Ethereum was advancing spectacularly in 2019. Out of the many use cases, decentralized finance — or DeFi for short — excites the community the most. Today, you can loan and borrow assets in a decentralized and permissionless manner, and even buy and sell synthetic assets like gold or silver on Ethereum. While these are all powerful use cases, they are live inside the ecosystem. What happens when Ethereum interacts with the real world? For example, can you run a whole company on Ethereum?
Imagine a world where doing business involves no paperwork at all. No bank appointments, no attestation of documents, and no legal costs. Just imagine the amount of productive energy you can dedicate to building a startup if you don’t have to jump through bureaucratic hoops.
Ethereum promises to make this dream a reality. Are we there yet?
Incorporating a company
Today, setting up a business feels like traveling back to the past. In many countries, the process is still mostly analog and not exceptionally pleasant. KYC/AML regulations require company founders to submit all their personal information, often on paper, signed and notarized.
There are a few jurisdictions, however, where Ethereum-based company incorporation is possible.
We have been working on a service, OtoCo, which lets entrepreneurs set up a real-world series LLC in Delaware in less than five minutes for five DAI — or the price of a coffee — all on Ethereum. We technically and legally engineered OtoCo such that by simply sending an amount of DAI to a smart contract, you can spin up a fully-functional company incorporated in the United States, from anywhere in the world, without requiring any paperwork. The entity is operational as soon as the transaction is confirmed on Ethereum, so typically within 15 seconds.
It is possible to form companies in Delaware (and soon we will add Wyoming) instantly, because these states, following the great American tradition of free entrepreneurship, do not require KYC at the stage of formation.
You only need to do the paperwork if you plan to open a bank account for your company — which you might not need at all if you plan to run fully on-chain.
OtoCo is currently running on the Kovan testnet (so you need some Kovan ETH and DAI to give it a try), and we plan to launch it on the Ethereum mainnet in the second quarter of 2020.
Our thesis is that there is a need for “hypercompanies” that can be spawned fast and provide an instant legal liability wrapper around a specific project – even a smart contract itself.
This will allow a project to attract collaborators who are shielded from legal risks whilst validating their proposition. It also allows teams to fail fast and move on.
In a next iteration, after tackling the first-mile formation on-chain, we will increasingly “DAOify” OtoCo for those teams who also want to insert smart contracts in how they run their hypercompany. From internal governance to programmable equity with automatic dividend payments, Ethereum can fundamentally change business processes.
Managing company finances on Ethereum
Such DAOification includes how an on-chain entity manages its finances.
Thanks to new generation smart contract wallets and DeFi platforms, it is possible to manage all your company finances on Ethereum, at least as long as you don’t need to interact with the fiat ecosystem.
A current account on Ethereum
Multis is a multisig smart contract wallet specifically designed for teams and companies. Though it doesn’t formally onboard your entity, Multis allows you to attach labels to your wallets and manage them as your company’s digital assets.
Calling Multis just a “wallet” doesn’t do it justice — it is much more than that. Multis is building a crypto-native banking platform with all the features you’d expect from a first-world bank. It lets you set up different roles and granular permissions (so your intern can’t pay himself double salary without a signature from your CFO), allowances for team members, and an address book to conveniently manage counterparties.
It comes with Compound integrated. You can earn 5 percent (at today’s rates) on your balance without a lock-in period or any restrictions on withdrawals. The last step missing is a fiat bridge, but Multis says it’s in the works, both for USD and EUR.
Our only issue with Multis is that it’s not open source. Closed source software goes against the ethos of Ethereum, and we hope the creators make the code available for scrutiny this year.
Nonetheless, Multis offers a glimpse of how corporate banking could look like on Ethereum and is putting legacy solutions to shame.
A crypto safe
Imagine your company has just completed a crypto fundraising round. After the euphoria, anxiety kicks in: where can you safely store all these funds? On a Ledger? There must be a better way.
Multisig wallets are designed specifically for these scenarios. Since withdrawals require M-of-N signatures (2-of-3, 4-of-8, etc.), they are much more secure than any other custody solution.
Gnosis Safe is one of the most established multisig Ethereum wallets in the industry. Dozens of Ethereum projects use it securing assets worth millions of dollars, and it’s not hard to see why. The smart contracts of Gnosis Safe are not just audited, but formally verified, and the company runs a bounty program where researchers can earn up to $100,000 (not a typo!) for every bug they report.
We also like that Gnosis Safe does not try to be more than what its name says. You won’t find banking features or 3rd party integrations here, minimizing the surface of an attack. If you are looking for a place for your treasury, look no further than Gnosis.
Bridging crypto and fiat
Sometimes it is necessary to venture into fiat territory, even as a crypto-native company. Unfortunately, the bridge between the two worlds is still under construction.
Some cryptocurrency exchanges, like Binance US, accept American businesses after a thorough KYC process. Cashing out ETH or stablecoins into USD is, therefore, not an issue. The problems start when your company generates income in fiat, which you want to convert into crypto.
Today, no credit card processors are willing to settle merchant payments in cryptocurrencies, not even in stablecoins. PayPal is notoriously crypto-unfriendly. If your company is selling products or services online, you almost certainly need to open a traditional bank account.
The situation is a bit better with wire transfers. Some of the new fintech companies provide you with a cryptocurrency wallet combined with a fully-functional fiat business account. You can freely convert between the two, and send or receive crypto or fiat from the same interface. Some of them, like Wirex and Bitwala, even issue crypto-compatible Visa or MC business cards. However, because of the regulatory fragmentation, they are only working with companies based in the EU — where you can’t incorporate a business on-chain.
We expect these gaps to close eventually. But today, working across crypto and fiat comes with trade-offs.
“Payday” is outdated
Crypto payroll management is a fairly established concept. Some of the oldest providers, like BitWage, have been around since 2015! But times are changing. Why would you pay your employees on the 5th of every month when you can stream their salary in real-time?
Sablier is a brand new service built with Ethereum’s new ERC-1620 standard, which lets you do precisely this. As company owner, you only need to top up the salary wallet once, and your employees are getting paid every second of every day, in real-time. It’s not just a remarkable service, but a revolutionary idea, transforming making “payday” an outdated concept.
Sablier is open source software, and its smart contract code is audited by Quantstamp.
A business is not just about financials. It is also about managing teams, projects, resources, and priorities — all doable on Ethereum.
One of the very first Ethereum projects was indeed a Decentralized Autonomous Organization (DAO), the on-chain version of a self-governing organization. It failed because of an unpatched vulnerability, and its downfall was undoubtedly not one of Ethereum’s finest moments. But this happened years ago when the platform was still in its infancy. Today’s DAOs are much more powerful and secure.
Aragon is one of the most established platforms to create and operate a DAO. While it focuses on communities and nonprofits, it is perfectly suitable for a business as well.
Aragon is less of a product and more of a sophisticated operating system for organizations. It is leveraging Ethereum smart contracts to enable roles-based membership management, transparent budgets, and a robust governance mechanism to discuss and vote on proposals.
Colony is another popular DAO-framework, focusing on businesses.
You can replicate complex organizational structures, teams, units, or projects, and set up granular permissions with certain people taking ownership and decisions in different parts of the company. Delivery can be incentivized by attaching bounties and rewards to specific tasks. Colony can even track the reputation of individual employees!
Running a company as a DAO is not a l’art pour l’art exercise. As distributed, remote teams become more popular, and full-time employment gives way to project-based work, organizations need a robust platform to coordinate internally efficiently.
We are almost there
So, is it possible to run a company entirely on Ethereum?
If you generate revenue in crypto, the answer is “very soon”! You can already manage all your finances on-chain, and even set up complex organizational structures all on Ethereum. The only puzzle piece missing is company incorporation — but not for too long! OtoCo is already on the Kovan testnet, and we are scheduled to launch on the Ethereum mainnet in Q2. To make sure you don’t miss it, subscribe to our newsletter at the bottom of the page!
If your business needs to interact with the fiat-based traditional economy daily, you can — and should! — still use many of these tools. Tracking the individual reputation of each employee, earning 5 percent APR on a current account deposit, or streaming salaries are things only possible on Ethereum.
If you are interested in setting up an off-chain company (and using these tools independently), check out our supported jurisdictions on our home page, or read our primer on why Delaware is one of the best places to start a business.