The cryptocurrency boom has given rise to businesses that are democratically governed by a user community. That is, according to the theory. Making it work has been much more difficult.
American CryptoFed is a new type of company spawned by the advent of cryptocurrency — one that claims to be neither a company nor a company at all.
According to the stated plan, there are no owners, officers, or employees. American CryptoFed, on the other hand, is a “decentralized autonomous organization” that is supposed to be guided automatically by computer code and governed by a community of users who vote on proposals with crypto tokens.
According to their supporters, these types of ventures, known as DAOs, are a new model for commerce, one that has the potential to democratize business enterprises and break Big Tech’s and other entrenched middlemen’s hold on innovation in the information age. Already, a slew of these start-ups has emerged online, including financial services operations, news hubs, and social clubs.
However, they are facing criticism from a variety of quarters, reflecting both the disruptive power of the crypto phenomenon and the struggle to demonstrate its practical utility beyond financial speculation.
DAO members are at odds over how to balance the need for skilled and experienced managers with the idealistic vision of communal decision-making. According to crypto investors and regulators, in some cases, the ventures are nothing more than Ponzi schemes designed to boost the value of the digital tokens they sell.
Regulators are also stepping in, concerned about how to protect investors in companies that do not follow traditional business and accounting practices.
The Securities and Exchange Commission effectively shut down American CryptoFed DAO in November, just four months after its launch, saying the enterprise was “materially misleading” the public with contradictory filings that failed to disclose key information such as audited financial statements.
The surge in DAO activity has been described as “overwhelming” by Hester M. Peirce, a Securities and Exchange Commission commissioner. “The last year or so has been a big period for DAOs, and people have been doing a lot of experimenting,” Ms. Peirce said. “It’s difficult to even grapple with what this actually means because everything is moving so quickly.”
Individual crypto investors as well as some of the biggest industry players have embraced the concept, including the Silicon Valley venture capital firm Andreessen Horowitz, which has billions of dollars backing blockchain projects. And industry lobbyists and lawyers, including those from Andreessen Horowitz and American CryptoFed, are already working in Washington and state capitals to push for DAO recognition and updates to “antiquated” laws.
Unless a DAO appears to be violating securities laws, federal regulators have the little clear legal authority to oversee these entities for the time being.
Major corporations are also getting involved, such as JPMorgan Chase, which opened a “lounge” in Decentraland to promote its Onyx payment network, which includes a digital portrait of its CEO, Jamie Dimon.