Dispute Resolution in a Web3 Future (Part 1)
Part 1: Why Alternative Dispute Resolution Organizations Matter for Blockchain and Web3
A Glimpse of a Free Future
A simple transaction click of a button, Metamask pops up, and the Overton window is pushed to the extreme. And the user likes what they see on the other side!
Interacting with web3 opens a window through which we glimpse a true free market. Full-fledged voluntary economic interaction, rapid experimentation, unhindered entrepreneurship, and all the positive effects of being responsible for our own choices.
We can see the hunger for free alternatives by looking at the rate at which the world is adopting blockchain, and we know it has a chance of inspiring radical societal change by looking at the fear it has begun to inspire in regulators.
Some of us are slowly digesting the implications of what they’ve seen, while others have embraced a digital life just to live in a free world, even if virtual.
We Can’t Code Everything
We have made a century of progress in a few short years. We have voluntary monies, digital asset rails, and full-fledged financial applications on top. We have governance frameworks that enable infinite experimentation with constructs that have never been feasible in the tradcorp world. We have insurance, playful digital identities, privacy tools for the day we need them, and so much more.
But we can’t, or shouldn’t, try to code everything. Contracts and agreements are everywhere, though they often go unnoticed.
Cooperation between individuals or groups of people (i.e. businesses, or a DAO) is most efficient when both parties understand each other’s expectations. Especially when money is involved. Thus, we use written contracts: concise agreements that allow both parties to stipulate their expectations before engaging in some sort of exchange.
Remember, in a free (or more free) market we still subscribe to rules, and we definitely have agreements that we wish to be upheld.
Every business contract is different, and contracts often need to be drafted and executed within a short timeline. While we may be able to standardize some contracts for typical business interactions — there is some great work on Ricardian contracts being done — we still need a crypto-native system for enforcing non-code agreements.
The Place of Dispute Resolution Organizations (”DROs”) in a Free Future
DROs will do at least two major things in their position as dispute resolvers.
- Uphold agreements between parties
- Maintain codes to which individuals or businesses may voluntarily subscribe
These will be some of the biggest organizations in the world.
People will come to trust certain DROs in particular, especially in regards to their track record and what they have at stake if they are found to be negligent or corrupt.
Why does Decentralized Dispute Resolution Matter Now?
First off, a DRO likely does not need to be decentralized to be efficient and preferred. However, being an autonomous organization now allows for these types of organizations to innovate and experiment without being constricted or shut down by regulation.
Back to why they matter...
From an economic actor perspective, DROs will allow for the following:
DAO-to-DAO, DAO-to-Individual, and even DAO-to-Machine Agreements
DROs provide DAOs and sovereign individuals with a framework to enable DAOs to coordinate and enter into contracts without requiring state-sponsored entities. Most DAOs have been forced to create companies just in order to enter into agreements.
A simple example is hiring. Let’s say a DAO wants to launch a new protocol, which will have its own token. The DAO wants to hire someone and give them future tokens in the protocol. We can’t code this, since the future token doesn’t exist yet, so we need a contract and someone to uphold it (sure, perhaps we trust each other 100%, but relying on that is inefficient).
In another example, perhaps an oracle is settled by individuals who report an outcome of an event. In the case they disagree, we may insert a DRO who solves the dispute. They would have their own mechanisms in place to ensure their own honesty. Perhaps they stand to lose a big pile of money if another DRO they hire finds that they have acted dishonestly.
An Efficiency Edge
If we want the greatest chance at inciting positive societal change, we need to be able to compete with corporations whether they like it or not, and that means we need all the efficiency we can get, especially when trading some decision-making efficiency for community governance.
Luckily, alternatives to state legal systems can be way more efficient!
Who wants to enter into an agreement that requires them to travel across the world if a dispute arises? In the international (and metaversal) market, this is illogical and a huge drain on efficiency.
In addition, courts are painfully slow. We can drop the time and money required to settle disputes drastically.
And then there is choice in arbiters and jurors. We all know that interpretation may differ, and it’s possible even in the context of a well-written contract. If you and I like how a certain arbiter/juror makes decisions, we should be allowed to select them. Perhaps when reading ambiguous clauses, they have their own unique codes that they fall back upon.
Why They Matter from an Investment Perspective
As alluded to earlier, I believe that the arbiters of the decentralized present will have a foothold in becoming the upholders and enforcers of the voluntary law of the future, and the top DROs will be enormous in size.
In a free market, you pay for what you value, and people will continue to value services that require agreement to terms. Even if you maintain a fraction of the the current contracts that bind you (think of trash pickup, health insurance, internet, agreeing to software terms, etc), that translates into significant potential revenue for a dispute resolution service.
This is an 8 billion person market.
Next: Part 2, where we’ll look at a few of the protocols experimenting in this space.
