Innovation in decentralized organizations: From DAOs to BORGs and beyond

Powerful forces of decentralization over the last decades, underpinned by the Internet, flowing through to societal shifts, and expanded by distributed technologies such as blockchain, have reshaped business and society.

However governments and regulators have largely tried to block these forces, often successfully.

The global economy is still founded almost completely on joint-stock companies, with legislated centralized structures of ownership and governance. 

So what is the best path to decentralized organizations, how can we best innovate in structures for participative value creation?

The allure of DAOs

The concept of Decentralized Autonomous Organizations (DAOs), proposed by Ethereum founder Vitalik Buterin, has been embraced by the blockchain community as a revolutionary organizational model. They exist entirely on the blockchain and are governed by smart contracts, allowing for decentralized decision-making and new forms of resource allocation. See more on DAOs with some of the best examples.

I often point out that no DAO today is really anywhere near what Buterin proposed in his original 2014 essay on the concept, of internal capital utilized by “automation at the center, humans at the edges”.

Notably with the rise of AI agents, the potential for these kinds of structures to provide a solid alternative to traditonal organizational forms seems high.

However regulators don’t tend to like new organizational forms.

The case of Ooki DAO

Last year the Commodity Futures Trading Commission (CFTC) filed a lawsuit against Ooki DAO,  saying the organization was unlawfully acting as a futures trader and offering retail margin and leverage trading services. Ooki DAO was shut down in June.

CFTC argued that the owners of Ooki had moved the organization into a DAO structure to avoid regulation. The court found that a DAO can be treated as a ‘person’ (similarly to a company), and in fact token-holders have legal liability. 

This ruling has put in question the future use and value of the DAO structure, in the U.S. in any case.

From DAOs to BORGs

In an excellent post looking at this issue in detail, Sam Venis points to a proposal from crypto firm Delphi Labs titled Assimilating the BORG: A New Framework for CryptoLaw Entities. They point to how many organizations that claim to be DAOs are trying to avoid regulation,  don’t provide protection to participants, and aren’t autonomous and/or decentralized. They suggest a different framing:

The Cybernetic Organization (CybOrg or ‘BORG’), is a traditional legal entity that uses autonomous technologies (such as smart contracts and AI) to augment the entity’s governance and activities. Just as sci-fi cyborgs (‘cybernetic organisms’) augment humans (natural persons) with robotic organs and limbs or microchip or optics implants, BORGs augment state-chartered entities (legal persons) with autonomous software such as smart contracts and AI. Crucially, legal entities that are BORGs do not merely use autonomous technologies as an incidental part of their business–instead, much like a human might have a robotic prosthesis surgically attached to his shoulder, BORGs are legally governed by autonomous technologies through tech-specific rules implanted in their charter documents.

BORGs come in two varieties:

• tech-augmented companies, such as a corporation with tokenized, programmable shares (eg, tokenized preferred stock that embeds a complex set of liquidation and dividend logics); and
• trust-mitigated, accountable, DAO-adjacent entities, such as a Foundation that wraps an emergency multisig for an DeFi protocol, but gives the DAO on-chain control over the emergency multisig’s powers (eg, can veto appointment/removal of signers or revoke the multisig’s powers entirely) and certain legal rights over the multisig signers if they abuse their power.

The key point is that traditional legal structures are used, so battles over establishing or circumventing existing regulation do not arise. However the structures are augmented using blockchain, AI, or other technologies to expand beyond what Buterin described as “boring old organizations”: humans at the core, humans at the edges.

Innovation in Humans + AI organizational forms

For any long term change you need to work on two levels:

• What you can do now within current constraints
• How you can effect structural change to those contraints

It will be a long haul to build clear, established legislation for new organizational structures. That is definitely worth doing, but it is one domain where I think prudence is warranted. Many investors need to be protected, mainly from themselves. 

We now enter an era where we can experiment with how existing organizational forms can be expanded with new structures and approaches, without creating legal uncertainty and risk. 

I look forward to seeing the new forms of BORGs that arise.