This week’s newsletter is another segment of “geopolitical events highlighting the purpose of blockchain technology.” As the Russia-Ukraine conflict continues, the crypto space stands behind Ukraine and is utilizing different resources (like crypto and DAOs) to help the government and the civilian population.
Last week, I highlighted how crypto can help people during a time of crisis and uncertainty. This week, I’m taking a deep dive into DAOs and their broader use during such times.
Enjoy, and see you next Sunday.
-Katja
UkraineDAO and the future of crowdfunding
“If 2020 was all about DeFi, and 2021 was all about NFTs, 2022 will be the year of the DAO.” - Ryan Selkis in Messari Crypto Theses 2022
On March 2, UkraineDAO sold a Ukrainian flag NFT for $6.75 million (2,258 ETH), sending all proceeds to Ukrainian civilians suffering from the Russian invasion. This organization was formed only a week prior and brought together almost 3,000 members on Discord and 15,000 followers on Twitter.
UkraineDAO’s donation to Ukraine’s government is only a fraction of total crypto donations, which have amassed around $56 million through more than 100,000 donations. [Read last week’s newsletter to learn more about this.]
Decentralized Autonomous Organizations (DAOs) connect people over an idea and have the ability to quickly mobilize a large group for a common cause. They do so by guaranteeing trust at an organizational level among hundreds or thousands of strangers. Because of this, a DAO can function as a …
“Governance structure that manages a community treasury… More specifically, DAOs are fluid online communities whose assets are managed by the community’s contributors.”
These organizations function through smart contracts on the blockchain. Smart contracts carry out rules of the DAO as well as execute other tasks. DAOs create tokens (a kind of crypto asset) that encourage participation among community members which enables smart contracts to function (similar to how crypto powers blockchains). Ultimately, this allows members of a DAO to have voting power, decide on the group’s priorities, and set norms and standards.
The inner workings of the DAO are transparent and cannot be changed without changing the underlying blockchain ledger, requiring the consensus of the organization’s members. This prevents one person from dominating within the organization and distributes decision-making power among the members.
Today, DAOs serve different functions with everything from investing to collecting to researching. On top of that, there is a flourishing industry for various aspects of DAOs including starting a DAO, providing tokens, running votes, handling disputes, and managing treasuries.
One popular use of DAOs includes crowdfunding, which is a way to raise funds online in a short period of time. Traditional ways to crowdfund include Kickstarter and GoFundMe, but with those legacy platforms, fees, regulations, and restrictions can all get in the way of coming together, raising money, and fostering large-scale participation.
Using DAOs for crowdfunding can come from a good place, such as with UkraineDAO that wanted to provide aid to Ukrainian citizens and families. However, this isn’t always the case with internet culture…
“Some of that is owed to the broader phenomenon of meme-based populism – the same energy that galvanized Reddit’s day traders to pump GameStop stock in January. It’s the thrill of collective progress, with an ideological twist in the form of an identifiable enemy: ‘Banks are bad.’” -CoinDesk
Despite the revolutionary organizational power DAOs offer, they have not had it easy. In 2016, the first DAO called TheDAO (or GenesisDAO) crowdfunded $150 million before losing around $50 million in funds when a hacker found a loophole in the coding framework powering the organization. Since then, DAOs continue to make headlines for various reasons, with ConstitutionDAO being one of the more well-known examples.
ConstitutionDAO started as a joke on Twitter and very quickly transitioned into a real bid to buy one of the 13 remaining copies of the US Constitution. This DAO was able to raise around $47 million but ultimately got outbid by a billionaire hedge fund CEO, Ken Griffin. Creators of ConstitutionDAO recall their experience as “a beautiful experiment in a single-purpose DAO.”
I love the idea of the “beautiful experiment” as it pertains to DAOs. These organizations provide a unique way for people to unite, work with, and manage funds with others from all over the world. UkraineDAO demonstrated the power of decentralized organizations and how effectively and efficiently blockchain technology can power such a movement. However, DAOs are not perfect and there’s still a long way to go before they become a mainstream organizational structure.
Bonus content - what type of organization is a DAO?
There is a fairly large and interesting debate around if DAOs function more like businesses or nation states. “Token Economy: How the Web3 reinvents the Internet” has a great chart depicting the differences, so I will save discussing this idea more thoroughly for another time.