink where coordination happens, how it happens, where value exchange happens. It's like this really this fundamental restructuring of the substrate of what economic activity is. [00:08:08][80.6]

Jason Potts: [00:08:08] Yeah. Yeah. So, I mean, the Internet gave us communication and it really dramatically lower the cost of communicating with in a peer to peer sense and around the world. But what blockchain is giving us is the layer on top of that is the industrialization of trust itself. It enables us a party to trust a counterparty without knowing them. And a lot of ways, what corporations were doing was facilitating a sort of nexus of contracts or a nexus of trust where you could trust all of the parties within the organization, but not those outside the you had to use lawyers and regulation contracts in other sorts of mechanisms to get trust between corporations or between business partners. But within them, that was a zone of trust. [00:08:51][42.6]

Jason Potts: [00:08:51] But that was expense. If you had to have a huge amount of organizational infrastructure to create and manufacture that trust, what blockchain does is essentially enable parties and counter parties to trust and have true verifiable records of the facts before them that they'd be dealing with. Which essentially pushes markets inside corporations. It lowers the costs of dealing. And what that means is that this we should expect to see that this sort of fragmentation modularization of organizations into smaller forms, not to the effect that that sort of trusts so the industrialized nations of trust. It's what has happened with this technology and that's going to lead to a new sort of types of economic organization and patterns of organization that take advantage of that new lower cost of this input into business. [00:09:51][59.4]

Jeremy Allaire: [00:09:52] Right. So this sort of gets to this question of, you know, we have we have these legal frameworks. We have, you know, equity in Delaware corporations or in a Singapore corporation or your relatively consistent, just some consistent common law around some of those things around the world. You have you have that sort of rights and entitlements and then you have a whole set of record keeping and and and a force of content and so on. Do you envision that the sort of new entirely digital forms will come into place that in some ways are more trustworthy than those established legal systems and that are just enforced by machines on the Internet? [00:10:34][42.5]

[00:10:35] Yeah. So I think this is exactly what we're going to see Jeremy. What is being replaced here is essentially this idea of a nation state jurisdiction within this sort of zone of the nation state. There's a sort of uniform body of laws and contract and enforceable enforcement mechanisms. Instead, when we've got some software mediated Internet networked platforms, these platforms can be as big or small as they need to be. There's no role to scale issues with that. They can also be multiple. They can overlap. They could be built publicly. They could be built privately. They could be built in public private partnerships. And they could be very specific for purpose and they could be layered and stacked on top of each other. So what we'd actually have, again, is the sort of industrialization of the layer of corporate governance so that the platform layer upon which corporate governance usually works. And this is what this is what smart contract entrepreneurs are able to build now. Now, the question is, who builds these? Is it the tech companies? Is it the social media companies? Is it law firms? Is it regulators themselves? The answer is probably all of the above. We'll you know, we'll get to see who builds the best ones. But in essence, it's not just that the firm chooses. It's that for that. The two parties to the contract, we need to choose the same platform. And once they do that, we've we've got a world of effectively private law, private ordering law now. And incredibly, that was more or less what we had back in the Middle Ages with a lot of the sort of trading empires and true trading parties would choose which jurisdiction they're going to contract in. And again, there's a huge opportunity for the industrialization and potential sort of huge productivity gains that can come from rebuilding the legal and contracting infrastructure, not just of nations, but of regions and the entire world. [00:12:36][120.6]

Jeremy Allaire: [00:12:37] Yeah, I mean, I think I think individuals who want to collaborate, contribute labor, create things, exchange value. You know, if there's a direct way for them to participate that safely and entrustment highest fashion where where you know, where value exchange can happen. [00:12:54][17.4]

Jeremy Allaire: [00:12:55] And that's that's enforceable and in auditable known ways. But on a on a global Internet platform, that's obviously really, really exciting. So what do you see? Yeah. Three, five years out from now, you've sort of seen the arc of this technology. We seem to be at an inflection point with COVID and acceleration of digitalization. Where do you see this in three or five years? [00:13:20][24.5]

Jason Potts: [00:13:20] Look, I think we've come a very long way in 10 years. And we've come from sort of the very first sort of cryptocurrency through smart contracts, through a lot of experimentation on these platforms. The thing about what COVID gave us was a massive acceleration of adoption and not just that, but a coordinated adoption. Everyone did this at once. [00:13:38][18.1]

Jason Potts: [00:13:39] So we've said we've got a lot of experimentation has just happened. What we're seeing with a lot of governments taking up central bank digital currencies and another sort of very accelerated digitization processes, I think is it's going to accelerate this. But to me, the big one is trade regions. I think this, the globe in the entire world trading order has just been disrupted. And I don't think it will rebuild in the same way and the opportunities for it to rebuild on a digital platform rather than through the WTO negotiated trade regions. I think it's the that's the most exciting thing we've got right now. We've got the technological capabilities to do that. I think there's gonna be a lot of demand to rebuild trade platforms and supply chains in a far more robust and lower cost way. So my bet is that trade regions will look very different and they'll be based upon digital trade regions and blockchain based trade regions and to me this hugely exciting. [00:14:36][57.0]

Jeremy Allaire: [00:14:44] Jason, this has been a really excellent conversation. I really enjoyed the work that you and your colleagues have published. I think there's really important stuff. And I think more and more attention is going to be put on this restructuring of the microeconomic layer and then how that plays out into these broader economic arrangements. So, thank you so much for joining and look forward to keeping in touch Jason. [00:15:06][22.1]

Jason Potts: [00:15:07] Thank you for having me, Jeremy. [00:15:08][0.7]

Jeremy Allaire: [00:15:09] Absolutely. So economic theory and this sort of broader thinking is also obviously right now meeting transformative technology and sort of the rubber meets the road with building this in practice. And I think arguably one of the most innovative projects in the world that is doing that right now is Aragon. And joining us to discuss all of this is Luis Cuende, co-founder of Aragon. Welcome, Luis. [00:15:39][29.9]

Luis Cuende: [00:15:41] Yeah, thanks for having me, Jeremy. [00:15:41][0.8]

Jeremy Allaire: [00:15:42] Look at you with your nice audio setup. I'm a little jealous. That's pretty nice. [00:15:47][4.6]

Luis Cuende: [00:15:48] Yeah, we you know, we work remotely for years, so it's not new for us. [00:15:51][3.2]

Jeremy Allaire: [00:15:52] Yeah. And I tried to upgrade my you know, mine. Well, awesome. Thank you for joining. I've been really excited about and a fan of what you guys are up to. You know, I think people who are active in this space, in this industry may know Aragon, but I think there's a lot of people who are kind of tuning in and coming up to speed on what's happening with digital currency, what's happening with blockchains. Let's start with the basics. What what is Aragon? Give us a couple of minutes on, you know, what it is that you're building and maybe obviously with the context of of the introduction with Jason. Obviously, there's some connectivity there to these ideas. [00:16:35][42.6]

Luis Cuende: [00:16:37] Yeah, definitely so the reason we founded Aragon in the first place was because we saw these smart contract platforms, as being extremely powerful ways to organize people across the world at scale. And so basically, we thought this smart contracts can be put in a way that people can create their organizational structures very easily. Basically, say as you would put together Lego blocks to create like a big structure and kind of like adapted to whatever you want to build. And so on is the leading DAO platform. And DAO's are this concept that I just commented on, this concept that you can create organizations that are extremely flexible, extremely open, and they are powered by code ultimately. The interesting thing for me and the the way that I'm trying to define the DAO's and what really and how really they are different from traditional kind of like Internet communities is because the DAO's include the currencies and the smart contracts give us this ability to actually attract and incentivize new contributions to pull funds over the Internet with no friction whatsoever. And then for large groups of people to govern these funds together and actually take action. So the way I've been thinking about it is with the first web in the 90's, people were able to actually write stuff and blog posts and publish them into the Internet. And then we had Web2 and with Web2 people were able to also comment and discuss on those blog posts that content. And then now we have Web3 and Web3 allows for those people to not only be able to discuss stuff, but actually make it happen. So there's a lot of chatter on Twitter. There's a lot of chatter in social media, but actually very few of that actually creates something tangible in the world. [00:18:19][101.9]

Jeremy Allaire: [00:18:20] You want to get in if you wanna be part of an organization and you can join that organization. And it's not just like a Facebook group. It's actually like an organization where there's decisions that are made and there's governance and there's voting and there's money, which is like what what a corporate form kind of is like, you can do that. And and it's not like some hosted platform by building on public blockchains, you're building something that sort of it exists as a machine, enforceable machine, enforceable infrastructure that anyone can can enter, interact with. And they're not like paying for a service, like a hosting service. It's just it's sort of a corporate form on the Internet that you can control entirely as as a community. [00:19:04][44.5]

Luis Cuende: [00:19:05] Yeah, exactly. And you can thing like I think the simplest example is you're going to have Telegram groups and people discuss there. But what if you give them a sort of, like piggy bank? What if you give them incentives so that people have to like be members of it and if that group is valuable then they do things they can sell those like tokens for memberships and profit from that. So it's a bit of like incentives and governance all in one. And I hope one day we can arrive to that and either like a Telegram group becomes an organization. [00:19:32][26.9]

Jeremy Allaire: [00:19:33] Yeah. So I think obviously you guys have evolved a ton and you're you're moving at a really good pace as a project. It's really cool. These building blocks, you know, when I think about a corporation, right. You've got like you know, you've got membership in some way. You have individuals. You you need to have a way to have the voting around issues. You've got a bunch of building blocks that basically allow you to assemble a corporate form out of smart contracts and pretty self-service, too. But what are the building blocks that you guys have today for setting up one of these types of digital organizations? [00:20:11][38.3]

Luis Cuende: [00:20:13] So one of them is tokens. Tokens are basically whatever you meaning you give it to them, right? But usually they mean membership in the organization and they serve the purpose of also aligning incentives so that usually a community wants those tokens to become valuable and then everyone in the community basically appreciates with the value. And so there's tokens that are for voting, actually, the funny thing with voting is that it sits in the middle. But people actually, don't like to vote that much so the way I've been trying to look at it lately is that voting maybe the new "Like". And if we make it easier and easier, then it would actually become the new "Like". And then there is this stuff like, you know, obviously like finance and fund management. And the cool thing about these DAO's also is that they can participate in DFi Protocols so they can actually do stuff with the funds very easily. And earn DAO's participating is taking networks. And so that is very powerful. [00:21:04][50.8]

Jeremy Allaire: [00:21:05] Yeah. I mean, so you have these building blocks. People create these things and there's there's sort of it's trust minimized, but there's also trust there because you know who's participating and they can make decisions together. and then there's this treasury, you know, that's the other big thing when you think about what is a corporation. Right? It's tokens like equity, like influence, voting, decision making. But then oftentimes that that voting and decision making is on top of a treasury. Right. And so that the beautiful thing, I think, is that you guys, like you said, you're able to plug into D Fi. You're at you're able to support stablecoins. I think you guys support a number of stablecoins. But the ability to kind of move dollar value into one of these, to have an individual maybe who is you know, they're getting paid out of the Treasury for work they've completed and people could vote that. Yes. The work is completed or other things like that. So how are you? How are you bringing together, like, the innovation of stablecoins with, you know, with Aragon? Digital organizations, but with Aragon. [00:22:11][65.8]

Luis Cuende: [00:22:13] Yeah, it's been world changing for us like we used to, and we still with our own product for everything, for example; even payroll, comes from one of our DAO's that we have in our team. And so people used to have their payroll in ether and ether, used to fluctuate so much depending on the month people would like make money or lose money and stablecoins changed all of that. And I think it is so important because ultimately DAO's want to reward people for their work. Right. That is the whole point. And you cannot do that then in tokens that, like, fluctuates drastically. [00:22:41][28.2]

Jeremy Allaire: [00:22:44] Yeah, totally. You know, I think there's these bigger concepts and we touched on that with Jason when we got started, sort of, you know, if the Joint Stock Corporation and the legal frameworks around that sort of have defined modern capitalism, you know what's going to define this, this sort of new digital age? Do you think it's going to be these new, decentralized, you know, Internet driven, distributed organizations like what you guys are enabling? [00:23:15][30.2]

Luis Cuende: [00:23:17] Yeah, definitely. I think Internet communities have, you know, already been there for a while, but I think giving them this unprecedented power to actually take action, manage real funds, and govern all of those together are going to give them a completely new scale. If you look at problems like climate change, it is very hard for a single actor or company or even nation state to tackle these problems. If we had these like super national, totally global, a very low barrier to entry structures, we might have a shot at actually solving these problems. [00:23:42][25.0]

Jeremy Allaire: [00:23:43] Yeah, I mean, I think obviously this raises really profound questions. And I think a lot of times, you know, one of the first things people say, well, you know, how do I know if I'm involved in this and someone steals something or does something wrong or breaks a covenant. Right. We have courts in the in the real world. Now, granted, enforcing something in a foreign jurisdiction in this highly globalized way is difficult. You know, I know last week we had that Kleros on talking about their decentralized arbitration system. You guys are also really being thoughtful about how can communities self-governing and, you know do we evolve to a world of decentralized, decentralized justice system, online courts that are really specific to these digital organizations and the activity that's happening in them? [00:24:40][57.2]

Luis Cuende: [00:24:42] Yes. And the way we look at it is also not even as a stand alone product, but something that blocks into the organization itself, like you can basically have an organization in which you define like English written agreement. And then that agreement also kind of like compliments the smart contracts, because they're a bunch of things that you cannot encode in computer code. Right. Like, humans are pretty complex machines. And so this court enables us for stuff like that can be used for stuff like content moderation, can be used for adding items to lists. We are running now a president campaign in which, like we have different Aragon apps that are eligible for some rewards and then be settled out of court. That court is basically deciding like which ones get it in or not into that list. So like, you know, it is like baby steps. I don't think it's ready to replace a court yet or it will probably not be for like the next few years or God knows if it will be. But it is really promising. [00:25:35][52.8]

Jeremy Allaire: [00:25:36] Yeah, well, I mean, when eBay and Amazon and Ali Baba were like little sites where people were trading things like we didn't think that they would take over the entire global supply chain. So got to start somewhere. It's really exciting. Maybe last that last item, which is, you know, for for sort of for projects in the world today or companies in the world today. What are some concrete ways that they could begin tapping into this and using it? And if you wanna share an example or to be awesome. [00:26:03][27.9]

Luis Cuende: [00:26:05] Yeah, definitely, I think more than like companies, its communities. I think I mean, companies go on so like does the DAO's like we ourselves, just DAO but communities are super interesting. Like for example; there's this virtual world in VR called Decentral land that's owned by its users and they have this DAO that they use so users absolutely govern everything on the platform. So it is extremely helpful. One thing that I've been also involved with is called health out. And the idea is to allow for people to create like various small localized club squads of volunteers and supervisors who are able to donate funds and all sorts of donations all over the Internet and then give those donations to people in need, so the idea is that you don't need to wait for these like big like kind of slow moving nonprofits to actually take action. You can make a thousand like decentralized organizations bloom that actually tackle this problem, snap various smaller scale. So, yeah, I think online communities are wonderful and I think we're moving towards a world where there's going to be more and more communities with the unemployment we have right now and the need for meaning. I think communities are the way to go. [00:27:06][60.8]

Jeremy Allaire: [00:27:07] I love it. It's so exciting. I really appreciate you joining us to share your vision and share where you guys are at. And we'll be tracking it really closely and wish you'd really continued success and we'll talk really soon. Thank you so much. [00:27:21][13.7]

Luis Cuende: [00:27:21] Thank you. [00:27:22][0.1]

Jeremy Allaire: [00:27:25] So these sort of onchain corporate forms on chain economic communities. This is, I think, a really breakthrough idea. And then I think there really is a kind of inevitability to it. But I also think that we need to connect the dots between sort of our existing systems of governance and law and these open and machine enforced worlds of smart contracts on blockchains. And joining us to explore the connection between real law and blockchain contracts is Aaron Wright, who is the co-founder at Open Law and professor at Cardoza Law School. Welcome, Aaron. [00:28:04][38.9]

Aaron Wright: [00:28:05] Hey, thanks so much for having me, Jeremy. Great conversation so far. [00:28:08][3.0]

Jeremy Allaire: [00:28:09] Yeah. Let's keep it going. [00:28:09][0.8]

Aaron Wright: [00:28:11] Yeah. And I mean that maybe that kick it off. I mean, Open Law, really, the whole purpose of that of our project is to connect those dots. And this is, I think, an issue that's been long understood by those that we're thinking about blockchain technology. And even before that, the cypherpunks that really kicked off this entire ecosystem. And, you know, there's only so much like Luis mentioned, that you can embody in code. There's other rights, risks, covenants, reps and warranties which have legal significance, which are important. They manage risk and they in our minds need to sit alongside these code based provisions and Open Law tooling that enables you to do that in a hyper generic way. And since contracts in our minds, or at least the dark matter of the commercial world, they sit everywhere and are poorly understood except by a small group of people. You know, that's what we're we've been able to do, build a set of tooling where you can have things like representations and warranties, covenants, manage risk in different ways bake in our arbitration and dispute resolution provisions and have that sit and closely de-coupled with the code based provisions that may be managing the organization, may be managing a commercial transaction, et cetera. And the nice thing, at least in the US and probably most of the more advanced parts of the world, these contracts, these hybrid contracts that have code and natural language provisions should be enforceable. So if things go wrong and that doesn't always happen, but it sometimes happens, it should be able to get administered and mediated either through online dispute resolution systems like what Luis was describing or by a traditional court. And I think that's important because that enables us to not only have this ecosystem kind of serving itself, but it enables this ecosystem to kind of scale and begin to impact kind of the traditional legacy world. And that's what we've been fascinated with. [00:30:04][113.1]

Jeremy Allaire: [00:30:05] I'm totally fascinated by this. You know, this this concept of machine enforced contracts, but also mirroring the constructs of "real world contracts", quote unquote. It's totally fascinating. I think, you know, an interesting dimension to this, when you are using analogies, like we sort of moved to things like, Docusign, right. People move from like, OK, we have this long thing. It's this contract, and now we can actually sign it. It's a digital contract. This is sort of like taking it obviously to the completely next level. But it wasn't possible to do that before. We didn't have a public infrastructure where you could have machine enforced business provisions that actually could affect things like the movement of money or decisions or things like that. And so this, you know, public law blockchains really are obviously like the breakthrough here and smart contract infrastructure, the breakthrough. But is this sort of like the natural progression where we go from, paper-based fully human mediated in-person physical things into this intermediate digital form. Is this the sort of logical conclusion we're now going truly natively digital on even at the substrate of actually the contracts themselves? [00:31:24][79.5]

Aaron Wright: [00:31:25] Yeah, I think absolutely. And that's what kind of brought me into the space. And I've been fascinated with this notion of computable contracts and Ethereum, and I was fortunate to play a small role helping to launch Ethereum. And from the beginning, I think many of the folks that were launching and supporting Ethereum and recognize that it's great to kind of have this foundational trust layer where you could settle assets. And it's great that you had tools to potentially pull assets that you need also a kind of digital contracting level layer in order to really rebuild this global commercial stack. So in my mind, there's really three pieces when folks think about smart contracts. There's the basic theory model. There's a Ricardian contracting system, which is like a Open Law, which is a way to digitize agreements. And then there's the data feeds that Oracle's that come in. And it's that stack that I think folks are thinking about when they think about all these efficiencies that can happen to basic commercial transactions. [00:32:20][54.7]

Jeremy Allaire: [00:32:21] And maybe helping for folks new to these ideas. So Ricardian Contracts are these fundamental agreements, right. So with open law, you basically are creating a library of clauses of of terms that are the building blocks of Ricardian law. And you're letting people assemble those into code so that they've essentially taken a contract and they've assembled the actual mechanics that are reflected in the traditional recording contract into code that is then deployed online. [00:32:54][32.7]

Aaron Wright: [00:32:55] Right. And then it sits seamlessly with a smart contract code, which is that the software that runs on Ethereum, the scripts that run Ethereum, that can move around assets, can create assets. These are things that lawyers do today. Right. So when creating a token, a lawyer today actually creates assets. They'll create stock certificates. They'll embody rights for intellectual property. So software can do a bit of that. But you still need to kind of manage disputes, manage downside risks. And that's what at least right now, traditional agreements are are the best that maybe in 50 years, if you wanted a way out in the future, that may not be the case. But I think for now, we we still need some of those some of those natural language provisions to sit alongside of them. And we've been able to do that in a lot of different contexts. And I think the headline is also most of the major markets of the world are not based on assets. Right. They're actually just contracts that are getting traded back and forth. So as we build this ecosystem and as we build a stack, or we'll hopefully be able to bring efficiency and also create new types of marketplaces for these types of arrangements. [00:33:59][64.1]

Jeremy Allaire: [00:34:00] Right. Tying back to some of the earlier discussion. Right. We can see, you know, these sort of new global digital corporate forms that start to exist that people can freely interact with and collaborate with that are sort of nation state independent, that exist on chain, that exist on the Internet. People give value, get value. And, you know, if you layer in this enforceability an agreement layer, it really starts to get pretty, pretty powerful. [00:34:24][24.2]

Aaron Wright: [00:34:25] Yeah, absolutely. And we've been exploring that concept and implementing that in a project called The LAU . So for folks that have been in the blockchain ecosystem for a while, though, they'll vividly remember a project called the DAU, which was a, you know, venture capital fund that was running on a theorem where they only use smart contracts to manage the pooling of assets. Some of the voting mechanisms to deploy capital. And it was spectacular. Right. It launched with a limited ambition. But everybody loved it and raised something like fifty five million dollars at the time would be a tremendous amount of value today, given the appreciate appreciation of Ether. But it ran into technical and legal issues. And the nice thing today, because there's been so much innovation in the space, the technical issues have been largely solved. We've been able to streamline kind of the core base smart contracts so that you're able to pool capital. Deal with governance related questions like voting. And also accept into this Treasury, like you described it before, Jeremey assets from another organization. And we've wrapped that using Open Laws tooling with legal agreements to deal with a number of the legal challenges that bad are apparent and also raised by the U.S. government. And we're able that means in the US to begin to explore DAO's in ways that comply and square with U.S. law and can hopefully begin to kind of expand and experiment and grow this ecosystem. And hopefully in a responsible way. [00:35:58][93.2]

Jeremy Allaire: [00:35:59] Yeah, it's very, very cool. I guess that one one question, it relates to some of the work that Aragon is doing and Kleros, who we had on last week. Where do you see decentralized arbitration models or incentivized decentralized arbitration models or online courts that are built on blockchains? How do you see that evolving? Is that going to evolve in parallel? Is there a really clear intersection with with the work that you're doing? [00:36:31][31.7]

Aaron Wright: [00:36:32] Yeah. On the Open Law side, we put together something called the Open Law Open Court. And what that does is it uses our tools so that you can embed into any agreement in arbitration provision. That also has smart contracts that can deal with and mediate and that process. I think one of the most underappreciated things about blockchain is the fact that, you know, you can use dispute resolution and have an arbitrator settle the dispute. That's radically different from how that happens today. Even if you have a private arbitration, the arbitrator can render a decision, but you have to go to a physical court in order to enforce that arbitration. So really, for the first time in history, we're able to begin to take some of the raw power that courts have in terms of enforcement and represent that in a digital form, so that means that people have for the first time, at least in theory, the ability to begin to administer disputes completely outside of the existing judicial system and due to the laws that we have in place in both the U.S. and in most other major countries, the decisions of those arbitrators can be enforced. It's gonna be hard for for that to get kind of on. So I think this is a fertile area. I think the demand for it is probably not there yet because usually people fight over small dollar amounts, but large dollar amounts. And outside of a few significant trades or significant economic activity, people are not yet ready, I think, and in massive volumes to use these systems. But if we talk in 10 years, I have a feeling that we'll be talking a lot about these types of these types of structures. [00:38:12][99.7]

Jeremy Allaire: [00:38:13] Yeah, I mean, we're all interested in the various sort of tipping points in an adoption here. As you know, like we're very focused on stablecoins and their interaction as a as a new global payment and settlement model. What do you think that the tipping points are for for this kind of implementation of of law? [00:38:36][22.5]

Aaron Wright: [00:38:37] Yeah, I think I think we're we're getting there right. I think a lot of the activity we've seen, the blockchain technology right now is building up core market infrastructure. So building tools to like stablecoins which decrease volatility, building basic market infrastructure projects like compound resembling a basic money market account, seeing derivatives and options and other forms of financial infrastructure that's necessary so that traders can kind of manage risk. And I think that's why DAO's are so important. It's really great to be able to trade assets, but to do something productive, you need to pool capital and deploy it and teach to your point before we've seen with every significant, you know, era of industrialization. And Jason touched on this to some innovation in terms of organizational forms. And I think that blockchains will present a new one called the DAO. It's just a different architecture of how we're engaging in commerce, and that's going to result in a different architecture for the organization. And this is not just with the joint stock company, but also with railroads. Right. We saw railroads emerge and due to the way that roads were built, lawyers and business folks said developed preferred stock and our preferred stock is an incredibly important part of the corporate landscape. We saw oil shocks and expansion of global finance into LLC's, or kind of a flatter structure which enables people to pool capital. And I think DAO's are really the flattest structure potentially that we can imagine. And I don't think it's just going to lead to smaller organizations, but also massive global organization. [00:40:11][93.9]

Jeremy Allaire: [00:40:11] Yeah, I mean, I think like we saw now with the Internet, we have sort of perfect ability to coordinate in terms of information exchange. And so we're now like economic coordination is the next logical thing here. And everything we're talking about is essentially reinventing economic coordination for the digital age, for the Internet. And there's you know, there's the governance side and there's the movement in storage and market infrastructure side. And these are all truly building blocks. Aaron this is this is great. I don't have any final comments, but it's super exciting where you're working on super impressed. [00:40:47][35.7]

Aaron Wright: [00:40:48] Yeah. Thank you. Thanks so much for having me. [00:40:50][2.1]

Jeremy Allaire: [00:40:51] You're welcome, Aaron. We'll talk very soon. [00:40:52][1.3]

Aaron Wright: [00:40:53] Great. [00:40:53][0.0]

Jeremy Allaire: [00:40:55] So all of this is obviously, I think, very, very exciting. Like we were literally talking about and seeing in front of us the building blocks for a future economic system. And I think without a doubt, all of these things are accelerations of a deeper, more full digitalization of the world. There's this sort of talk these days about the pandemic economy and how it's you know, it's it's giving years of acceleration in terms of how corporations operate digitally. I think the logical evolution here is it's going to accelerate the development of a completely new infrastructure for how economic coordination happens. I think we've touched on these analogies to the early web. But, you know, unlike the web of information, this is the Internet of value. And I think the impact is likely far, far greater. So really good discussion this week. Next week, we've got an episode we're gonna be diving into international movement of value, international payments, moving value between markets, between currencies. They're all stablecoins in that. It's one of the major promises of blockchains. And we're seeing that really start to play out with stablecoins these days, connecting things like USDC and other stablecoins to other currencies connected into the existing financial infrastructure and making value movement happened in the same frictionless, low cost, secure way that we have with information exchange today. So until next week, stay safe as stay informed and we'll see you. [00:40:55][0.0]


Aaron Wright
Co-Founder and Professor, Open Law and Cardozo Law School
Professor Jason Potts
Professor of Economics and Director of Blockchain Innovation Hub, RMIT University
Luis Cuende
Co-Founder, Aragon