DAOs are better for wages and workers---taxation ensures that workers are adequately compensated.

Low-Wage Workers Real median wages in the United States have remained stagnant for 50 years, while the economy as a whole has grown by 20 times.3 And for workers in the bottom quintile, pay has actually declined.4 Meanwhile, benefits and working conditions have degraded even further. In part, this is because of the growth in the gig economy, which classifies its workers as independent contractors without legal labor protections.5 But another significant factor is the increased concentration of corporate power among a few large companies, leading to a monopsony labor market in which large employers have enough sway to dictate terms to their workers.6 Historically, this pressure is counteracted through action from the labor movement. And recent years have, in fact, seen sizable increases in attempts at organization, with strikes in 2021 reaching a high not seen in 40 years.7 But because of the expansion in corporate power along with the decentralization of work, these efforts have been largely ineffective.8 These trends are only accelerating; a new check on worker exploitation not only is necessary, but would provide a meaningful competitive advantage over traditional firms in attracting labor supply. RECOMMENDATIONS This policy brief recommends that accelerators experiment with funding worker-led DAOs (decentralized autonomous organizations). The details of this structure and its advantages follow. Structure of Worker-Led DAOs A DAO is a business whose central operations are governed democratically on the blockchain. In a typical DAO, the organization’s treasury is stored as cryptocurrency on the blockchain, and dispersal of those funds is subject to approval from a majority of the community. This ensures that democracy is technically ingrained, rather than nominally or legally enforced. POLICY 4 The particular worker-led DAO structure proposed here has 2 tiers, splitting the 2 traditional ownership rights of voting on board-level decisions and receiving a share of future profits. First, votes on corporate governance are handled through worker democracy on the blockchain, using the DAO itself. Second, shares of future profits are issued through a traditional legal corporate entity, separate from the blockchain, associated with the DAO (see Appendix A for illustration). This is analogous to the split between “common” and “preferred” shares in founder-led companies, but the rights to vote and the rights to future profits are issued by different, linked entities. The arrangement preserves the democratic commitment and agility of the DAO, while providing access to the established law around limited liability, taxation, and securities for corporations. The DAO should be structured such that each worker receives a single governance token, entitling them to an equal vote along with all other employees (see Appendix B for illustration). This voting right can be exercised only for high-level governance, such as electing board members. Voting does not come with any rights to future dividends; if founders wish to give equity grants to employees or themselves, they may still issue restricted units of preferred stock. Founders also may set a cliff for issuance of the governance token, holding off until an employee has been with the company for some set period. The legal entity housing the DAO can be a normal corporation, with voting rights for board seats reserved in the by-laws to the DAO. This forgoes the tax benefits offered in some states to organizations registered as official worker cooperatives, but it drastically lowers the legal burden of both establishing the entity and later accepting investment. Investors will receive preferred stock, which entitles them to a share of future dividends but no meaningful voting rights, as is the case in many founder-led companies. (Any organization that is interested in implementing such a model should consult with their attorneys on further implementation details.) POLICY 5 Advantages of Worker-Led DAOs This model of embedding a DAO into traditional corporations has several advantages over both traditional start-ups and other worker-led alternative structures. The advantages of being worker-led, over traditional start-ups: Worker-led businesses are long-term oriented and can prioritize values. Unlike public market investors (who can liquidate their stakes anytime) or executives (who often receive very large equity grants), workers are numerous enough that they must rely on an ongoing paycheck rather than a single, large lump sum. Because the distance between the floor and the ceiling of a worker’s pay (i.e., between their standard wage and a full cash-out, split among all peers) is so narrow, it is financially optimal for them to stay at the company as long as possible, rather than attempting to frontload gains. Workers’ profit-maximizing strategy thus relies on their employer’s stability over a longer timescale. In addition, they aren’t bound by the shareholder value doctrine, which requires corporate profit maximization above all else. So not only are they legally able to overlook short-term profit opportunities if they conflict with their own values, but they are actually financially pressured to do so; they will be forced to feel the eventual business impact of the reputational damage and possible regulatory response those moves reap, in time.9 Worker-led businesses are more efficient. As has been well established in the scientific literature, workers have more information about day-to-day operations than investors.10 In worker-led businesses, these data are more often surfaced and applied by leadership to make core processes more efficient, increasing productivity relative to their investor-led peers.11 Worker-led businesses can attract better talent. Not only do they generally offer better financial terms to workers, but the very fact of democratic input on the direction of the company is an important benefit to many potential employees.12 And since technology companies increasingly rely on exceptional talent as the biggest differentiator over their competitors, this can because a significant handicap for non-worker-led businesses.13 POLICY 6 Worker-led businesses are better for workers. Perhaps this goes without saying, but worker-led businesses that follow the structure laid out above pay better, have better working conditions, and allow employee input on the direction of the company.14 This is a competitive advantage, but it is also straightforwardly better for workers. And as today’s start-ups become tomorrow’s Uber, Lyft, and Amazon, it can be a large step toward remedying the mounting pressure on low-wage workers generally. The advantages of a DAO, over other worker-led structures: A DAO has better access to capital. Many of the traditional forms of worker-led businesses involve artificially limiting investor returns (literally capping them at a certain multiple) or preventing any possibility of future sale of shares on the secondary market (only allowing them to be sold back to the company).15 This often comes with an ideological commitment to remain small and avoid rapid growth — hence this dismissal of investors’ interests, since their capital is unnecessary. But a DAO, linked to a standard corporation, allows investment on terms that venture capitalists (VCs) are accustomed to; the only difference is that they cede control to a democratic body of workers rather than to the founders, which many VCs may well prefer. And the novel technology inherent in a DAO makes it a more promising potential growth opportunity. A DAO has simple, settled governance. Typically, worker-led businesses spend a significant amount of time fleshing out the logistical details of how the company will be structured and run. This is not only distracting but also expensive, due to the extensive legal work involved.16 By relying on established DAO technology for the logistics and simple by-laws adjustments for the legal framework, this model reduces those burdens to a minimum