Are DAOs and Nations conscious? A look at Diem/Silvergate, Google Plex, and Solidly AMM.

Neural Configuration and Consciousness

We are making our way through Lisa Feldman Barrett’s deeply compelling book, How Emotions Are Made. It speaks of the latest scientific understanding of the functioning of the brain — a compex collection of networked neurons continuously firing to generate a narrative model of the reality we experience.

Brain activity is always *ON* in the same way that your computer is always running background software for its operating system. External stimulus, i.e., things that happen that you perceive, is of course meaningful. But equally, if not more, meaningful are the millions of predictions that your brain is constantly making about the likely state of the world, followed by the correction of those predictions once reality hits.

This explains why we perceive and logic our way through the world slower than we take biological actions. Those biological actions, like moving a hand to catch a ball, are initiated faster than our explanations of that particular action. Our homuncular self ingests the stories as explanations of what has happened after our organism has taken the action. Those stories make meaning, and drive how we allocate the scarce resource of attention, thereby choosing which things are salient to us to achieve our goals. These recursive loops and the modelling of the self, we understand to form the basis of consciousness.

According to Feldman Barrett, emotions are categorical, probabilistic predictions of internal physical meaning, trained into us socially through the environment. We don’t have a “happiness” organ that lights up when we are happy. Rather, we have a statistical neural configuration, which can be generated by any set of available suitable neurons at the needed time. This configuration is a story we tell ourselves to explain a particular physical “prediction” our body has made, like releasing hormones that relax us. We are “happy” after we notice the hormones and the context from all the other senses.

Anyway, this is a mechanism that regulates the spending of energy and attention according to the pursuit of some sort of goal. Our brains are rewarded for getting things wrong, and likely in some sense — calorically, evolutionarily — punished for getting things right. That right there is an incentive.

An incentive for a conscious collection of atoms, networked into molecules, networked into cells, networked into tissues, networked into organs, networked in the organism.

The obvious question is — What are we, the organisms, networked into? What is the higher level hive, of which we are a part, and whose consciousness we form. For whom does our meta circuitry process information?

One of our favorite sci-fi ideas is that there might be all sorts of consciousness around us, but we don’t notice it because it does not compute on the same *time scale* as we do. All things considered, that seems a sensible hypothesis; there’s no strong reason why *our* time scale is the right one, just like there’s no strong reason that Earth was seen to be the center of the universe. What are the odds that our cadence of thought is the same as that of other, alien consciousness?

For a visual representation of this, check out the time-lapse video below of the plant moving towards the sun. Surely there is some sort of intelligence, some goal seeking characterized by setting a goal and then using sensory information to optimize against that goal, which is going on here — and yet on a day to day basis, we would be hard pressed to even notice the movement.

And so we can imagine that our civilizational superorganisms — tribes, nations, companies, societies, NFT Discords — have an intelligence of their own that we are similarly hard pressed to notice. We are neurons in their network, performing functional computation, lighting up ideas, running the background process of churning shared myth into reality. Ocassionally, we grab onto some tidal wave of a utility function, like climate change or self-driving cars or Brexit, and contribute our little piece.

Do civilizations talk to each other? Do they render a self conception? From inside the brain, a neuron does not have the language for such self-awareness. It only knows when it is on or off.

And as we, people, do our constant communication and categorization, we make predictions about the future, create and maintain barriers and differentiation, and clear our those differences through financial and governance markets. In the way that the brain judges one prediction to be more likely than another (i.e., that tail is from a cat rather than a tiger), perhaps we judge one prediction to be more likely than the other (i.e., fintech is overpriced, crypto is a new paradigm).

Forgive the anthropomorphism. But do consider this idea of the purpose of law, regulation, and social categories as constructions at the level of civilizations to maintain and grow civilizations. Individual people, the agents or neurons of these systems, will continue to render outputs and generate stories; *something* needs to parse those stories to some end. And those somethings are in a sense alive — they compete with each other for resources, calories, and yes, salience in the attention economy. See our deeper take on empire here.

Live or Die

The maturity and context of a super-organism determines its utility function.

We, as individuals, are often confronted with the idea of a scarcity or abundance mindset. In the former, a person is focused on a fixed view of the world, such that the only way to get more pie is to get it from someone else. In a trade, one of us wins and the other loses. The latter view is much more open, called a growth mindset, such that we don’t fight over limited resources, but rather are baking more pies as we build more things.

Elon Musk has a growth mindset. He trolls Bernie about taxes, because he finds a focus on the fixed pie to be a categorical error about how the world works. In the more socialist view of the world, a “fair share” of taxes — however ambiguously choreographed — is the way to make the world a more equitable, good place. In the Musk, Graham, and SV techno-libertarian utopia, the way out is to build more value, rather than haggle over the value created in the past. We are being unfair in categorizing both, there is much deeper nuance about market failure and apriori distribution. But this is just a newsletter, not a behavioral econ textbook.

The point of bringing up the above is to say that, maybe, these mindsets are endemic *not* to people, but rather to their superorganism. These mindsets are an culturally-genetic attribute of where you belong, not of who you are. If you are a wartime nation with dwindling supplies and a broken economy, then your people, i.e., your neurons, are going to have a fixed mindset, because that reflects their reality. As a nation, you generate lots of narratives about fairly dividing the pie, and then through government, you optimize internal distribution in order to prioritize stability and survival.

Alternately, you might be a growing nation in need of risk-seeking activity — a civilization sending out its boats into the open ocean, or its rockets into outer space. There, you need the social narrative equivalent of adrenaline — a myth of self-reliance, survival, and riches for all your individial agents. If such myths aren’t instantiated in the social consciousness, if they are not driving the salience of your markets and capital allocation to growth, then there will be less growth, and another hopium-fueled tribe will eat your interplanetary lunch.

These high level postures may translate into specialization, both of your governance organs and who you put in charge of particular parts of the system. We go back to the model of commandos, infantry, and police to explain how to build products in new markets. Commandos are the rule-breakers that storm new frontiers and take an idea from 0 to 1, infantry grow and scale that idea from 1 to 100, and the police keeps the area perpetually safe at 100, perhaps with 3% annual inflation and 5% unemployment.

This helps the astute reader mind the context. Don’t ask the police to innovate. Don’t ask the Federal Reserve to invent and implement a new form of money.

This model of people-types shows how industry practitioners may speak the same language (e.g., crypto), but actually be part of very different organs with different incentives, tied to the super-organism for which they render process. As neurons, they may communicate; but as higher-level tribes, they are in oppositional modes of being.

One more thing to say at this level. With greater size, we see also deeper specialization of control functions. In the United States, “governance” has splintered into the executive, legislative, and judicial branches. Each has centuries of operating experience, as well as deep precedent — whether cultural (as in, it is impolite to pack the Supreme Court with new justices) or written (as in, the power of thousands of case precedents under stare decisis). These divisions cascade further and further from the federal level, to States, to cities, and neighborhoods. At each level, a different simulation and story is rendered.

In most DAOs today, governance is primitive, composed of temporary “circles” of people who are functionally aligned. There is not a granularity in the understanding of power, nor a granularity in the understand of other constructs, such as why and how corporations are governed. Everything is sort of a corporation, sort of a fashionable tribe, sort of an open source project with lots of contributors. The lack of granularity isn’t wrong — it’s appropriate to the stage of the overall ecosystem. But as the ecosystem gets to do more things at larger scale, that granularity will emerge and shock the generalists with its requirements.

Applying the Framework

Let’s run some examples through this blueprint.

Crypto is still a war nation, looking to carve out space against the shadow of the global financial and economic markets. It needs to slice its way into people’s minds, articulate the value proposition, infect us with its religious virus, and spread through our hands into our phones and wallets. As such, its organizational logic is that of rendering lots of open possibilities that expand and grow the pie. Nobody *inside* crypto really cares about who got what — they just want to make sure they get some too, mostly at the expense of the Old World.

It is the Old World obsessed with fixed pie distribution, because that is the mode in which it renders its self-conception. Its appendages focus on stability and fairness, on preservation and balance. Thus the same information, like a hack of an exchange or a reveal of some particular fraudster, will be rendered differently in order to generate a different internal story, a different internal narrative that causes different organizational appendages to fire.

For one side, the story triggers feelings about safety and stability. For the other, it triggers excitement about survival and beating the odds. Conquering a steep mountain is only more attractive to extreme mountain climbers if someone has failed to make the ascent, or died doing it.

It is through this lens that we see the recent Facebook/Meta and Google news. Meta is exiting its Diem project, via a sale at $200 million to Silvergate bank. Silvergate will compete with Circle, we think, in launching a propritary stablecoin and payment rail. Through this acquisition, it can be at the center of whatever happens in the Diem-based ecosystem and its Move programming language (see Mysten Labs, 0L Network) by delivering a traditional finance onramp.

In a similar vein, Google has essentially failed out of neobanking. In 2020, like many others, we were excited about the upgrades to Google Pay, as it positioned to compete with PayPal and Cash App and recreate the scale of Ant Financial’s super app. The thesis that big tech has mastered distribution and was incorporating existing financial product into its footprint still “sounds” right. And yet, most embedded finance is not being done by big tech. And most neo- and robo- financial product is not sold through these big tech companies, but through some form of corporate partnership with an investment bank like Goldman.

There are lots of standard interpretations of this based on industry dynamics and revenue flows. But let’s leave that aside, and consider things structurally.

Google is a super organism swimming in the petri-dish of the United States, and elsewhere, subject to its rules. The US is mature and has specialized lots of governance functions to act as incentives for how things grow and behave within the country. The setting of incentives and their policing comes from a place that is structurally distinct from the place where any innovation takes place. The role of regulators — notice we do not say “government” — which are a particular granular subset of the executive, trying to fill in the blanks in legislation, is to correct market externalities and generate stability. The regulators render, predict, simulate stability. Their entire organ, projected and made actual by individual people, is to create incentives — via letters, opinions, statements, prosecutions, actions — that drive people to balance.

Notice how there are almost no incentives in the opposite direction here. Regulators are not posting billion-dollar bounties to jump-start new economies that break prior regimes. Imagine, for a moment, that there was a $500 billion reward for the first tech company to create the largest neobank, and that reward had to then be distributed to the first users of that neobank according to deposit amount. That is a very, very different regime.

If you want to see that regime in action, watch the DeFi philosopher king Andre Cronje willing into existence millions of transactions in the Fantom layer 1, associated with the launch of his new decentralized exchange Solidly. Here’s a good overview of the mechanics in play, with particular attention to NFTs earned by the top 20 protocols on Fantom that then receive protocol-level rewards from trading volume on the new exchange, to be distributed to users.

The result, not surprisingly, is a rush of activity to this destination. Transactions spike to over 1 million, and value in the protocol goes to $10 billion.

Is this stuff sustainable? Will the small investors benefit, or is this all about whales?

Such questions, again, are going to be colored by the tribe and organism for which you process information. DeFi participants understand the game; they understand that there is a rush to claim tokens and establish position, they understand the value of being early, they understand that real activity needs to come after this farmed activity. They understand this in the same way that someone getting $300 for opening a bank account at Wells Fargo understands they are getting paid now so they can pay fees to Wells Fargo later.

In this world, the setting of incentives is not pulled apart from the governance apparatus into an unrelated organ. The innovation organ *is* the governance organ, driven to some equilibrium by capital markets. Therefore, innovation and the taking of new space is what everyone is organized around, and in essence, regulated by incentives to do. These are commandos — a far cry from the rest of the police.

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