Blockchain-backed aid groups could be the future of philanthropy
A month after Russian troops invaded Ukraine, an organization called Gitcoin raised over $800,000 for initiatives to support Ukraine with protective gear, food, and aid. This is one of the many causes that Gitcoin and other so-called impact DAOs are funding through blockchain technology.
Decentralized Impact Autonomous Organizations, or Impact DAOs, use crypto tools as a source of public good and as an alternative way to support social causes. Think of it as the blockchain version of a nonprofit.
Ukrainian aid, the fight for reproductive rights, and efforts to reverse the effects of climate change are all getting help from impact DAOs to rally support.
These organizations aim to correct what they see as the institutional underfunding of public causes and initiatives. A DAO (pronounced “dow”) is a fancy way of saying that it is an autonomous body that makes decisions based on community votes rather than executive decisions. Anyone who purchases tokens for a particular DAO can vote on decisions made by the organization, such as which social issue to donate funds to.
Crypto enthusiasts have created DAOs for everything from building high-level friend groups to buying the Constitution. With impact DAOs, however, the mission is more philanthropic — and ambitious.
In theory, impact DAOs and similar cryptocurrency projects seek to correct the failings of traditional institutions by funding public goods that are not sufficiently supported in society. They were created to support everything from reproductive rights organizations in Texas to helping with climate change. Impact DAOs go against the idea that everything about cryptocurrency is about making a quick buck.
In practice, it’s a bit more muddy. Impact DAOs and aid-focused blockchain projects represent a new way to disrupt the long-held acceptance of how philanthropy and giving work. Still in their infancy, they face barriers to accessibility and general public distrust due to the volatility of the crypto market. This is just one of the many ways the crypto world intends to overhaul the status quo.
A new philanthropic model
DAOs have been around since 2016, but in 2021, just as cryptocurrencies like bitcoin and ether topped unprecedented new valuations, there was a change. More and more Web3 and cryptocurrency enthusiasts have started imagining how virtual technologies could have a more tangible positive impact on society, explained Scott Moore of Gitcoin.
Moore and co-founder Kevin Owocki created Gitcoin in 2017 to fund software developers creating the foundation for Web3, which blockchain proponents dub the next generation of the internet. The nebulous idea largely refers to a decentralized internet deeply integrated with crypto and NFTs.
Even though Gitcoin started out as an impact DAO for software funding, in the years since it has funded causes associated with climate change, helping Ukrainians, and arts and culture.
“We want to make the case that Web3 public goods are more than just infrastructure,” Moore said. “It’s things like the climate we live in, our health and well-being, and the diversity of our community. We can’t just exist in this metaverse. We need to have an impact in this world as well.”
Because a community of members decides which issues a DAO impact will fund, Moore thinks it’s more egalitarian than an individual coming up with a donation or new technology for an underserved community and directing how to use or spend the resources. .
Since these donations take place on the blockchain, another benefit of the DAO impact model is increased transparency and community oversight, said Robbie Heeger, president and CEO of Endaoment, a crypto donations platform. The blockchain is a public ledger, which means anyone can see who gave how much and who voted for what.
Significant sums of money have been raised by impact DAOs and traditional nonprofits on Endaoment, with approximately $3 million donated for Ukrainian humanitarian aid, approximately $2 million for research and physics-related experimentation and about $500,000 for reproductive rights.
“There’s this conception that all of this exists and is going to happen in the future. I really feel, from our perspective, that not only impact DAOs are a real thing happening now, amassing large sums, but they are also reshaping conventional philanthropic systems,” Heeger said.
20 extra steps
But developing relationships with reputable local organizations that won’t take advantage of disenfranchised communities is a key part of philanthropy work that’s important to establish and something DAOs need to work on.
That’s according to Devin Mathias, who, as senior director of development for the Center for Disaster Philanthropy, has spent his entire career in the nonprofit world consulting or working with philanthropic groups.
“I feel like part of what the general crypto world and environment wants is, at its core, to disrupt,” Mathias said. “There are times that can be great and can be effective. There are times when it’s just going to cause more problems and make things harder.”
Mathias is open to new ways to simplify philanthropy. But the charitable process takes time and effort to weed out organizations that cannot be trusted and develop relationships with those that can. He worries that impact DAOs are moving too indelicately for the charitable process.
Mathias noted that, on paper, it may be attractive to donors for these DAOs to provide communities with potential answers to these infrastructure issues, but it could also further complicate existing issues.
“You have just created 20 steps for [the community] to go from receiving a gift to actually helping,” Mathias said. “There is a lot of power in just giving money to the right people, so they can go from zero to impact quickly. ”
Beyond the DAO
There are a few other issues of funding public goods through impact that DAOs will need to overcome before they gain widespread acceptance. People can usually understand the big picture, but relaying the details of the technology is trickier, said Darrell Jones III of Web3 infrastructure development organization city3.
Jones is trying to create a thriving hyperlocal community in Oakland, California by developing web3 tools, like a local cryptocurrency called Oak. city3 is not a DAO, but Jones has partnered with DAO Gitcoin impact to create a community funding process as a form of governance to determine which local nonprofits the community would like to fund. The project is still in development, but city3 has worked with Oakland residents to participate.
The language and digital tools around cryptocurrency and Web3 are particularly inaccessible to people outside the ecosystem, Jones said. Another hurdle the crypto community will have to overcome is earning the trust of the communities they want to serve, not to mention the fact that most people don’t have crypto wallets to store digital coins.
“The details are harder for people to grasp. And then using the technology as it is today is even harder,” Jones said. Jones pointed out that they are working on these issues and that city3 is still in the early stages of development.
Endaoment COO Zach Bronstein also noted that it’s not just about getting these new ideas into people’s heads; it’s also about changing the narrative around crypto itself from a get-rich-quick scam to an effective way to fund causes and communities.
“The more things in cryptocurrency that seem juvenile or fraudulent, the less likely people are to be willing to participate in this space,” Bronstein said. “So the more mature this space becomes…the easier it will be for us to create tools that benefit nonprofits in real and tangible ways.”
The real world
Some of the skepticism around this new technology is justifiable. With several cryptocurrencies collapsing in value and new exclusionary technology touted as a balm for real-world problems, it’s reasonable that many are taking a hard look at DAOs.
Even when it fulfills its purpose of raising funds for different causes, the results may raise some eyebrows.
When Gitcoin launched rounds to raise funds for Ukraine, there was a disparity in the number of contributions for donations that could immediately help Ukrainians versus the type of causes that crypto donors are excited about. For example, in Gitcoin’s 13th funding round, there were opportunities to fund Ukraine aid, climate, and Ethereum infrastructure. An accounting tool that protects privacy got a large majority of contributions, with only a fraction going to more practical needs like protective equipment. Funding arrived just a month after the conflict began.
“There has been too little research and too little interest to serve people who might be skeptical of Web3,” said Gary Sheng, co-founder of Dream DAO.
A former Google software engineer, Sheng co-founded Dream DAO with the aim of enabling young people around the world to use Web3 for good, but now he is “disconnecting from his responsibilities” after running Dream DAO for its first six months. Sheng said he wants to better understand how impact DAOs can be used for people outside of the Web3 world, where “normal people are and where our grandmothers are.”
“If Web3 doesn’t dramatically improve the lives of a lot of people who maybe really don’t like Web3,” Sheng said, “it’s not realizing its full potential.”