Blockchain-backed charities 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 equipment, food and aid. It is one of the many reasons that Gitcoin and other so-called impact DAOs finance 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. Consider it the blockchain version of a non-profit organization.

Ukrainian aid, the fight for reproductive rights and efforts to reverse the effects of climate change all get help from impact DAOs to rally support.

These organizations aim to correct what they see as institutional underfunding of public initiatives and purposes. A DAO (pronounced “dow”) is a fancy way of saying it’s a self-governing body that makes decisions based on community votes rather than executive decisions. Anyone who buys tokens 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 building 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 right the wrongs of traditional institutions by financing public goods that are supported in society. They have been created to support everything from reproductive rights organizations in Texas to climate change aid. Impact DAOs go against the idea that everything related to cryptocurrency is about making money.

In practice, it’s a bit muddy. Impact DAOs and blockchain projects focused on aid represent a new way to disrupt long-standing acceptance of how philanthropy and giving work. Still in their infancy, they face barriers to accessibility and a general mistrust from the public due to the volatile crypto market. It’s just one of 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 hit new all-time highs, a shift occurred. More Web3 and cryptocurrency enthusiasts began to imagine 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 call the next generation of the internet. The nebulous idea mostly refers to a decentralized internet deeply integrated with crypto and NFTs.

Although Gitcoin began as an impact DAO for funding software, in the years since it has funded causes related to climate change, helping people in Ukraine, and arts and culture.

“We want to point out that Web3 public goods are more than just infrastructure,” Moore said. “They’re 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 have to actually have an impact in this world as well.”

Because a community of members decides which causes an impact DAO will fund, Moore believes it is more egalitarian than an individual coming in with a donation or a new technology for an underserved community and directing how resources are used or spent.

Since these donations take place on the blockchain, another benefit of the DAO model is increased transparency and community oversight, said Robbie Heeger, president and CEO of Endaoment, a crypto donation platform. The blockchain is a public ledger, meaning anyone can see who donated how much, and who voted for what.

Large amounts of money have been raised by DAOs and traditional non-profits on Endaoment, with about $3 million donated to Ukraine’s humanitarian aid, about $2 million to physics-related research and experimentation, and about $500,000 to reproductive rights.

“There’s a perception that all of this is out there and is going to happen in the future. I really get the impression, from our point of view, that not only are impact DAOs a real thing that’s happening now, raising significant amounts of money, but they are also overhauling conventional philanthropic systems,” Heeger said.

20 more steps

But developing relationships with trusted local organizations that will not take advantage of disenfranchised communities is a key part of philanthropy that is important to establish and something that impact DAOs must 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 community wants is, at its core, to disrupt,” Mathias said. “There are times that can be good and times that can be effective. Sometimes that will just cause more problems and make things more difficult.”

Mathias is open to new ways to simplify philanthropy. But the charity process requires time and effort to weed out organizations that cannot be trusted and develop relationships with those that can. He worries that DAOs may move too insensitive to the charity 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 can also further complicate existing problems.

“You just made 20 steps too [the community] to go from receiving a gift 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.”

Beyond the DAO

There are a few other issues with funding public goods through impact that DAOs will need to work through before gaining widespread acceptance. People can generally understand the big picture, but relaying the details of the technology is more difficult, said Darrell Jones III of the 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 partnered with impact 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 has been working 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 has 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.

“This is harder for people to understand. And then it’s even more challenging to use the technology as it is today,” Jones said. Jones emphasized that they are working on these issues, and city3 is still in the early stages of development.

Endaoment’s CEO, 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 purpose and community.

“The more there are things in cryptocurrency that feel juvenile or fraudulent, it makes it less likely that people will be willing to participate in this space,” Bronstein said. “So the more mature this space becomes … the easier time we’ll have creating tools that benefit nonprofits in a real, tangible way.”

The real world

Some of the skepticism surrounding this new technology is justified. With the collapse in value of several cryptocurrencies and a new, exclusionary technology being presented as a salve for real-world problems, it’s fair to say that many are taking a critical look at DAOs.

Even when it fulfills its purpose of raising funds for various causes, the results may raise some eyebrows.

When Gitcoin started rounds to raise money for Ukraine, there was a difference in the number of contributions for donations that could immediately help Ukrainians compared to the kind of causes that excite crypto-donors. For example, in Gitcoin’s 13th funding round, there were opportunities to fund aid in Ukraine, climate and ethereum infrastructure. An accounting tool that protects privacy received a large majority of entries, with only a fraction going to more practical needs such as protective equipment. 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.

A former Google software engineer, Sheng co-founded Dream DAO with a vision of empowering young people from around the world to use Web3 for good, but is now “relinquishing responsibility” after leading Dream DAO through its initial six months. Sheng said he wants to better understand how the impact of DAOs can be applied to people outside the Web3 world, where “normal people are and where our grandmothers are.”

“If Web3 doesn’t greatly improve the lives of many people who may really dislike Web3,” Sheng said, “it’s not realizing its full potential.”