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How Token Models and Digital Cooperatives Help The Gig Economy

How Token Models And Digital Co-ops Can Transform The Gig Economy

The gig economy is growing. Smartphones and easy access to the internet are fueling this trend. Based on a 2018 Gallup study, 36% of US workers are part of the gig economy, in some capacity. With more and more digital platforms joining the bandwagon, this number is expected to rise. And while this might be a reason to cheer for some, it could also be a cause of concern for many.

Companies like Uber, InstaCart, and DoorDash are the driving force of the gig economy. They are also responsible for rising income disparities between management and contractors. According to a 2018 Economic Policy Institute study, Uber drivers earn an hourly average of $11.77 after expenses. When converted to a W-2 employee’s wage, this value fell to $9.21. This is less than what 90% of regular wage workers earn. In comparison, Uber paid CEO Khosrowshahi $45 million in 2019. As independent contractors, drivers are also not entitled to benefits, such as health insurance and 401(k) plans.

The Problem With The Gig Economy

Digital platforms such as DoorDash and InstaCart are neither consumers nor service providers. They are intermediaries that connect consumers to service providers. As middlemen, they charge a percentage of payments for facilitating this interface. They also control what service providers can charge customers by setting prices.

Most of these platforms work on a common strategy. They start off by offering massive discounts to attract customers. Aided by big money, they can afford to write off the initial losses required to create a customer base. The growing number of people availing of these services attracts service providers. An increase in the number of service providers, be it drivers, shoppers, or couriers, introduces competition. This gives companies the leverage to squeeze workers. The result? Less pay for workers and a higher share of the revenue for the platforms. So, while many workers struggle to make minimum wage, shareholders laugh all the way to the bank.

The Cooperative Solution

Companies like Uber resist any regulation that would help improve working conditions for gig workers. This has made it necessary to find viable alternatives.

Cooperatives or co-ops are democratic entities owned by their users and/or workers. Platform cooperatives use a platform such as an app or a website to connect users with workers. An example would be drivers coming together to create a cooperative and launching their own rideshare app. The difference? Drivers, being owners, have a say in how things are run. They have a vote in matters of their interest, such as benefits and fare setting. Eliminating the middleman, such as Uber or Lyft, saves commissions and ensures better wages for drivers.

Several cooperatives like Eva, Stocksy, and Up & Go have put this theory to test, with promising results. At $25 an hour, Up & Go cleaners earn more than twice their independent working peers. 5% of revenues go back into the platform. The rest is distributed among its members.

The Challenges

Co-ops have their share of challenges. Primary among them are poor management, trust issues, and funding problems. Traditional co-ops conduct in-person meetings for voting on key issues and management decisions. Attending them may not be feasible for all members. Lack of transparency can lead to corrupt practices such as siphoning of funds. Trust issues between members can make profit-sharing a cause for contention. Because cooperatives focus on equity and fairness over profit, attracting investors is difficult.

What Is Tokenization?

Tokenization is the process of converting real-world assets into their digital equivalents (tokens). These tokens are blockchain-based currency. Blockchains are decentralized and distributed virtual ledgers that record transactions on digital assets. The most common application of blockchains is tracking cryptocurrencies. But they can also be used for supply chain management and financial services, among others.

How Can Token Models Help The Gig Economy?

Tokens allow traditional co-ops to transform into digital cooperatives. 

Since co-ops work on a shared ownership model, each member can be assigned a governance token. A token represents a single vote, enabling members to make decisions on company policies. As these tokens are digital, members need not be physically present at meetings and can exercise their voting rights remotely. Because blockchain records these decisions, the results are tamper-proof.

Tokens can be used as exclusive currency within these co-ops. This way, all payments are made with these currency tokens, which can be exchanged for dollars and euros for use in the real world. This ensures tracking of all inflows and outflows, increasing transparency and credibility. Member contributions are recorded, building trust and allowing for equitable profit sharing. Blockchain maintains an automatic ledger of transactions, eliminating the need for third-party intervention. Because these token assets are limited, as the service thrives, their value will rise. This will attract more members, increasing the demand for tokens further and driving their price higher. As a result, all token holders benefit. The use of token-based models can encourage shared initiatives such as resource pooling and pension schemes.

Another aspect that tokenization can help with is funding. Capital can be invested in exchange for specifically generated tokens, called security tokens. This can work for traditional investors as well as crowdfunding. While they are tools for investment, they do not provide any equity ownership in the company. In this way, investors do not get a vote, protecting member interests.

Conclusion

Token models and digital cooperatives have the potential to solve many problems arising from the gig economy. What’s needed is regulation for digital cooperatives with laws for token ownership and generation. This might provide hope for a digital economy that benefits all the stakeholders instead of a chosen few.

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