On-Chain Organizations’ Killer Features
Programmatic liquidation, indisputable contracts, guaranteed payments, programmable revenue
1. Instantaneous Liquidation
Companies entirely on-chain will enjoy the benefits of nearly instantaneous formation and liquidation. The benefits of instant OCO formation are relatively small given the ease of traditional business formation. However, the benefits of instantaneous liquidation cannot be overstated.
Currently, corporate liquidation is a messy process involving lawyers, banks, accountants, litigation, and potentially complex liquidation preferences. Even though everyone signed documents and theoretically agreed on terms and conditions, there’s frequently disputes, and surprise outcomes through legal loopholes. This process cannot be automated because of the number of financial intermediaries and gatekeepers. Even if you were to connect all of the correct APIs, and have well-written scripts, you would still have enormous dependence on all of the corresponding institutions to act accordingly. To liquidate an OCO requires no exterior permission or barriers.
2. Guaranteed Revenues and Guaranteed Payments
In the traditional world, investors love to see contractual revenue. But there’s something that’s better: guaranteed revenue. In traditional finance, you can’t guarantee a payment, but you can create a legal infrastructure that penalizes a party if they fail to follow through. With smart contracts, it’s possible to guarantee contract terms that do not have the ability to fail. Funds on the other side of the smart contract will be marked in smart-contract escrow, where the terms cannot be broken. These smart contracts will include clear termination mechanisms for both parties.
“Employee” Contacts. OCOs will have a suite of employee/contractor/contributor contracts at their disposal. Some will feel very similar to traditional employee contracts, some will be based on bounties, some will be more like contractor agreements. For OCOs to recruit the best talent, they have an interest in providing reasonable payments, terms, and structures. Because the terms of the smart contract are known from inception, there are no tricky games to play with HR or legal teams. Employees will likely enjoy substantially higher levels of certainty and protection since they aren’t going against well-funded legal teams of businesses. The smart contract will simply execute as intended. For example, if an OCO hires an employee, the contract will include terms for things like (A) employee-initiated termination (B) employer-initiated termination (C) Liquidation. If an employee is fired, they know exactly what they’re entitled to. Similarly, if an OCO liquidates, they’ll know exactly how kindly they will be treated in the liquidation waterfall. Because all assets and contracts are entirely on chain, it will be easy to provide highly transparent situation analysis that simulates different types of events. Because you don’t have the ability for lawyers to throw curveballs, all parties simply know what to expect.
Recurring Expense/Revenue Contracts. Contracts on-chain provide enormous certainty. For example, software users may agree to an indefinite monthly subscription which requires a minimum 3-month cancellation notice. The purchaser will constantly have 3 months worth of subscription revenue held in smart contract escrow. If the company liquidates, this instantaneously triggers cancellation clauses on all standing contracts. No additional money will be deposited into escrow, but the recipient received fair and proper treatment. In the traditional world, the payments simply cease and it is the software company’s job to determine if it’s worth the hassle to pursue the remaining payments, which could require expensive collection agencies or legal fights. OCOs will be on both sides of guaranteed contracts. Depending on the OCO’s revenue model, they may have all, some, or none of their revenues as guaranteed payments.
3. Transparent Financials & Automated Reporting
With all financials of a company on-chain, reporting will be faster, more transparent, more accurate, and easily updated. Rather than waiting for quarterly or annual reports, it’s possible to have them in real-time. All inflows and outflows will be pre-labeled in the smart contract so that anyone who wants to compile an audit (internally or externally) may conduct one rapidly.
Traditional companies pay all kinds of money for expensive software for “automated reporting”, but anyone knows that there are still glitches and flaws. Numerous bank accounts, low transparency, uncertainty of delivery of contract expectations all make an accountant’s job very difficult.
With all transactions, treasury assets, revenue/salary contracts entirely on-chain, independent auditors, government regulators, and potential investors can see the entirety of an OCO’s financial situation. Moreover, the information is available in real-time. Rather than waiting for quarterly financials or an annual report, this information like balance sheet and income statement can be provided in real-time. No one has to “trust” the numbers that an OCO produces– it can be verified at any time.