A month after Russian troops invaded Ukraine, an organization called Gitcoin raised more than $800,000 for its initiatives to support Ukraine with protective equipment, food and aid. This is one of the many reasons why Gitcoin and other so-called impact DAOs are funded through blockchain technology.
Influence decentralized autonomous organizations or influence DAOs, use crypto tools as a source of public good and an alternative way to support social causes. Think of it as the blockchain version of a nonprofit.
Aid to Ukraine, the fight for reproductive rights, and efforts to address the effects of climate change all receive help from impact DAOs to garner support.
These organizations aim to correct what they see as the institutional underfunding of public initiatives and causes. The DAO (pronounced “dow”) is a fancy way of saying that it’s a self-governing body that makes decisions based on community votes, not executive decisions. Anyone who buys a token for a particular DAO can vote on what decisions the organization makes, such as which social cause to donate money to.
Crypto enthusiasts have created DAOs for everything from creating high-status 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 failures of traditional institutions by funding public goods that are under-supported in society. They’ve been created to support everything from reproductive rights organizations in Texas to climate change relief. Impact DAOs go against the idea that everything crypto-related is about making a quick profit.
It gets a little muddy in practice. Impact DAOs and aid-focused blockchain projects are a new way to disrupt long-held acceptance of philanthropy and business giving. Still in its infancy, they face accessibility barriers and general public distrust due to the volatile cryptocurrency market. This is just one of the many ways the cryptocurrency world intends to overhaul the status quo.
A new charity model
DAOs have been around since 2016, but in 2021, when cryptocurrencies like bitcoin and ether hit all-time highs, a change happened. Gitcoin’s Scott Moore explained that more Web3 and cryptocurrency enthusiasts are beginning to imagine how virtual technologies can have a more tangible, positive impact on society.
Moore and co-founder Kevin Owocki created Gitcoin in 2017 to fund software developers creating the foundation for Web3, which blockchain proponents are dubbing the next generation of the internet. The nebulous idea broadly refers to a decentralized internet deeply integrated with crypto and NFTs.
Although Gitcoin started as an offshoot of The DAO to fund software, it has since funded causes related to climate change, helping people in Ukraine, and arts and culture.
“We want to argue that Web3 public goods are more than just infrastructure,” Moore said. “These are things like the climate we live in, our health and well-being, and the diversity of our society. We can’t just exist in this metaverse. We actually have to make an impact in this world.”
Since the community of members decides what issues the DAO will fund, Moore believes it is more equal than an individual coming up with a donation or new technology and directing how resources are used or spent.
Since these donations happen on the blockchain, another benefit of the impact DAO model is increased transparency and community control, said Robbie Heeger, president and CEO of Endaoment, a crypto donation platform. Blockchain is a public ledger, meaning anyone can see who donated how much and who voted on what.
The impact of DAOs and traditional non-profits on the Endowment has raised a large amount of money, with nearly $3 million donated to Ukraine Humanitarian Aid, nearly $2 million to physics research and practice, and nearly $500,000 to reproductive rights.
“There’s this concept that all these things are out there and they’re going to happen in the future. I really get the impression from our point of view that impactful DAOs are not only a real thing that’s happening now, raising significant amounts of money, but they’re they are also overhauling conventional charity systems,” Heeger said.
20 more steps
But developing relationships with trusted grassroots organizations that do not take advantage of disenfranchised communities is a key part of philanthropy, which is important to establish and DAOs need to work on.
That’s according to Devin Mathias, who as chief development officer of the Center for Disaster Philanthropy has spent his entire career consulting or working with philanthropic groups in the nonprofit world.
“I feel like part of what the general crypto world and environment wants is to disrupt it,” Mathias said. “There are times when it can be great and effective. Sometimes it will cause more problems and make things more difficult.”
Mathias is open to new ways to simplify philanthropy. But the philanthropic process takes time and effort to weed out untrustworthy organizations and build relationships with viable ones. He worries that DAOs may be too thin for the philanthropic process.
Mathias pointed out that on paper, these DAOs offer communities potential answers to these infrastructure challenges, while it may be attractive to donors, but it could exacerbate existing problems.
“You just created 20 steps [the community] Going from receiving gifts to actually helping them,” Mathias said. “There’s a lot of power in just giving cash to the right people so they can go from zero to impact quickly.”
Outside of the DAO
There are a few other hiccups that finance public goods through influence that DAOs will have to work through before they can be widely adopted. People can generally understand the big picture, but communicating the details of the technology is more difficult, said Darrell Jones III of City3, an emerging Web3 infrastructure organization.
Jones is working to create a thriving, hyperlocal community in Oakland, California by developing Web3 tools such as a local cryptocurrency called Oak. city3 is not a DAO, but Jones partnered with the influential DAO Gitcoin to create a community funding process as a form of governance to determine which local nonprofits the community wants to fund. The project is still in development, but city3 is working with Oakland residents to get involved.
The language and digital tools around cryptocurrency and Web3 are particularly inaccessible to people outside the ecosystem, Jones said. Another hurdle cryptocurrency will have to overcome is gaining the trust of the communities it seeks to serve, even though most people don’t have crypto wallets to store digital coins.
“It’s harder for people to grasp specific features. Then it’s harder to use the technology as it is today,” Jones said. Jones stressed that they are working on these issues and that city3 is still in the early stages of development.
Endaoment’s chief operating officer, Zach Bronstein, also noted that it’s not just about getting these new ideas into people’s minds; it’s also about changing the narrative around cryptocurrency itself from a get-rich-quick scam to an effective way to fund causes and communities.
“The more things that feel juvenile or fraudulent about cryptocurrency, the less people want to participate in the space,” Bronstein said. “So the more this space matures … the easier it will be for us to create tools that provide real, tangible benefit to nonprofits.”
The real world
Some skepticism around this new technology is justified. With several cryptocurrencies falling in value and new, disruptive technology being touted as a solution to real-world problems, it’s reasonable for many to take a critical look at DAOs.
Even when you accomplish the goal of raising funds for various causes, the results can raise some eyebrows.
When Gitcoin started fundraising rounds for Ukraine, there was a difference in the number of contributions for donations that could immediately help Ukrainians compared to causes that excited crypto donors. For example, Gitcoin’s 13th funding round had opportunities to fund aid to Ukraine, climate and ethereum infrastructure. A privacy-preserving accounting tool received the vast majority of contributions, with only a fraction going to more practical needs like protective equipment. It came just a month after the financial conflict.
“Too little research has been done and there is little interest in serving Web3 skeptics,” said Gary Sheng, co-founder of Dream DAO.
Sheng, a former Google software engineer, co-founded Dream DAO with the goal of empowering young people around the world to use Web3 for good, but now he is “stepping down” after leading Dream DAO for its first six months. Sheng said he wants to better understand how DAOs can be used for people outside the Web3 world, “where normal people are and our grandmothers are.”
“If Web3 doesn’t improve the lives of a lot of people who really don’t like Web3,” Sheng said, “it’s not living up to its full potential.”