Network States Are Not DAOs

The Network State concept is a very new idea. When people first hear about it, they often ask “isn’t that just sort of a DAO”? Examining how Network States are different from all existing DAOs is revealing. Jur founder Alessandro Palombo explains in this excerpt from The Network State Revolution.

The crypto phenomenon is based on a speculative, emotional value proposition: DeFi, collectibles, and gaming occupy the vast majority of applications.

The concept of the Network State did not evolve from DAOs or asset-driven logic. It didn’t contain speculation on “how to create a new Country with bootstrapping a treasury through DeFi mechanics.” Instead, it started from an opposing principle: the moral commandment at the foundation of a society, which in Balaji’s thinking is called a “startup society.”

If the concept of Network State had been generated within the Ethereum community, the angle of the discourse would have been “how DAOs can organise states” and citizenship would have been translated as soulbound tokens. The foundational citizen’s behaviour would have been “staking tokens” and the first government would have been conceived as a multi-sig wallet.

A DeFi version of Network States would have citizens staking tokens and earning “passive citizenship income.” Or, instead, long pages of the essay would have covered the topic of “how to ensure collective choices thanks to a game theory based democratic system.”

Instead, Balaji focused on the role of the startup society founder, a choice foreign to archetypal Web3 logic. It is no coincidence that, in the article commenting on the Network States, Buterin disagrees on this point of the founder’s role.

A citizen of a startup society doesn’t own a governance token on day 1. He shares the purpose and feels belonging to the new social construct. Only in the  second phase is there coordination for common action, when eventually citizens make the effort to meet physically to create trust among individuals and, at that point, a native cryptocurrency can be introduced. There is no game-theory driven trust, ensured by a crypto-economic incentives and default scheme; there is the concept of meeting in person. Then, and only then, the internal economy with their own currency comes into place.

And it couldn’t be different: a person is either Spanish, Brazilian, Mexican, etc. regardless of what currency they own. And for sure, I am not a citizen of a country because I got paid– it’s the other way around. This doesn’t mean that in Balaji’s vision any of these elements are excluded. The paradigm has been reversed. In Web3, up to this point, the first step would have been “issue the society token” or “launch your society initial offering,” and then build. Like “digital first, land later,” the paradigm for formation specifies the order: “a true common purpose first, crypto economy afterwards.”

Coming back to the topic of the differences between a DAO and a Network State or startup society, Ale says: “I sense that the Network State movement will also highlight the current shortcomings of the DAO model, which often involves sophisticated human coordination where there is a lot of modelling, but not enough humanity.” People are talking about “DAO fatigue.”

He continues “I want to emphasise that reducing the concept of Network State to “another DAO-ish construct” is detrimental to the movement. Balaji’s Network State concept is not focused on building a crypto project- it leverages crypto to the minimum extent necessary. One of the most interesting chapters will be to analyse how differences will evolve; this is what will be recognised as the value of Balaji’s contribution. It’s not easy to build a concept which, on one hand, creates friction with established socio-political classes and equilibrium and, on the other hand, doesn’t speak in the familiar language of the crypto-industry as developed five years prior.”

You can read more about Network States in the Jur Network State wiki

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