Substack vs. DAOstack


Written by Jarrod Dicker, Jonathan Glick, and Tal Shachar

Substack, the Platform

There’s an alternative story of Substack. Imagine the following:

Once upon a time, not so long ago, some entrepreneurs started a company that offered writers an easy way to distribute and charge for their newsletters. Their business model would be elegant-- the writer would get the software for free, and only pay a percentage of their subscription revenues (10%) to the platform if the writer decided to charge at all.

Most importantly, the entrepreneurs emphasized this new platform would empower writers. It would not be a new social aggregator standing in the way between author and audience. The platform would not own the subscribers. The writer would. And she could take them with her if she decided to leave.

This offer was generally appealing. The design was good. It was easy to use. They attracted a number of writers around various topics and communities. A number of these writers soon attracted a decent number of loyal subscribers. But revenues remained pretty small despite momentum and the costs of development and operations were not insignificant. The platform needed capital to grow.

But here’s where the stream of time split from our reality. (Cue spooky sci-fi sound effects.) Because in this other dimension, the platform entrepreneurs didn’t raise venture money. Maybe this was because they couldn’t. Maybe VCs didn’t want to invest in yet another media tech play. Or maybe it was because the entrepreneurs didn’t want to.

Instead, they decided to raise capital by selling crypto tokens directly to the Substack subscriber community. To make them worth buying, all subscriptions and payments were moved on-chain so that the tokens could provide their owners a number of utility benefits. First, they could be used as a way of pre-paying for newsletters in advance (support). Second, they might be associated with some profit-sharing once the platform started earning money. And lastly, the tokens would be used for governance purposes, for votes on the future strategy of the platform project itself. In essence, the platform, Substack, had become a DAO, a decentralized autonomous organization.

Our other-dimension Substack team granted themselves some amount of the tokens, and perhaps under pressure, they granted some to their writers based on some formula of subscribers and/or revenues. Then, the big moment, they let Substack subscribers know they were available for purchase.

The token sale was a success! Loyal participants, encouraged by their favorite newsletter-authors, jumped at the chance to get more deeply involved in Substack. Some of the top writers even bought more tokens themselves, using their earnings to increase their position. The price of the token quickly went up, and even people who had not yet known about the project piled in.

Substack, the Lender

As the platform began to scale, much like in our own timeline, the project faced a big challenge. A lot of the platform’s most desirable writers, writers who could almost certainly attract a ton of paying subscribers, were currently paid employees of media companies. For them to leave those jobs and come to a platform where they were paid by subscribers meant taking a risk, and for some amount of time at least, perhaps a severe pay cut.

Then, one day in the Substack discord, somebody had an idea; What if the project used the funds they just had raised to not only pay for tech and ops, but to offer some very popular writers a guarantee for the first year? It would be a bit of a gamble. These mainstream media writers’ might not be successful on the platform. But the proposal’s proponents argued that the project had no choice but to try it. The alternative would be to just wait for the slower growth of independent less well-known writers.

It was the community’s first big vote -- and it passed by a large majority. A long list of columnists and journalists had been approved for invitation to the guarantee program. To nobody’s surprise, most of these ignored or declined the offer. But some of the invited writers agreed. Still others requested a larger sum, forcing Substack to work out a kind of negotiation model where token-holders approved this new amount. Within a few months, some very big names were writing on the platform.

To the surprise of even the staunchest guarantee program advocates, the results were amazing. Many of the invited authors gained more subscribers than anticipated, easily outperforming expectations. In fact, most of the most popular writers on the platform were now guarantee recipients.

There was only one issue; as was the case in our reality, when the Substack community looked at exactly which of the guarantee writers were performing best, it turned out there was a pattern. A meaningful percentage of their top performers, whether from the left-wing or right, were those self-described as ‘anti-woke.’ As the business model is to subscribe to an individual, the relationship became less just about the content the person created and more about the position the person took. A new business of Opinions.

In retrospect, this should have been at least somewhat obvious. Who was more likely to take the leap from a ‘mainstream’ publication? Someone who was critical of what he, she, or they considered a ‘stultifying newsroom orthodoxy.’ Who might attract plenty of paying subscribers? Someone who provided news and views for the engaged audience who hated those allegedly repressive newsrooms.

The implications of this were challenging to say the least. Even though Substack did not promote their guaranteed or most popular newsletters, it seemed inevitable that these writers would come to represent the project overall. What if the association made it harder to attract readers and writers of other perspectives? What if alternative newsletter platforms seized the opportunity to steal away writers and this competition caused the token’s value began to fall? What if supporting these writers was simply wrong.

Soon enough, Substack’s owner-community began raising the issue. They organized into three factions. There was the group of people who felt that the current program was working fine. They should continue to offer guarantees to well-known writers and whoever was successful. The second group argued that the guarantee program, for all of its success, had at the very least become too damaging to the brand of the project, and should be discontinued. If these ‘anti-woke’ writers continue to use the platform, fine, but any perception of editorial endorsement should be eliminated. The final group thought Substack should recognize that the biggest opportunity was to help develop writers that would reach underrepresented communities. By making a special effort to reach out to and even subsidize promising contributors before they were famous, they could expand the brand and the platform. These folks also felt that especially toxic writers should be banned from using the Substack platform.

The debate raged. There was much discordance. The project team, the readers, even those who only owned the token as an investment, all weighed in. The writers were loudest of all, rallying their followers across social media. You can probably guess which of Substack’s naturally (and professionally) argumentative pundits fell into which camp. And in some cases you’d be right. But interestingly, the debate became more complicated than that. Many of the most popular ‘anti-wokeists’ now had a lot of potential wealth tied up in Substack tokens. Some of them recognized that having the brand over-associated with one political stance, and especially with really notorious trolls, was potentially a huge drag on their value. Several of these writers came out in favor of expanding subsidies to female, POC, LGBTQ, and other underrepresented writers. Meanwhile, some of those opposed to the ‘anti-wokeists,’ despite the momentum of their position, decided to leave anyway, starting their own competitive DAO.

The Difference Between Substack and DAOstack

So how did these two timelines differ? In many ways, they didn’t. The platform’s features were pretty much the same. The people who were popular here were popular there. The dynamic which seems to especially infect our opinion pages was just as salient in the other dimension.

But there were some subtle differences. The positions of the writers, who really are at the heart of the current debate, were not simply tweets or quotes in a Ben Smith column, not just the views of disgruntled or delighted customers. In the alternative Substack world, they were the opinions of owners seeking to influence other owners. Everyone involved recognized that the value of their tokens was directly connected to the decisions the community would make, and the high value that would result from finding a solution that would be most appealing to readers and writers.

And in the case where the community found that solution, the DAOstack perhaps built a thriving ecosystem. As co-owners, readers actively recommended newsletters to their family and friends. The token soared in value, and the treasury became the largest single source of funding for independent journalism and opinion. Excess funds were invested in other tokens for growth and diversification, a kind of endowment. Standing committees were created to select writers who would cover underfunded subjects and communities, which introduced other possible models for book publishing and local journalism. If a writer was not offered a grant by one of the standing committees, any token-holder or group of holders could still independently decide to provide funding. Over time, these independently originated guarantees became the majority of loans to new writers.

But what if our two timelines collided? What if, as happens from time to time in multiverses, these two dimensions became one, and Substack Inc and DAOstack both existed in the same place and time? Alien vs. Predator?Adam Warlock vs. Magus? Who would win and why?


The Final Battle.

One way to think about this is to compare how successful the two institutions would be as lenders. To oversimplify, lenders compete on three aspects: who can source the most and most promising borrowers; who can price a loan most accurately -- ie., determine how much capital and at what rate to give to ensure the most lucrative return; and who can acquire capital most inexpensively. In other words, you want to amass money at the lowest price, and give the right amount at the right price to the most people.

There’s no reason Substack Inc. couldn’t become an excellent scale lender for all sorts of paid media projects. But DAOStack might have some unique competitive advantages.

For writers and other creators, a project owned by writers and readers is a potentially appealing partner. Like Vanguard in mutual funds or non-profits who run hospitals, there’s real brand benefit that comes from being perceived as a natural ally. Maybe you’re slightly more likely to believe they are ‘on your side.’ And, socially, the fact some of your existing readers and fellow writers are likely to be DAOstack owners, makes it more likely that you’ll hear about the offer in positive terms. After all, they have a vested interest in promoting it to you.

Determining who represents a good investment and how much to stake them is a trickier, more technical capability. Presumably, over time, both Substack Inc. and DAOStack would employ algorithms that analyzed the writer’s follower base, their writing history, and the appeal of their topical focus. Maybe one would be better at this. Maybe they’d be evenly matched. In any case, it’s likely that both would continue to use human judgment, overriding the ‘computer’ when a writer felt like a good risk, or an important one, anyway. Which would be better at this? Substack Inc. would not suffer from the raucous arguments of the token-holder committees, and could perhaps allocate capital more efficiently. DAOStack’s independent token-holders and market model might be more successful in identifying smaller unexpected winners.

Perhaps the DAO’s biggest advantage would be the amount of capital it could quickly accumulate. When combined with an enthusiastic community of investors, the frictionless nature of DeFi enables capital formation at hyperspeed. It is hard to imagine that a centralized venture-backed company could match these abilities.

Here in our dimension, we are in the midst of a wave of venture investing in the creator economy. Companies building new platforms for writers, artists, and other makers are closing huge rounds from A-list investors. These investments are driving much-needed product innovation. Even more importantly, they are increasingly providing the financial subsidies necessary to transition people from employment to independence. But these platforms depend on brilliant creators, and they depend on the users who are loyal to them. Without their buy-in, none of it works, at least, not for long. It’s quite possible that the decentralized ownership model enabled by DAOs and DeFi can perform as well or better as the venture one, while providing those stakeholders with a seat at the decision-making table and a piece of the pie. Why not an OnlyFans owned by the performers? Why not a Clubhouse governed by the influencers?

Decentralization doesn’t eliminate the hard problems. It doesn’t wish away wars over values; hierarchies of professional vs amateur; the challenges of developing and nurturing talent. And, token-based governance isn’t necessarily going to reach the best or most ethical solutions. But the participatory purpose of a DAO makes the debates around these issues transparent. They make them a matter for the community. Instead of having ‘management’ struggle to accommodate different constituencies, the costs/benefits tradeoffs are born by the community directly and managed by the community itself. DeFi, by reducing the transaction costs and creating the infrastructure needed to operate such a system finally enables true community-run organizations.

Our colliding Substacks both bring value to their communities. Both can serve as an evolution to transition into a world when you can have both financial support, creator capital, and a collective-based media platform. As we move from a purely brand-led to a talent-led media ecosystem, the venture model should evolve to encourage both the talent and its community to be owners and drivers of the experience.