In this article, we’ll cover why blockchains are superior financial rails than the tradition banking system before jumping into how to operate an business onchain.

Part I — Running a business onchain will become the norm

Blockchains are a superior rails & Ethereum will become the back office of companies.

Status quo

To run a business, one must take on bureaucratic tasks to be compliant: taxes, accounting, invoicing, payroll, expenses etc. None of these tasks are core to its mission - they won’t make the business successful but failing to perform them adequately can lead to bankruptcy. These tedious tasks distract entrepreneurs from their core mission, kill companies and prevent companies from getting started.

Web3 furthers transparency and financial control while automated administrative workflows.

Greater financial control onchain

Web3 makes money flow programmatically — increasing financial control and decreasing the opportunities for fraud.

Streaming protocols

Streaming protocols (Sablier, Superfluid, Llamapay & FlowStream) put bullet payments to shame by enabling payments to flow per unit of time. Employees, suppliers and services can be paid by the second - increasing companies’ capital efficiency while decreasing the need for working capital. Employees benefit from them too as they decrease the need for cash advances (BNPL, salary advances etc.). Companies won’t be locked in to annual contracts as they’ll be able to cut the stream and their access will be revoked.

Smart contract wallets

Money becoming programmatic means intelligence can be embedded into wallets (bank accounts). In addition to the security features of smart contract wallets (n of m multisig, social recovery etc.), there also have additional functionalities such as the implementation of rules, roles and budgets.

No more hidden fees and claim backs

Web3 doesn’t have account fees, SEPA transfers, recurring debits or claim backs — the owner of a wallet self custodies their funds and must sign a transaction with their private key for money to leave their wallet. Once a transaction is signed it cannot be disputed — this ends claim backs, hidden and late fees. As the DAO hack proved, having no recourse to counter a fraud can be problematic. There is a fine line to be threaded between the ability to roll back the chain at the validator or sequencer level in the occurrence of a fraud and the need for web3 to be truly trustless and immutable.

Greater transparency onchain — greater trust

INCs are easier to audit as they operate onchain based on economic fact recorded on an immutable ledger. Stakeholders will be able to gage the financial health of an INC in real time and act accordingly without having to rely on external audits. Trust within INCs will also increase as operators can verify what others have done — creating further accountability.

Simpler workflows

Often, bureaucratic tasks consist of paper-pushing and data-feeding from one source to another. Bank reconciliation is the perfect example of this — making sure the invoices sent and received match the bank statements. Getting an expense approved often requires paying upfront, sending the receipt to someone, having someone else approved the expense before being reimbursed. These processes is inefficient, tedious and prone to fraud.

Web3 tools are getting very powerful at automating and simplifying workflows. For example, with products like Utopia and Request, invoices can be attached to a transaction request, eliminating the need for bank reconciliation, invoices collecting and expense approvals.

The improvements in LLMs over the last year as well as the emergence of intents will also lead to further automation of redundant workflows.

By operating onchain, companies can easily:

1. borrow, stake or lend on liquid markets open 24/7 without bureaucracy,

2. transact with parties without trust (streams & escrow),

3. raise capital from international investors in a matter of hours (not weeks),

4. send money internationally and atomically for cheaper than currently possible,

5. diversify and manage their treasury,

6. hedge themselves against FX risk and inflation,

Additionally, we’ve started seeing net new behaviour thanks to the programmatic nature of operating onchain such as bonding curves and dutch auctions for fundraising (incentivising investors to commit early at a lower price - here and here). We’ve also seen experiments around outcome based allocation models.

One company OS to rule them all

Web3 knows no borders - the service provided is the same everywhere around the world. Web3 is a superior technology for money. The opportunity for an onchain back office is far greater than any offchain one as it does not have to integrate with legacy financial actors, adapt to country-specific regulation and is constantly improving thanks to interoperability.

We believe Ethereum is that onchain back office.

Part II - Recommendations for operating an INC

Having made the argument for operating onchain and covered how to govern an INC, we will look at a practical implementation of INCs.

How can INCs be agile & quick in an adversarial environment ?

the short answer is custom rules & custom roles.

Safe, the largest multisig wallet has a community of developers building modules and guards — smart contracts that add functionality and modularity to the multisig. Modules allow users to customise the access-control logic of their multisig whilst guards set restrictions on the actions one can take. They streamline processes and add constraints depending on the type of user, of protocol and the transaction amount. Modules enable INCs to set different consensus thresholds to decide on topics such as:

• budget allocation,

• spending limits,

• permissions to interact with specific protocols,

• tiered roles (admins or members with different rights and responsibilities backed in).

Implementation of INCs

Firm created roles and programmatic budgets that radically simplify the operating of a company onchain in the V1 of its INC protocol. They also built out a captable module to issue shares and raise capital, a voting module for decision making and a guard module to codify the types of decisions that founders and board members can make. Other modules built by Gnosis Guild, MolochDAO, Aragon and others might also come in handy to operate INCs.

By building ontop of Safe, making the protocol highly modular and the frontend highly opinionated, we believe Firm made the right tradeoffs.

In summary, we are convinced that operating onchain will become the norm in the next decade. The additional automation, transparency and financial control provided by Ethereum will lead to the INC replacing the LLC as the dominant business cartridge.