INCs - a canon

An Internet Native Company (INC) is a for-profit organisation that is created, operated and governed onchain.

In this canon, we proposed an updated version of the joint stock company with INCs, explained why they matter and how they differ from DAOs. We also discussed how they should be governed and operated as well as the universal labour and capital markets INCs will foster.

INCs will become first class citizens of the internet economy.

I’ve been thinking about how to bring INCs to life for over a year. The lack of immediate benefits for companies to move onchain coupled with the lack of a clear go to market lead me to pause my work on INCs and join Geometry as an investor after spending a few months working on INCs with Tom as an EiR.

This article highlights the main hurdle faced by INCs and paves a path forward.

Companies are second class citizens of the internet

Web3 suffers from a lack of regulatory clarity: how can an INC relate to the real world.

The world runs on IOUs — contractual claims that rely on the state of law for correct execution. Web3 relies on self custody — permissionless bearer contracts.

Onchain organisations use legal wrappers to protect their members by limiting their liability. They face the oracle problem — onchain organisations have to rely on third parties to read from and write to the offchain world. They have to mirror onchain actions offchain and offchain actions onchain. The source of truth is the law, not the blockchain.

To counter the oracle problem, the company’s legal documents can refer to smart contracts — an employment contract points to a smart contract that details the specificities of the agreement (compensation, notice period, expectations etc.)

The DAO LLC laws in Wyoming and Delaware exemplify this approach — they offer limited liability to DAO members and give the smart contract precedence over traditional company documents (e.g. LLC directors are defacto the signers of a safe). They curb the bidding problem but don’t solve it.

Whilst LLCs are not the right cartridge for convex organisations and onchain organisations still need to abide with offchain laws and litigation processes, these laws showed early signs of governments accepting onchain actions as canonical.

Hybrid organisations benefit from the transparency of the blockchain, the automation provided by smart contracts and the access to infinite money apps but they remain constrained and dependent on the legal system.

The imperfect binding of the offchain and onchain world makes them second class citizens of the internet economy.

They are not internet native.

Making companies internet native

To make INCs truly internet native, three sequential steps need to be achieved:

1. Incorporate onchain

   Onchain company registries pave the way for share purchases, tax filings, director appointment and removal, fundraising and bankruptcy to occur onchain. Eliminating the need to mirror offchain registries with onchain state.

2. Grant legal personality to smart contracts

   In 1862, the UK granted legal personality to contracts with the creation of the joint stock company. By doing so, it limited the liability of operators, separated owners and managers and created a market for company shares — it was the bedrock of the Industrial Revolution. By extending legal personhood to smart contracts, governments will usher a cambrian explosion in the number of new companies created. INCs will operate seamlessly on and offchain.

3. Code is law

   To ensure that INCs operate at their full potential, it is essential to encode the canonical expression of the law onchain. By programmatically interacting with the law and smart contracts, we can eliminate bureaucracy and increase company efficiency.

INCs transform companies into first class citizens of the internet economy.

For governments to accept INCs requires a demand first approach:

1. Prove the demand for INCs by collecting interests from founders, funders and opinion leaders.

2. Convince nation states and network states of the benefits of INCs.

3. Use the demand as leverage in negotiating with nation and network states for the legal recognition of INCs — run a competitive bidding process.

4. Once legal recognition is obtained, build the picks and shovels (products and services) for creating, operating and governing a company onchain.

The demand first approach solves the chicken and egg problem faced by onchain companies today — they need legal recognition but they aren’t powerful enough to obtain it.

For centuries, governments have made concessions to attract companies with schemes like free ports, special economic zones (or Acceleration Zones) and targeted tax breaks. The bidding war between US cities to attract Amazon’s second HQ represents a switch in the power dynamics between companies and governments.

Positive externalities of INCs

The first state to recognise INCs as a novel company format will greatly benefit from it.

In addition to the increased tax revenue, investor attractiveness and talent magnet, recognising INCs will give the host state lore and influence.

• Being the bedrock of the Industrial Revolution lead the UK to be the greatest world power for a century.

• Being the birthplace of the computing industry lead California to become the world’s 5th largest economy in front of France, India and the UK.

• Being the cradle of the new internet will lead the host state to become the tech capital of the world.

For founders and employees, INCs increase the efficiency, transparency and automation of companies. With universal capital and labour markets, INCs also make the world fairer.

The dawn of a new era

The source of economic production is shifting from labour and capital to technology. Digital economic production — the creation and provision of services by machine learning agents — is likely to be the overwhelming driver of global output over the coming decades. This is not a fantasy — we are already seeing extraordinary multipliers on labour output, from low level software engineering (see copilot) to graphical creative output (see generative AI tools like Midjourney).

Web3 enables economic coordination of autonomous agents. By pushing the rails for money and capital down into a stateful internet protocol, assets are born digital, and at the command of a universal computer. This means that economic transmission is executed by computer programmes, not service providers, exposing the opportunity for innovation to the world’s engineers.

INCs create a seamless, automatic and programmatic way for governments and digital economic agents to interact.

Web3 has yet to find its home.

We have yet help build our own Silicon Valley.

We have yet to usher our own Industrial Revolution.

Over the next few months, we will be engaging with the broader web3 industry to build up this latent demand as well as with nation states and network states to gage their interest.

If you work in governments or in web3 and are interested in INCs, reach out.