Coase in the age of code
In 1937, Ronald Coase asked a question that still pertinent today: Why do firms exist at all?
The answer felt settled for decades. Coase explained that firms emerge because the market is costly. Contracts take time, negotiations add friction, and information is imperfect. When it becomes cheaper to manage people internally than to transact externally, a firm is born. The invisible boundary of the firm lies exactly where these two costs meet.
I spent the last decade in the trenches of blockchains, DAOs, and “trustless” systems. Crypto’s grand promise was to eliminate the very frictions that gave birth to the firm; to replace bureaucracy with code, management with incentives, and contracts with consensus. The thesis was elegant: If transaction costs drop to zero, the firm should dissolve into the network.
That was the dream. But it didn’t happen.
When you replace contracts with smart contracts, you still need judgment: what counts as a valid state, what to upgrade, when to fork. When you remove hierarchy, you rediscover governance, only now it’s slower, noisier, and happening in public.
Bounded rationality didn’t vanish with blockchains. It simply migrated to Discord. The same cognitive limits that once defined the borders of the firm now define the borders of the network.
Agency problems persist too. Token holders delegate to committees, multisigs, or core teams. Power concentrates. Decision-making slows. Coordination becomes its own cost center. Every “decentralized” organization ends up rebuilding a managerial layer; sometimes reluctantly, sometimes accidentally.
The irony is that Coase’s logic still applies, but the variables have changed. Coase saw transaction costs as economic. What he couldn’t see from 1930s London was that the true constraint on coordination is not contract enforcement, but comprehension.
A modern firm isn’t just a bundle of contracts; it is a bundle of cognition. Its size is limited not by the cost of managing people, but by the bandwidth of shared understanding. Technology lowers the cost of transaction, but it does not raise the ceiling of comprehension. We can move money instantly, but aligning meaning still takes time.
This is the paradox of the digital firm: Infinite speed. Finite sensemaking.
Even if code can settle value instantly, humans still need slower systems for context, accountability, and trust. The firm endures because it optimizes for judgment, not just execution. This is why DAOs still look suspiciously like companies. They route capital through tokens, but their structure (small cores, delegated authority, bottlenecks) echoes the same patterns Coase described. It turns out coordination is a harder problem than trust.
What has changed is the granularity. The minimum viable firm used to require offices, payroll, and legal scaffolding. Now it can exist as a wallet, a passkey, and a group chat. The cost of coordination has collapsed low enough that the firm can shrink to its essence: a system for allocating attention toward a shared goal.
This doesn’t end the firm; it atomizes it. The future looks less like one monolithic organization and more like a mesh of smaller, temporary ones.
Coase explained why we built firms. Crypto reminded us why we still need them.