How Community Tokens Can Power Cooperatives

This is a guest post featuring Austin Robey, co-founder at Ampled in a FF exclusive.

For the last several weeks, I've been participating in the 2nd Seed Club cohort as part of the Ampled team. Ampled is an artist & worker-owned web platform for direct community support of musicians. It's not too different from a Patreon for music, but instead of being owned by VC investors, it's a co-op owned and controlled by the people that rely on it. We have over 20 people working in some capacity to build and grow Ampled --- including former Kickstarter, Patreon, and Spotify employees --- all working together to build a sustainable platform that is protected from value extraction from investors.

We decided to form Ampled as a cooperative because we believe the shared ownership and democratic control is critical for building a more equitable online economy. Long before any consumer internet existed, there has been a rich history of co-ops organizing to address the needs of communities. For instance, electricity cooperatives powered rural America in the 1940's when privately-owned power companies determined many areas were too unprofitable to serve. We believe there is huge potential for combining the cooperative model with the scale of the web to form new and more equitable forms of human organization and corporate governance.

Co-ops tend to take hold when the order of things is in flux, when people have to figure out how to do what no one will do for them. - Nathan Schneider

The average Ampled worker is tech-fluent, but is not crypto-native, and may even be unfamiliar with crypto applications altogether. Our exploration into community tokens began as an open minded exploration to see if there were creative ways to utilize crypto applications to benefit our members. The research has resulted in some interesting questions. We own our own platform, what if we own our own economy too? Could community tokens be a way to address some of the challenges facing web-based cooperatives?

Today, I believe that community tokens may be a key solution to help power the genesis of a more equitable, community-owned internet.

Community Tokens & The Cooperative Capital Conundrum

Cooperatives are notoriously difficult to finance for many reasons. Because co-ops are for-profit organizations, co-ops are largely disqualified from grants and sources of non-profit funding. They are also mostly incompatible with venture capital, as traditional equity investments would conflict with the co-op's ownership model. To date, there has only been one web-based cooperative to receive VC funding. In addition, traditional co-op lenders and CDFIs (community development financial institutions) are structured to only lend to brick and mortar co-ops, not web-based co-ops that need to fund labor rather than physical investments like space, machinery, or inventory.

Co-operatives today have many practical anxieties about accessing capital of suitable forms and in sufficient quantum. A major set of capital issues is the purported economic unattractiveness of cooperatives relative to other forms of enterprise, which limits co-operatives' access to capital." - International Cooperative Alliance The Capital Conundrum For Co-Operatives

Not only is it more difficult to find traditional investment for cooperative platforms, it's difficult to achieve liquidity for their members. While founders and investors of venture-backed startups can achieve some liquidity in the case of an IPO, acquisition, or secondary sales of equity --- financial interest in co-ops is mostly limited to revenue-sharing or dividends from positive cash flows.

This is where community tokens can provide unique benefit for co-ops.

Instead of representing legal equity, or governance power, a community token for a cooperative can represent a piece of its intangible value like its community, brand, and reputation (which undoubtedly have value).

Community tokens can be issued to members and stakeholders to reward behavior and actions that help build and grow the network. And, these tokens can have a market deterministic $ value through decentralized exchanges --- allowing members to either acquire, hold, trade, or even liquidate their holdings of a cooperative's community token.

This is the unique value of a blockchain-based token. Tokens can create a dynamic where a cooperative community can better align growth incentives, capture more value, and achieve liquidity through a tradable, composable, provably scarce asset.

Markets are a tool. They are a means of exchange and can be designed in many different ways. They are not exploitative by default, though our current systems are oriented that way. - Aniyia Williams, Zebras Unite

The Community Token Opportunity

Today, there aren't many examples of community tokens in practice, but some existing precedents give reason to be encouraged.

Musician RAC launched a community token, $RAC in October 2020. There are a total of 10M tokens minted, and a portion of them were retroactively distributed to his fans that bought his music, supported him on Patreon, or purchased merch.

Today, as of writing, $RAC tokens have a market value of about ~$4 each, which you could purchase through a decentralized exchange like Uniswap using ETH. Holders of more than 10 $RAC tokens are able to access a private Discord server, as well as receive early access and discounts for merch. For RAC, holders of his community token do not receive access to revenue sharing or publishing rights. Instead, the $RAC token symbolizes the mutually beneficial relationship between creator and community and is a genesis for a unique alternative economy.

It's easy to imagine then, instead of one musician launching a token for his community --- a cooperative or collective of musicians doing the same. This roadmap could allow cooperatives to unlock real value and capitalize the collective efforts of contributors while maintaining the integrity of co-op ownership and governance model.

Community Tokens Give Cooperatives A New Path Forward

In relation to the limited existing paths for starting a web-based platform, community tokens can provide an alternative roadmap that can reinforce sovereignty and self-reliance.

Default Option 1: VC funding

This is the default option for web-based platforms: operate at a loss to prioritize growth, monopolize a large addressable market, and sell the company or go public so that investors and founders can liquidate their ownership. However, for cooperatives this path of selling equity to traditional VCs isn't an option --- and it's one that can inherently create competing interests between users and return-seeking investors.

Default Option 2: Bootstrapping

At Ampled, this is our current path. While we have opportunistically found some friendly debt financing and grants, we are primarily resourcing the organization with collective labor. This has limitations and several challenges. Our growth is slower. The path to compensating early sweat equity is unclear. Most everyone has full time jobs outside of Ampled, so we have to find creative ways of working together. This path requires sustained sacrifice and perseverance, with a risk of core team members burning out and churning.

New Option: Community Tokens

The introduction of community tokens suggest a new way cooperative communities can resource themselves.

1. Bootstrap and launch a product and community through collective labor
2. Launch a community token to reward members and stakeholders
3. Collectively build value and utility for tokens
4. Leverage community tokens to fuel growth and community

One can imagine this as a preferable option compared to the difficult paths of bootstrapping a cooperative or trying to convince traditional investors to be amenable to the co-op model. Instead, an organization could get buy-in from an ecosystem of people who believe in its mission.

Raising money may be done in a number of different ways --- many of which would be common to both co-operatives and investor-owned firms... The important difference is not what instrument is used, but rather who is raising the capital, who is controlling it, what are the expectations of those controlling it, and -- most fundamentally -- is it "philosophical capital" in support of the co-operative form of enterprise or is it capital invested purely to maximize financial gain. - International Cooperative Alliance The Capital Conundrum For Co-Operatives

Community Tokens Are Consistent With Cooperative Principles

One of the primary characteristics of cooperatives is that they operate on a one-member, one-vote basis. This is at odds with how many crypto projects govern, often defaulting to token-weighted power distributions. This token-weighted approach could allow individuals to buy or acquire disproportionate governance power --- which isn't very different from stake-weighted ownership of traditional corporations. To contrast, cooperatives allow people to have power, not dollars. As long as varying holdings of community tokens among members do not give outsized governance or decision making power within the co-op, they can be entirely consistent with cooperative principles. Additionally, there should be mechanisms that allow for a collectively managed treasury with transparency and accountability.

By acting as a layer of sovereign social money that sits on top of/ parallel to the cooperative, community tokens could allow for grassroots community financial buy-in, while maintaining the spirit of the co-op's ownership and governance structure.

Community Tokens Support Solidarity Economics

Often, cooperatives are considered part of a larger mutually supportive ecosystem and economic framework called the "solidarity economy", which support the idea of working together in ways that share and regenerate value with concern for community.

The introduction of sovereign money may also unlock opportunities to support each other in unique ways. For instance, community tokens within a cooperative community could not only help resource collective labor, but it could also help support other initiatives and ideas like solidarity exchanges, community financing, lending circles-- all consistent with a grassroots DIY ethos and economic justice lens. There's enormous power in the ability to creatively leverage a community-owned asset to meet the needs of members.

Diagram illustrating facets of the solidarity economy. Image via https://art.coop/

Although we often perceive tokens in capitalist or financialized contexts, there is plenty of design space to image them outside of these boundaries. To many in the cooperative community, crypto is culturally synonymous with capitalist speculation or an extension of Silicon Valley libertarianism. However, this doesn't have to be the case. The logic models of community tokens can be conceptually aligned with cooperative economics.

The Path Forward

I believe that community tokens have the potential to become a new roadmap for launching cooperative businesses, allowing communities to capture the value they create and shift emphasis from financial capital to community and labor capital. Although many of the recent narratives and headlines in the crypto space have focused on auction prices and financial speculation, if the cooperative community can start to embrace community tokens it may be a real way for us to build systems of regenerative value, remove reliance on traditional investors, and resource our own networks and platforms with even greater autonomy. Ultimately, the goal is to create more user-owned platforms, not investor-owned platforms. I think community tokens, in combination with the cooperative model, could be a promising path forward.