DAOs are less of a crypto thing and more of a web3 thing. I think web3 has so much potential in solving nonprofit inefficiencies - Kimbal Musk, Founder Big Green DAO
An Impact DAO is focused on creating positive externalities. In other words, its purpose is to improve the lives of people and the planet. Think of it as an internet-native nonprofit, philanthropic foundation, or B Corporation. Although Impact DAOs are based on the internet, their impact is felt in the real world.
Impact DAOs offer a radically new way of organizing, fundraising and allocating resources for causes. They are a new operating framework for our digital lives.
Powered by web3 technology i.e. blockchain, smart contracts and decentralized apps, DAOs can achieve scale, impact and efficiency that is not possible with the prevailing traditional nonprofit model. Many have already demonstrated large-scale reach.
Nonprofits: The Status Quo
Public trust is the currency of the nonprofit sector. And unfortunately, trust in nonprofits is failing. Only 56% of Americans trust nonprofits, according to 2022 research conducted by Edleman Data and Intelligence in partnership with Independent Sector.
Simply put, the standard nonprofit model is no longer adequate to meet the needs of the present day.
The world is facing unprecedented challenges that require radical new thinking and fundamental change. For example, income inequality is at an all-time high, the climate crisis is accelerating, and the reputation of key institutions (such as banking, law, and government) is at an all-time low.
Today’s nonprofit system is 120 years old, and has simply failed to evolve. The era of hyper-connectivity ushered in by the internet has radically transformed the way we live and work. Nonprofits are still stuck in the past.
Chief among the sector’s problems is rampant inefficiency. Some of the systemic problems include:
- High fundraising and operating costs.
- Risk-aversion and talent constraints due to a mindset of appeasing donors.
- Centralized grantmaking, with the board of directors and executive team allocating funds without input from subject matter experts.
- Slow pace of delivery owing to bureaucracy and red tape.
- Lack of transparency and accountability makes it hard to track where the money goes and how it is being used.
- Abuse of power (e.g. biased decision-making owing to personal connections).
- Global NGOs trying to solve local issues without understanding the local context.
- Meta nonprofit structures extract value from every donation that passes through them for local projects. On an average nonprofits charge 15% cut every time they act as a passthrough.
- Lack of collaboration among nonprofits as they compete for limited donor funds.
- Reliance on donations and government funding, which can be unpredictable and unreliable.
The nonprofit sector is stagnant. Top nonprofits are over 100 years old. Few founders enter the arena. Those that do are actively discouraged. And competing with the incumbents is nearly impossible - Nate Van Cleve, Tech Impact Entrepreneur
Enter Impact DAOs
Web3 and the DAO model offer solutions to many of these problems. Above all, they provide a blank canvas for experimentation and reimagining new ways of doing things.
Web3 tools and technology, coupled with first-principles thinking, offer a powerful new way to address problems at a scale.
Our study of 30 Impact DAO builders reveals exciting new ways in which DAOs are innovating. Some of the DAO model’s advantages include:
- As an internet-based organization, it is borderless and open. Anyone from anywhere can participate.
- Fast and permissionless to set up.
- Mission-first orientation - infrastructure can come later.
- Access to global talent and expertise.
- Decentralized power and decision-making.
- Built-in incentives for mission-aligned actions. The community decides on the activities and rewards people for actions that create value.
- Tokenomics to fund operations and impact without reliance on donors.
- Peer-to-peer transactions eliminate intermediaries (and associated fees).
- Radical transparency with the use of blockchain, every transaction is accounted for and publicly viewable.
- Ability to engage donors, volunteers and other stakeholders through DAO governance processes.
- Internet-level scale and speed.
- Efficiency thanks to automation through smart contracts.
- Fast, easy and low-cost crypto fundraising.
- Censorship resistant.
Ukraine DAO was established just three days before Russia attacked Ukraine on February 24th, 2022, and raised a total of 7 million dollars in five days, thanks to the donations of over 3000 people on the internet. The DAO used a multi-sig wallet to receive, store, and manage funds. A multi signature wallet (essentially a shared, crypto bank account) ensures no one person has authority over the funds and that multiple parties must sign off before releasing the funds. The DAO auctioned the Ukraine Flag as an Non-Fungible Token (NFT) to fundraise, used Telegram and Discord to collaborate, and Twitter to communicate.
Using the Ethereum blockchain, web3 applications and social media platforms, UkraineDAO was able to quickly come into existence, mobilize, collect and deploy funds in a highly transparent way. While the Ukraine nonprofit Come Back Alive was suspended by Patreon from its fundraising platform, Ukraine DAO was protected from any such action by a centralized entity.
Decentralized Autonomous Organizations are a model for the world to witness how people with a common purpose can join and work together quickly to distribute funds to present humanitarian causes. - Trippy of Trippy Labs and Co-founder UkraineDAO
Use cases of Impact DAOs and Web3 tech
In the next chapter, we will examine 12 leading Impact DAOs in detail. Here, we recap some of the innovative ways in which DAOs are solving local and global challenges.
- Impact Market, the world’s largest UBI program focusing on recipients in the world’s poorest, least accessible areas (war zones, refugee camps), uses web3 technology to deliver UBI directly to those in need. They have carried out successful operations in 37 countries in the last two years alone.
Kimbal Musk’s Big Green DAO is disrupting the grantmaking process. The US nonprofit Big Green decentralized its own grantmaking function in Sept 2021, and has recently completed its first year as a full DAO. They have benefited from from efficiency improvement thanks to automation, cross nonprofit collaboration, and the ability to leverage grassroots expertise.
India COVID Relief, a crypto fundraising campaign that began its life on Twitter. After gaining viral status, the group raised over a billion dollars during May 2021, at the height of India’s COVID crisis. The campaign was completely volunteer-run, powered by a global community collaborating on Discord. Armed with crypto and blockchain technology, the relief fund operated on a completely transparent basis, with every transaction publicly viewable on the blockchain.
Gitcoin, the largest crowdfunding platform for open-source web3 projects, operates as a DAO structure. It holds grant rounds every quarter according to the quadratic funding model. The creation of this book was possible in large part thanks to receiving two QF Gitcoin grants as part of this process.
Pact DAO is facilitating hyper-local mutual aid in New York City. They are achieving this primarily by equipping neighborhood organizations with web3 collaboration tools and quick-setup multisig wallets for transparent fund management.
All for Climate is building a global movement of climate activists to enable change at a local level. Unlike traditional organizations such as Greenpeace, however, All for Climate DAO operates publicly on Discord, and anyone can join. They provide training and crypto fundraising support to incubate decentralized climate initiatives (e.g. Regen Unite), each with its own multi-sig.
The Coming Wave
The Impact DAO ecosystem is nascent but growing rapidly. The first Impact DAO emerged in June 2020 with Elimu.ai, an open-source project on GitHub developing AI-powered learning apps for kids in emerging markets. In the words of the founder:
“Because the purpose of the Elimu.ai Community (providing every child with access to quality basic education) transcends geography or political borders, it makes perfect sense for us to be a DAO to organize ourselves.” - Nya, Founder Elimu.ai
The year 2022 saw a general explosion in the number of newly-launched Impact DAOs. We believe many social impact organizations will launch on a “DAO-first” basis in future, and the ones that are not currently DAOs will soon begin the transition.
There are already many examples of nonprofits that have transitioned into a DAO model. Many are decentralizing slowly but surely, one function at a time.
Kimbal Musk’s Big Green, a US 501c3 nonprofit founded in 2011, launched Big Green DAO in November 2021 to democratize grantmaking. The DAO is controlled by frontline food activists, grantees, and donors.
Civics Unplugged, a US 501c3 nonprofit founded in 2019, ventured into web3 with the launch of Dream DAO, with the purpose of onboarding high schoolers to web3.
Pact DAO, a US 501c3 nonprofit founded in 2020 to provide hyper-local mutual support in NYC, made a full transition to the DAO model in 2021. Pact DAO is one of the first organizations to amend its bylaws to be DAO-friendly.
Gitcoin, a web3 crowdfunding protocol that started as a traditional tech company in 2017, transitioned to a DAO structure in May 2021.
Big Green DAO is challenging the process of traditional philanthropy, ensuring funded work is high-impact and community-led by making funding decisions nonprofit-led, democratic, and decentralized. Let’s go Big Green DAO! You’re changing the world! - Sydney Futrell, Director of Philanthropy, Big Green
What Is (and Isn’t) an Impact DAO
Like any DAO, Impact DAOs operate on the principles of decentralized power, collective decision-making, and transparency.
- Internet native communities
- Distributed teams
- Decentralized governance
- Bank account on the blockchain
- No bosses; everyone is a leader
- Co-creation and co-ownership are central
- Flat, concentric structure vs. top-down, hierarchical system
- Decentralized decision-making vs. centralized
- Financial sustainability via tokens
- Transparent operations and transactions
- No physical office; organized online on a dedicated platform
- Organized around work streams and pods
- Contributors instead of employees
- Self-driven, permission-less, entrepreneurial mindset
- Sovereign individuals and entities
Bullish on Impact DAOs
Impact DAOs are key to building the future we know is possible. In this future, DAOs will come to be the most natural way for groups to mobilize for causes - big and small.
Just like the open-source code of the early internet gave rise to a new way of organizing and transacting, the core primitives of web3 will change how we work together to facilitate solving the challenges previously thought to be insurmountable.
In the next chapter, we showcase the 12 leading DAOs covered in our study.