Ukraine aid, the fight for reproductive rights, and efforts to reverse the effects of climate change all have a surprising common theme: They’re all getting help from groups using blockchain to raise support.
Think of it as the blockchain version of a nonprofit. Impact Decentralized Autonomous Organizations, or DAOs, use crypto tools as a resource for the public good and an alternative way to support social causes.
A month after Russian troops invaded Ukraine, Gitcoin, an impact DAO, raised more than $800,000 for initiatives to support Ukraine with protective equipment, food and aid. It is one of the many causes that influence the funding of DAOs like Gitcoin through this new technology.
Impact DAOs aim to remedy what they see as institutional underfunding of public initiatives and causes. The DAO (pronounced dow) is a fancy way of saying that it is a self-governing body that makes decisions based on community votes rather than executive decisions. Anyone who purchases tokens for a particular DAO can vote on what decisions the organization makes, such as what social issue to donate funds to.
Cryptocurrency enthusiasts have created DAOs for everything from building high-ranking groups of friends to buying constitution. With the impact of The DAO, however, the mission is more philanthropic—and ambitious.
In theory, impact DAOs and similar cryptocurrency projects seek to remedy the failure 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 related to cryptocurrency is about making a quick buck.
In practice, it’s a bit muddier. Impact DAO and aid-focused blockchain projects represent a new way to disrupt long-standing acceptance of how philanthropy and giving work. Still in its infancy, it faces accessibility barriers and general public distrust due to the volatile crypto market. It’s 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, when cryptocurrencies like Bitcoin and Ether topped new all-time high valuations, there was a shift. More Web3 and cryptocurrency enthusiasts have begun to imagine how virtual technologies could have a more tangible and positive impact on society, explained Gitcoin’s Scott Moore.
Moore and co-founder Kevin Owocki created Gitcoin in 2017 to fund software developers building the foundation for Web3, which blockchain advocates are calling the next generation of the Internet. This nebulous idea generally refers to a decentralized internet deeply integrated with crypto and NFTs.
Although Gitcoin began as an impact DAO for software funding, in the following years it has funded causes related to climate change, helping people in Ukraine, and arts and culture.
“We want to prove that Web3 public goods are more than just infrastructure,” Moore said. “It’s things like the climate we live in, our health and wellness, and the diversity of our community. We can’t just exist in this metaverse. We have to have an impact on this world as well.”
Because the community of members decides what problems The DAO will fund, Moore believes it is more egalitarian than an individual coming up with a donation or new technology for an underserved community and directing how resources are used or spent.
Because these donations happen on the blockchain, another benefit of the DAO’s impact model is increased transparency and community oversight, said Robbie Heeger, president and CEO of Endaoment, a cryptocurrency donation platform. Blockchain is a public ledger, which means anyone can see who contributed how much and who voted for what.
The impressive DAO and traditional non-profit organizations have raised a lot of money on Endaoment, with around $3 million going to humanitarian aid to Ukraine, around $2 million to physics-related research and experiments, and around $500,000 to reproductive rights.
“There’s a perception that all these things are out there and they’re going to happen in the future. From our point of view, I really feel that not only are impactful DAOs the real thing happening now, they’re raising significant amounts of money, but they’re also reshaping conventional philanthropic systems ,” Heeger said.
20 more steps
But developing relationships with trusted grassroots organizations that won’t take advantage of disadvantaged communities is a key part of philanthropic work that’s important to establish, and something the DAO needs 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 to disrupt at their core,” Mathias said. “There are times when it can be great and there are times when it can be effective. There are times when it just creates more problems and makes things more difficult.”
Mathias is open to new ways to simplify philanthropy. But the charity process takes time and effort to weed out organizations that can’t be trusted and develop relationships with those that can. He fears that the DAO’s impacts may move too insensitive to the charitable process.
Mathias noted that while on paper it may be attractive to donors that these DAOs provide communities with potential answers to these infrastructure problems, it could also further complicate existing problems.
“You have just created 20 steps for [the community] to go from receiving a donation to actually helping them,” Mathias said. “There’s a lot of power in just giving money to the right people, so they can go from zero to impact quickly.”
Outside the DAO
There are several other pitfalls in financing public goods through impacts that DAOs will need to work through before gaining widespread adoption. People can generally understand the big picture, but communicating the details of the technology is more pressing, said Darrell Jones III of the web infrastructure development organization City3.
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 has teamed up with DAO Gitcoin Impact to create a community funding process as a form of governance to determine which local non-profits the community would like to fund. The project is still a work in progress, but city3 is working with Oakland residents to get involved.
The language and digital tools around cryptocurrencies and Web3 are particularly inaccessible to people outside the ecosystem, Jones said. Another hurdle the crypto community will have to overcome is gaining the trust of the communities it wants to serve, not to mention the fact that most people don’t have crypto wallets to store digital coins.
“The specifics are harder for people to understand. And then using the technology as it is today is even more challenging,” Jones said. Jones emphasized that they are working on these issues and city3 is still in the early stages of development.
Endaoment’s 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 efficient way to fund things and communities.
“The more there are things in cryptocurrency that are juvenile or fraudulent, the less likely people are going to be willing to participate in that space,” Bronstein said. “So the more mature this space becomes, the easier it will be for us to have tools that will benefit nonprofits in a real, tangible way.”
The real world
Some skepticism surrounding this new technology is justified. With several cryptocurrencies collapsing in value and a new, exclusionary technology touted as a solution to real-world problems, it stands to reason that many are taking a critical look at The DAO.
While it will serve its purpose of raising funds for various causes, the results may raise eyebrows.
When Gitcoin initiated rounds to raise money for Ukraine, there was a disparity in the number of contributions for donations that could immediately help Ukrainians, compared to the kind of things that excite cryptocurrency donors. For example, in Gitcoin’s 13th funding round, there were opportunities to fund aid in Ukraine, climate and ether infrastructure. An accounting tool that protects privacy received the vast majority of contributions, with only a fraction going to more practical needs such as protective gear. The funding came just a month into the conflict.
“There has been too little research and too little interest in serving people who may be skeptical of Web3,” said Gary Sheng, co-founder of Dream DAO.
Sheng, a former software engineer at Google, co-founded Dream DAO with a vision to empower young people around the world to use Web3 for good, but is now “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 where our grandmothers are.”
“If Web3 doesn’t significantly improve the lives of many people who may not like Web3,” Sheng said, “it’s not realizing its full potential.”