Published Dec 2020
<aside> 🔥 _Prtcl has just been incorporated in Vermont as two Blockchain-based LLCs, each powered by a DAOstack DAO on the xDAI chain. The model uses a hybrid on-chain and legal exit-to-community (E2C) scheme.
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Since the very beginning, 2 years ago, incorporating _Prtcl with a legal structure that was sensitive to its nature has been a priority for us. Just as important as developing the technology itself. While this created some friction with potential investors, it has always been a red line for us.
We now have taken an important step in this direction, with the legal incorporation of two blockchain-based LLC in the state of Vermont, US, one, a non-profit, representing the project community, and another, a for-profit, representing the project founders and investors.
These entities are legally connected to two onchain DAOs and use a set of smart contracts to keep track of the company funds, governance, and economic rights. The structure forces the transition of power and control from the founders and investors to the community.
We see _Prtcl as a public infrastructure for collaboration, coordination, and ideas sharing, and whose value derives mostly from data provided by its users and its derived network effects. This is: in the long term, the value of _Prtcl infrastructure is not given by us, the founders or developers, but by the users.
This is the case for a big chunk of recent technology. Just think about this: How much would you pay to keep accessing your favorite social network? How much would that number be if, once in, you would be the only user in the network, with everyone else gone? Now ask the same questions but, for example, about a Tesla electric car. How much would you pay for a Tesla if you were the only owner of one?
That difference in the ratio between the value users receives from a platform if they are the only user versus the value received by each user when all of them use the platform is an (inverse) measurement of the platform network effects, and in our case, it will approach to 1.
It is for this reason that we think 21st-century platforms like _Prtcl, which heavily rely on network effects, cannot have the same ownership structures as industrial companies from the 20th century.
While in the long-term the value of the platform is given by its user's network effects, in the short-term, this is not the case. Founders and investors still have to put a huge amount of effort and capital to build the technology. New stuff is risky and the likelihood of them simply losing all of it is high. It is therefore key that the correct incentives are there to attract people and capital to work on these new technologies.
After exploring different approaches such as native tokens, platform cooperatives, or continuous organizations, our preferred strategy is one that is closer to the concept of [Steward Ownership](https://purpose-economy.org/en/whats-steward-ownership/#:~:text=The concept of “steward-ownership,protecting it from extractive capital.) and which we decided to call the "Reasonable" model.
The concept of "Reasonable" was presented before when it was just an idea. Its core aspect is that founders and investors receive capped governance and economic rights over the project that are lost once the economic rights are paid back. In the end, the project becomes owned and controlled by its community, made of the set of stakeholders who use and depend on the technology.
It might sound very different from an equity-based model, but in reality, it is 100% equivalent if you assume the economic and governance rights are infinite. This means that, with Reasonable, a project can go as close to a standard equity-based model as they want by using large-enough risk multipliers. It also poses the question of why would someone have infinite rights over something they invest a finite amount of time/capital in.
Compared with the use of a native token, the "Reasonable" model makes a distinction between "the community" and what would be "token holders". Token holders are, in most cases, closer to investors, than they are to users. In "Reasonable", being a member of the Community is not something that can be bought, and does not result in economic benefits.
In our previous post about Reasonable, we described an ideal version of the model. Here we will describe the actual implementation, both legally and technologically, which is a reality today and which, one could say, corresponds to the minimum viable prototype of the model.