A wave of enterprise blockchain software is just around the corner. Anyone who's been in crypto for a few years has dozens of reasons to be doubtful... previous attempts over the last decade were doomed from the onset and entirely missed the mark.
What is Enterprise 3.0?
A16Z's Chris Dixon describes blockchain as "web 3" now that we can read (web 1), write (web 2), and also own (web 3). Digital ownership without intermediaries has enormous consequences across every sector of the economy, but I'm most interested in exploring the effect on enterprises. At the risk of hijacking Chris’ framework, we’re also in the third era of modern enterprises:
Old School → Online → Onchain
First, there were the Old School Enterprises (1.0). These are the companies your great grandfathers worked at. There was no software. Larger "Old School" companies had “billing departments” and “payroll departments.” The company may have had a literal physical vault to store the assets, like cash. Customers delivered cash to pay for goods and services. The financial records were recorded in fairly meticulous notebooks.
Second, there were Online Enterprises (2.0). These are companies who lost the cash registers and vaults in lieu for digital bank accounts and credit card payments. They started signing documents online, like Docusign. They started tracing their ownership with spreadsheets and software like excel and carta. They used software like Quickbooks to organize their records for bookkeeping, filing, and auditing by people. They use software like Gusto and Bill.com for payroll and invoicing, reducing the size of their billing and payroll departments dramatically.
Finally, we're entering an era of Onchain Enterprises (3.0). These are organizations who send and accept stablecoins, like USDC. Assets of the organization are held in multisignature wallets. The ownership structure for onchain companies is tracked onchain. Financial records are automatically generated through queries of verifiable data. Invoicing, fundraising, vesting, payroll, and treasury management are smart-contract based software packages controlled by the companies themselves. Agreements are sealed with cryptographic signatures. Perhaps the organization is called a "DAO", or a "guild" or a "Smart Company".
What did “Enterprise Blockchain” get wrong over the last decade?
They were building at the wrong level of abstraction. They were trying to build blockchain networks and consensus mechanisms (IBM’s Hyperledger, JPMorgan’s Quorum, etc). "Enterprise 3.0" shouldn't be focused on blockchain architecture itself, it should be focused largely at the application layer. Smart contract-based software will be the cornerstone of enterprise software 3.0.
The less frequent attempts at “application-layer” enterprise products over the last decade have also been focused on IoT, inventory tracking, and supply chain processes. These applications are not as interesting as software that touches an enterprises’ finances: invoicing, billing, fundraising, payroll, vesting, cap tables, and more. Moreover, they were built on doomed networks, ensuring their failure from the onset. It’s very important to build on successful rails, like EVM networks.
Why is it interesting now?
Enormous Market. Enterprise blockchain is easy to meme, it's a blue ocean opportunity, and the crypto industry is in desperate need of a new narrative. It turns out that "unstoppable casino" isn't very compelling.
New Approach. Very dissimilar from enterprise blockchain attempts of the last decade. The next wave is focused on smart contracts & applications, not L1s and consensus mechanisms. This cycle, we're going to have crypto-native funds backing the next generation of enterprise software because it'll be built ATOP the infrastructure that they've already invested in.
Infrastructure Maturation. Thanks to account abstraction, smoother on/off ramps, and lower gas fees (100x+ reductions), public blockchains are finally ready for prime time for serious applications to be built on them.
What are some examples of Enterprise 3.0 software that are most interesting to put onchain?
Fundraising, billing, payroll, vesting, invoicing, token-gating, permissioning, membership management, financial reporting, grant management, share/token distribution, revenue methods, donation portals, capital structures, crowdfunding, expense tracking, and more.
Why does enterprise software need to go onchain?
Portability (no platform lock-In). Enterprise software built on TradFi rails (Bank APIs, Stripe, Wires) is composed of “walled” logic. If you set up a payment schedule, vesting program, fundraise, or invoice from a given platform, that logic cannot be transferred to another interface. You’re locked-in to using a particular service provider. Moreover, they act as an intermediary. Even if both sides have connected wallets and digital assets are transferred, the offchain logic is a poor fit for onchain assets.
Current Incompatibility. The logic that controls the transfers of assets should be native to the software that tracks the state of the ledger. For Online Companies, this meant software that was built on TradFi rails. For Onchain Companies, this means software that is built for blockchain rails.
Safety & Certainty. Smart contract based software reduces vulnerabilities, intermediaries, exploitation, censorship, and denial of service.
Low-Cost Verifiability . An organization with 100% onchain finances can have live audited financials, verifiably accurate financial statements, and near-zero overhead for reporting, bookkeeping, and auditing. Enterprise 3.0 software delivers more certain results with less costs.
How should I think about Enterprise 3.0?
Enterprise 3.0 is the software that is needed to natively support onchain assets and transactions
Old School | Online | Onchain | |
Asset Storage | Metal or concrete vault | Bank account | Digital wallet / multisig |
Unit of Account | Physical US dollar bills | Dollars on a bank’s ledger | Stablecoins |
Preferred Storage of Liquid Assets | Savings account | Money market account | Yield generating stablecoins |
Means of asset Transfer | Physically exchanging dollars | Bank APIs, Stripe, credit cards | SendTransaction() |
Authorization | Ink signature | Digital signature | Cryptographic signature |
Exchange | In-Person, Paper Ledger | Digital order book & ledger | Automated Market Maker |
Receive Storefront Payments | Cash Register | Point-of-sale device or checkout with credit card | Public address |
Share tracking & vesting | Paper ledger & legal docs | Legal docs, spreadsheets, Carta | Legal contracts that reflects smart contracts and blockchain ledger |
Invoices | Paper invoice | AR/PR software (Bill.com) | Verifiable payment records |
Raise Money | Paper contract, transfer of physical dollars | Paper/digital contract, transfer of digital dollars | Legal contracts that reflects smart contracts and blockchain ledger |
Organization Registration | Physical papers, paper registry | Digital filing, digital registry | Digital filing, blockchain registry |
Compensation | Payroll department | Walled garden payroll software (Gusto, etc) | Portable smart contracts with interchangeable interfaces |
Bookkeeping & Accounting | Paper ledgers and human reconciliation | Spreadsheet ledgers, bank APIs, and human reconciliation | Perfectly queryable data, Blockchain ledgers, total verifiability |
Auditing | Auditing firm, many man hours | Auditing firm, many man hours | Instantly verifiable via cryptography |
Identity (KYC, KYB) | Physical ID | Image of physical ID | zkID (cryptographically verified) |
Who are the first users of Enterprise 3.0 software?
Onchain organizations like protocol DAOs, developer guilds, and grant councils. These are organizations that are likely crypto-savvy and have an inclination toward doing things onchain, even though the infrastructure is still maturing.
What will Onchain Organizations look like?
We're going to see way more than DAOs onchain. It is only a specific subset of onchain organizations. This will be a massive category with a huge amount of organizational diversity, many types of structures and setups:
Decentralized / Centralized
Flat / Hierarchical
Public / Private
Permissioned / Permissionless
For profit / Non profit
Tokenized / Securitized
Regulated / Unregulated
Autonomous / Operational
Fully onchain / Hybrid
Anonymous / KYC'd
What should we expect the adoption of onchain organizations to look like?
At first, it will be “weird” organizations who simply have ideological preference to do things onchain. Much like early users of blockchain payments, these will be “innovators” and “early adopters”. This will mean starting with the long-tail of organizations (i.e. developer guilds, grant councils, collector DAOs) before we see adoption by more mainstream organizations (venture-backable startups, venture funds, small retailers, etc).
Because of the unique nature of smart contracts, the upper limit on the quality of software (and benefits for users) is much higher than enterprise software built atop traditional financial rails (see the “Why” section).
What are some examples of onchain organization types we’re already seeing?
Name | Description | Current State |
Protocol DAO | A body of tokenholders votes to approve major decisions, spend money, approve upgrades, select delegates, and turn of fee switches. Often has no legal structure | Most defined, most common. Examples: Uniswap DAO, Maker DAO, Arbitrum DAO, etc. |
Service Guilds | Groups of designers, developers, or lawyers, who find work together, change for their services, and compensate themselves onchain (contractors, consultancies, service providers). Often set up as LLC (or C Corp) | A handful of service guilds with varying degrees of longevity and success. Most have shifted from DAO governance (flat) to delegated responsibilities to the most involved people (multisig) |
City DAOs & Event DAOs | Groups of people in a shared geography or hosting an event in a particular place. Donations, tickets, payments, membership, etc are often onchain. Often set up as LLC, UNA, or DUNA. | Atlanta, NYC, Austin, DFW, DC, and many other cities have their own city DAOs, many of which also host events. Most power is usually delegated to a core team. |
Collector DAOs & Investment Clubs | Groups of people (often <100) who pool assets to purchase digital assets (NFTs, tokens), or real-life assets (The Constitution, Wu Tang Album). Often set up as an LLC. | Many were created in 2021-22, only few stuck around due to disinterest, lack of funding, or lack of ability to function (Shark DAO, ConstitutionDAO, JPeg Morgan, etc) |
Grant Councils | Teams of people chosen by communities or delegates to distribute pools of money (tokens or stablecoins) to projects and people who are supporting a particular ecosystem. Usually receives annual approvals/renewals from a DAO to continue distributing grants. | Hundreds of millions of dollars have been distributed through grant councils (Optimism, Arbitrum, etc). Many experiments are being done with retroactive funding, public good funding, direct grants, and milestone based grants. |
Foundations | Foundations commonly accompany the non-profit segment of a protocol, which hold very large treasuries, and they are charged with supporting the ecosystem. Often based in BVIs. | There are a small number of extraordinarily large foundations with billions of dollars worth of assets. Avalanche Foundation, Eigen Layer Foundation, Ethereum Foundation, etc |
Network States | Clusters of people who form a community, give consent to be governed, have an economy, and seek physical spaces to co-exist. More descriptions in Balaji’s book The Network State. | There are very few attempted network states. Praxis is the most explicit about creating an onchain nation with an economy and a physical location. Other experiments include Prospera, Zuzulu, and more. |
What are examples of verticals of organizations that would benefit from coming onchain?
These are currently nascent, but their characteristics make them interesting candidates for onchain organizations:
Name | Description | Current State |
Smart Companies / Internet Native Companies | These could be startups, mature companies, retailers, online stores, or coffee shops | Currently very few onchain. Some small experiments, but a general lack of cohesive tools (not yet competitive with the web2 stack of tools) |
User Governed Marketplaces | “Decentralized Airbnb”, “Decentralized Uber”, “Decentralized NASDAQ”,and other forms of marketplaces will give their users and/or tokenholders the ability to control key configurations of the marketplace, such as a fee switch. Finally provides a way to ensure marketplaces at scale “can’t be evil.” | Some may call these DAOs, but they will continue to evolve and become more particular. Uniswap’s DAO is a User Governed Marketplace (marketplace is the exchange itself), Optimism’s DAO is a User Governed Marketplace (marketplace for blockspace). |
SuperPACs | A SuperPAC where the donors share co-governance of the contributions of the organization. This allows for collective power, but continuous representation instead of just putting money into a block box. These organizations can enjoy 100% transparency of donors and use of funds | None exist (yet), but it is a natural use case |
Venture Fund | A fund with LPs and a GP that tracks and manages contributions, investments, profits, and distributions through smart contracts. | No large and consequential funds have transitioned onchain yet. Some small experiments (with differing degree of legal rigor) have been attempted |
Operational Non Profits | Transparently raise money and spend money with total transparency to donors, giving them confidence in the good use of their capital | A few small organizations have been attempted (especially around the Celo ecosystem), but the tools for property running an organization have still been lackluster. |
Government Agency | Agencies with registries may be very well suited to run onchain. Migrating assets onchain will also reduce grift and misallocation by improving public transparency | Some smaller, more nimble countries are already experimenting with onchain registries (Marshall Islands, VARA regulations). This is clearly not even a dream of a possibility in the US any time soon. |
What kind of tools do onchain organizations need?
Each organization is unique, but there are many overlapping needs:
What about DAOs?
DAOs are just the tip of the iceberg. They’re a novel structure of an organization, but far from the only kind of organization that will run and operate onchain.
Where are we at with the adoption of onchain organizations?
Incredibly early, essentially nascent. First inning, at best. Estimates of the current number of onchain organizations range between a few hundred to a few thousand.Simply capturing the existing market is not an interesting prospect. We expect to see the continued growth of participants (40x in the last 3 years) and assets (55x in the last 3 years) in onchain organizations. As this number grows, the types of organizational diversity will grow too.
Can the market be that big?
Yeah, it's huge. Enterprise software that touches an organization's assets or financials is worth hundreds of billions of dollars. All financial software will migrate from TradFi rails to blockchain rails, leaving massive surface area for disruption of slow-to-evolve software companies built on antiquated financial rails.
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