Why Blockchain-Backed Aid Groups Represent the Future of Philanthropy
In 2021, people passionate about U.S. history raised more than $42 million in a unique way for a unique purpose: to buy a first-edition copy of the Constitution. Though Constitution DAO failed in that pursuit, it succeeded in another. It set a crowd-funding record, raising that money in 72 hours, and demonstrated the power of the burgeoning decentralized internet.
“We have educated an entire cohort of people around the world … about the possibilities of Web3,” Constitution DAO announced on Twitter.
The DAO, or decentralized autonomous organization, is a growing, disruptive force in tech and commerce that will be a foundation of Web3. At a high level, a DAO (commonly pronounced dow) is a blockchain-based, member-run platform that pursues and funds goals without a central decision-making authority.
Members propose and vote on initiatives by acquiring governance tokens, a blockchain representation of their organizational commitment. DAOs determine their mission and governance through smart contracts and maintain their treasury through blockchain transactions, which are recorded immediately and transparently.
Ethereum says DAOs provide strangers with safe methods to raise funds for specific goals, of which many exist. BitDAO, which funds Web3 projects, claims a token treasury worth more than $1.7 trillion. Users are forming DAOs to build the next generation of DeFi (decentralized finance) apps. One group formed a DAO to buy and run a professional basketball team.
Now, philanthropists are bringing the blockchain to the world of giving. People like Kimbal Musk believe DAOs can agitate philanthropy by giving agency to donors to decide what and whom to fund. Musk, whose brother Elon founded SpaceX, established what he called the first nonprofit philanthropic DAO. Big Green DAO supports Big Green, the nonprofit Kimbal Musk co-founded to teach people to grow food.
Big Green DAO donors initially distributed grants to six nonprofits, which helped determine who received the next round of funding. The cycle continues, a practice that Musk told Coindesk has “never, ever, ever, ever, ever, ever, ever been done before.” Big Green DAO predicts this model will disrupt philanthropy by providing democratic and transparent governance.
Really, though, the concept isn’t new in philanthropy disruption. DAOs represent the blockchain’s version of collective giving, also known as giving circles. In giving circles, people assemble around a common philanthropic goal and decide collectively how to distribute funds.
Sara Lomelin, CEO of Philanthropy Together, says giving circles are “reclaiming philanthropy.” Her group, the Peninsula Latina Giving Circle, is part of a network of thousands of giving circles that have distributed about $1.3 billion.
“When we shift the power of philanthropy into all of our voices, we change who gives, how we give, and ultimately, what gets funded,” Lomelin said in a Ted Talk.
Giving circles and philanthropic DAOs are a natural intersection. Web3 and blockchain decentralize finance, governance, business, art -- you name it. Giving circles decentralize philanthropy. Both seek to democratize money’s impact on society.
“This growing blockchain movement and the growing collective giving movement have started to collide,” writes Grapevine founder Emily Rasmussen at the Dorothy A. Johnson Center for Philanthropy. “... This is an exciting moment to dive into the opportunities presented by both blockchain technologies and collective giving.”
Rasmussen positions DAOs at the center of what she calls Social Giving 3.0. In this phase, known as crowdgranting, donors become stakeholders in collaborative philanthropy. DAOs incentivize collaboration on a grassroots, digital level.
Philanthropic and movement DAOs are emerging worldwide to support climate, social, and other causes. Donors and charities find mutual benefits. Donors can realize tax advantages by donating crypto, which the IRS considers an asset. That could encourage them to donate more, a potential benefit for charities.
DAOs, however, bring legal, regulatory, and operational questions with which donors must become comfortable. Crypto volatility is just one component. Security is another; the first DAO was hacked for $50 million.
Further, DAOs must demonstrate that decentralized philanthropy doesn’t slow their process. Consider the concept of bikeshedding, which asserts that people spend more time on trivial matters than important issues. DAOs, particularly those with still-learning stakeholders, must overcome these obstacles.
But philanthropists are eager to try. Give.org’s 2022 Donor Trust Report shows that just 20.4 percent of Americans highly trust charities. Distributing trust across a decentralized platform could help protect and scale that trust, thus revolutionizing philanthropy.
“Moving giving circles onto the blockchain through Giving DAOs,” writes Rasummen, “has the potential to propel our move into Social Giving 3.0 much more quickly.”