Decentralized autonomous organizations (DAOs) are cryptocurrency-native entities that operate autonomously without any centralized authority, with governance managed by their members. DAOs collectively have around $23.2 billion in treasuries, and only around $3.3 billion is actively invested in income-generating programs.
While DAOs can potentially donate money, they also involve crypto philanthropy that can disrupt the entire charity-giving scenario. These organizations have been recognized for creating a national harmony between organizations and social impacts, capitalizing on which has led to vital social causes in fresh, innovative ways. Here we will explore the crypto-philanthropic side of DAOs and tokens and how they are funding social causes.
DAO Social Responsibility – DAOSR
What does a DAO ideally give? The obvious answer is that a DAO can be used as a native cryptocurrency. This undeniably lowers the entry barrier since numerous DAOs have a stockpile of native tokens akin to a treasury, while some are naturally concerned about immediate sell-offs by receiving parties that would increase the selling pressure of the token and reduce its price.
A recent grant from Uniswap liquidated around $10 million, almost 50% of UNI tokens, which frustrated the token holders and backers of crypto philanthropy. This issue was addressed by using existing financial tools developed – Donor-Advised Funds (DAFs).
DAFs existed in the traditional world in the US for more than 50 years, serving as an efficient tax instrument for the owners of property, bonds, stocks, and other financial assets and facilitating donations to charity completely capital gains tax-free.
In a DAF model, donors donate their assets directly to the charity of the DAF provider, who then liquidates assets without any taxes owed since it is a tax-exempt entity. Through DAFs, the recipient gets the asset’s full value while the donor, in certain cases, gets the tax write-off for their donation’s value.
The aforementioned grant by Uniswap would have been slightly different using this DAF model. By donating the same amount of UNI worth $20 million into Uniswap’s DAF and setting up the disbursement schedule in US dollars or USDC, Uniswap could have avoided the rapid sell-off.
DAFs offer additional control and flexibility to account holders and represent the most efficient and best means of making charitable tax-deductible contributions to nonprofit organizations.
How DAOs & Tokens Fund Social Causes
Let’s take a look at the social impacts of DAOs and how they fund social causes:
Creates new accountability models
One very interesting use case of DAOs involves the creation of new processes and models for accountability. By using governance protocols and smart contracts, a DAO allows a community to exercise their power and ownership over specific causes that they want or care about, and also hold organizations and leaders accountable in that cause.
Any charitable organization should have an official board and some membership, but the opportunities for active community engagement in matters related to how the funds are being spent and the types of services and activities undertaken by the organization may often be limited.
Decentralizing the organization’s governance presents more opportunities for the members, including the beneficiaries, who can exercise their control in the organization’s operations. But this comes with a disadvantage. Having too many members involved can slow down and restrain organizational processes.
There is also the risk of a 51% attack, where bad actors gather adequate governance tokens to take ownership and control of the DAO. Therefore, these risks need to be considered while designing mission-driven DAOs.
Changes conventional fundraising methods
The most relevant social impact of DAOs is using them for fundraising or for offering direct donations to charity or charitable causes. They are set up to allow membership communities of those interested in purchasing governance tokens to support social causes. Communities are formed that collectively decide how to disperse the funds.
If 100 members purchase $100 of DAO tokens each, which grant them both voting permissions and membership, 25% of the tokens’ value can go towards charitable funds supported by the DAO. The token holders can vote on the social causes they want the funds raised (worth $2,500) to support, depending on the projects that the community members propose. With more members joining in, additional funds get added to the fund pool, which can be collectively used to pay out to charities.
DAOs organize NFT auctions, fundraising events, and campaigns for fundraising directly from community members. For instance, the Ukraine DAO, which emerged after Ukraine’s invasion by Russia, raised funds to support the Ukrainians through a 1/1 NFT sale and crypto donations. The Ukraine DAO could raise more than US$8 million in total within a period of a few weeks.
Provides greater transparency in funding
New opportunities emerge with DAOs that bring more transparency to the social realm. One central element of crypto and Web3 is transparency, and by incorporating more charitable events and activities on-chain, like fund disbursement or fundraising, it allows donors to calculate the amount of funds coming in, how they are spent, and funds going to charitable causes.
In addition to finances, transparency is also added by DAOs in decision-making and vital organizational matters. There is no secretive executive decision-making or in-camera voting session. All records of important decisions that DAO members vote on are available to the on-chain public, which ensures greater transparency and accountability.
Creates more community agencies for fundraising
DAOs have created innovative ways to manage and organize communities that never existed before. These communities are provided with a structure to raise funds and conduct important services. It can be a local neighborhood group creating a DAO for fundraising for a local project, or a municipal government using the DAO structure for a referendum or for participatory budgeting.
With DAO, the use cases for social causes are limitless and truly amazing. An excellent example of this is impactMarket, a cryptocurrency-UBI network that has disbursed around $2.5 million in UBI to more than 43,000 beneficiaries. This is a unique community-driven structure that has allowed communities to take control and ownership of their UBI programs and serve as program managers for the onboarding of other beneficiaries.
Conclusion
Philanthropic DAOs are seeking to pick up more social responsibilities by following a key mission to develop a meaningful social impact through crypto and Web3 spaces. The main objective of having decentralized communities and funding social causes is to indicate a considerable change with a positive impact on the social world by leveraging the capabilities of blockchain.
We can have more philanthropic DAOs and grant them the functioning of a member-driven organization, while other DAOs can generate revenues to elevate people from their social problems and remove poverty simply through reserves. Although DAO is in its infancy, it has achieved a great deal, offering limitless potential to be an excellent force for the bigger social good.
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