Although Bitcoin (CCC:BTC-USD) gets all the headlines, one of the most exciting developments in the New Digital World is how the blockchain has sparked many of the best minds in technology to reimagine how business and finance operate.
It’s about time – and what better evidence than Theranos and its notorious leader, Elizabeth Holmes?
Holmes has finally been convicted of four counts of fraud and conspiracy against investors in her failed blood-testing company. Whatever the outcome of the criminal trial, Holmes was bound to live in infamy as a “millennial Madoff”… If Bernie Madoff had created a biotech startup instead of a Ponzi scheme.
Sure, many entrepreneurs have aimed (or claimed) to change the world. But Holmes took it to another level. To present herself as a rising superstar of Silicon Valley, she changed her voice, changed her entire daily routine, minute by minute. She even rewrote the origin story of Theranos to include a favorite uncle with cancer. In the absence of “revolutionary new blood-testing technology” that actually worked, Holmes focused on selling the dream – spinning a whole new persona out of thin air.
Ultimately, Holmes was simply giving the people what they wanted: an icon of the “visionary CEO” that would reshape the world. “Everyone wanted to work for the next Steve Jobs,” her ex-employees point out, and come along for the ride.
Times have changed, though. Trust in authority is at an all-time low, including only 17% of Americans saying they have “quite a lot” of confidence in large tech companies.
More importantly, the best and brightest in technology are gravitating away from these authoritarian structures.
In the 2000s and 2010s, Holmes could rule Theranos with an iron fist – and without any checks and balances. But in the New Digital World, there are some radical new standards being upheld that could stop even the most audacious founder of a smoke-and-mirrors startup. And here’s why.
Blockchain Empowers Workers to Stand Up to Unethical Practices
While Theranos employees struggled to actually come up with a blood-testing machine that could live up to the hype… Investors in Theranos had no idea that their money was going toward a fundamentally flawed technology.
The claim was that Theranos’ Edison machine was a “lab in a box” that could run 200 different blood tests from just one fingerprick. Theranos never had a machine that could actually work. But to create the illusion that it could, the company simply tricked its early investors. In the HBO documentary The Inventor: Out for Blood in Silicon Valley, a Theranos biochemist recalled how:
Investors would come for a demo in which employees would “take a fingerstick of blood, they would put the blood into the cartridge, and put the cartridge into this Edison. They’d walk the executives out of the room to go have a meeting or go have lunch or whatever. And immediately afterwards an engineer would run in, take out the cartridge, and bring it to the lab, where my team would do the assays at the bench… [An hour later,] the engineer would run into the room with those results. And they’d say, ‘oh, here’s your results from running our tests!’”
Financial documents were falsified, too. In her trial, Elizabeth Holmes managed to pin much of the blame on boyfriend/company president Sunny Balwani. But Holmes did admit, under oath, to adding Pfizer (NYSE:PFE) logos to lab validation reports, with the implication that Big Pharma had produced them…when, in fact, Theranos itself had. These doctored reports became part of the investor packet – and, thus, key evidence of Holmes’ fraud.
Employees were often well aware of the deceptions, but at every turn, they were undermined, silenced, and discredited.
When Ryan Wistort from Theranos’ R&D department raised a fundamental objection – that “the laws of physics aren’t going to permit us to cram all this [testing equipment] that we’ve designed into this little box” – he was told: “maybe you’re not a Silicon Valley person. Maybe you should go work at some other company.”
On the contrary: All the other “Silicon Valley people” at Theranos had problems, too. But management kept a lid on them by keeping everyone working in silos. “If the people from the chemistry team could talk about what was coming next from the engineering team, they’d have said, ‘Well, that’s not going to solve the problem.’ Since everyone was working on it separately, we could keep working forever without actually solving anything,” as one interview with the HBO documentarians described.
In a centralized structure like Theranos, Holmes or Balwani would simply fire you for failing to uphold the scheme.
In the new structure of a decentralized autonomous organization (DAO), any stakeholders – including workers – could simply vote down any policies that jeopardized the mission. In five years since DAOs first emerged, 1.3 million people have joined up, and according to Stanford University, DAOs have gained control of over $500 million in assets. It’s been more like five months since DAOs have really captured public attention – so that’s likely the tip of the iceberg.
Luke Lango, senior investment analyst of Crypto Investor Network, has a great explanation here of the advantages of DAOs and one of the coolest projects going on. Basically, this is what DAOs have to offer:
- Democracy. Rather than an Elizabeth Holmes – or a Mark Zuckerberg – power is spread around a whole community of stakeholders.
- Incorruptibility. Much of the rules and processes are set in stone from the beginning, programmed right into the smart contracts that facilitate the DAO…so leaders can’t tamper with them.
- Consent. When hard decisions or changes have to be made along the way, they’ll be made by the group. Voting rights might be divided up among workers, users, and anyone who might want to buy tokens in the project.
- Transparency. While not everyone might hold equal voting rights in a token-based system, the decisions and policies will all be recorded on the blockchain for anyone to see, follow along, and raise objections.
Notably, these decisions would include hiring. At Theranos, Apple (NASDAQ:AAPL) employees were lured from Cupertino to design a beautiful outer shell for its Edison machine. Meanwhile, the inside of the machine barely existed…And yet Holmes had diverted resources away from the engineers and biochemists who worked desperately to fix Theranos’ blood testing.
In contrast, at DAOs like Moloch (which fundraises for Ethereum projects), potential newcomers are assessed by the group. If it’s not a good match, the rest of the DAO can vote down the hire.
Blockchain, DAOs are Here to Stay, Changing the Game
With all this happening on the blockchain, it’s no surprise that many of the best known DAOs involve crypto trading:
Uniswap (CCC:UNI-USD) and SushiSwap (CCC:SUSHI-USD), the decentralized crypto exchanges; Synthetix (CCC:SNX-USD), where you can create and trade derivatives like crypto options and “perpetual futures”; Yearn.finance (CCC:YFI-USD), which specializes in yield farming; and Aave (CCC:AAVE-USD), the crypto money-market platform, are all governed by DAOs.
More are sure to follow. This November, crypto projects reached $3 trillion in market cap in about 10 years. That’s roughly equal to the total value of all the VC-backed startups on Crunchbase’s Private Unicorn Board.
But DAOs aren’t only about currency. The blockchain is just the easiest way to turn an idea into a movement, coordinate with like-minded people from around the world, and attract funds to do it.
Many DAOs actually relate to art, music, film, and writing. After all, on the internet, “Content is King” – a valuable asset whose creators are finally able to take control and unlock their true value on the blockchain. There are plenty of non-fungible token (NFT) DAOs, of course; you can invest in a “digital museum” of NFTs through PleasrDAO or SquiggleDAO. Or you can create, sell, and collect NFTs yourself on Rarible (CCC:RARI-USD), which is governed by a DAO, too.
In publishing, Mirror.xyz aims to be a kind of “Medium for the blockchain,” where you can start a blog, instantly mint it as an NFT, and follow the articles of your favorite writers. BanklessDAO publishes crypto investing articles, newsletter, and podcasts.
And some of the most intriguing DAOs aim to disrupt Spotify (NYSE:SPOT) and Netflix (NASDAQ:NFLX)!
Audius (CCC:AUDIO-USD) is a decentralized music-streaming app where you can stream music, publish your own, and earn AUDIO in return for all of it. Artists like Skrillex, Steve Aoki, deadmau5 and Disclosure, comedians like Hannibal Buress, and up-and-coming acts are all available on Audius.
Similarly, one newer DAO is looking to stream movies, use subscription fees to fund original content…and purchase the Blockbuster Video brand name for its platform! So far, 7,650 members have joined BlockbusterDAO’s community on Discord, to discuss how to make this happen. The plan is to raise $5 million to buy Blockbuster from Dish Network (NASDAQ:DISH), and Michelle Berrard – daughter of one of Blockbuster’s founding executives, Steven Berrard – has joined up to “bring Blockbuster back to the people!”
Whatever the mission, all of these DAOs offer the same huge incentive to workers as well as investors: a voice in how things are run.
DAOs Empower Experts In Their Ranks
Elizabeth Holmes could have gotten Theranos off the ground just as quickly with a DAO… But she would not have been able to make unilateral decisions, or silent dissent in the ranks, because she wouldn’t have held as much power over operations.
The democratic nature is key, because the groupthink of Theranos’ board – Holmes plus a few wealthy “good ol’ boys” – was a major factor in its fraud. People with technical knowledge of microfluidics (and, frankly, women) tended not to fall for Holmes’ empty promises.
As a DAO structure takes hold, workers will more easily avoid the situation they faced at Theranos, “where [employees] equated it to a South American dictatorship or a drug cartel” in their Glassdoor reviews, as product designer Ana Arriola recalled.
Because a DAO is more transparent and egalitarian, the New Digital World can put an end to all that.
And if your DAO turns out not to be a good fit anyway? You can easily move on to other organizations/projects where you feel better valued and effective.
In the old world that enabled Elizabeth Holmes (and countless other bad bosses), none of this was really possible, even for the biggest rockstar employees. In the New Digital World of blockchain and DAOs, this is already taking hold, changing the paradigm entirely.
On the date of publication, Ashley Cassell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.