How Web3 could democratize donations

A merger between crypto and philanthropy is already underway as Decentralized Autonomous Organizations (DAOs) and non-fungible token artists raise funds and donate crypto to nonprofits. But what does the age-old institution of philanthropy have to learn from emerging technologies in the crypto space? Also, what does crypto have to offer philanthropy that could improve the sector in general?

Crypto provides the opportunity for nonprofit organizations to be governed in a decentralized way, creating conditions that maximize the influence of the communities most impacted by these organizations.

Despite its sometimes meme-based reputation, the crypto industry is actually in the midst of a major push towards true democracy. This effort begins by leveraging blockchain technology which has created the necessary conditions for decentralization.

Blockchains can host smart contracts, a kind of untunable code that automatically enforces rules, removing the need for central authority figures. Rather than an individual or group responsible for operations, smart contracts can be interacted through token voting. When blockchains are built with tokens and smart contracts, they enable online communities to create token-powered self-governance systems called decentralized autonomous organizations.

What if a non-profit organization structured itself into a DAO in order to take advantage of the aforementioned advantages to pursue its mission? Successfully creating a DAO-based community foundation would turn fundraising, grantmaking, and even nonprofit management into a transparent, democratic process. This is the thesis that led us to create Endaoment as a fully blockchain organization and embracing the benefits of decentralized technologies.

The challenge of creating compliant nonprofit DAOs, at least in the United States, is to transition a nonprofit to a DAO governance structure without compromising its charitable status.

Related: NFT Philanthropy Demonstrates New Ways to Give Back

The roadmap

For a nonprofit to become a DAO while remaining compliant with US Internal Revenue Service rules, traditional entities such as committees, officers, and boards should remain intact. DAOs, however, can leverage blockchain tools to govern the privileges of these groups. Through the use of smart contracts, a nonprofit DAO could assign and manage responsibility for electing board and committee members, creating and composing committees, and assigning responsibilities and privileges to each. of these entities. In this case, the DAO would be the sole member of the nonprofit, with DAO members collectively making decisions through token-based voting.

Distribution of tokens

Before tokens can be used to manage voting, they must first be distributed fairly and transparently among DAO members. There are some considerations that should be taken into account when designing a token that will govern a nonprofit DAO in order to maintain compliance and create a system based on transparency and fairness:

Contribution to a non-profit mission and sustainability of DAO

  • The token is to be distributed as a reward to those who contribute significantly to the operations and objectives of the DAO.
  • Tokens should signal an individual’s influence and participation in the platform’s ecosystem.

Perpetual Rewards

  • After the genesis distribution, the rewards schedule should be kept indefinite to continuously reward regular participants with voting power (tokens) and without relying on board-determined inflation events. (See: Incentive structures)

Token cap and user considerations

  • Limit the total number of tokens that will be in circulation while rewarding members in proportion to the size of the user base to entice other users to join the platform.

Determining the results of funding and donations

  • The token should in no way affect the funding that nonprofits receive.

Intuitive rules

  • Tokenomics and governance should be as simple as possible to avoid confusion. Incentives and monitoring are most effective when designed to be understood.

Limit self-rewards

  • To avoid conflicts of interest, controls should be in place to limit the ability of committee and board members to reward themselves with tokens or easily manipulate the system for tangible benefit.

Vote

Once the token is created and distributed to community members, they can use it to vote. However, they must first signal their interest and commitment to participate in governance by “locking” their tokens, which helps avoid double voting or fiddling with the system’s voting mechanics. When users lock tokens, they relinquish access to those tokens for a specified amount of time and gain the privilege to participate in votes regarding DAO governance. At the end of the allotted time, users can choose to collect their tokens or continue to keep them locked and retain their voting power.

While participants’ tokens are locked, they can do things like elect verified individuals to the nonprofit’s board of directors, remove officers, and create and compose committees. In short, they can govern the organization. We plan to continually develop existing and new governance structures to create fairer and more equitable decision-making that fulfills our mission.

Related: A blockchain-based replacement for traditional crowdfunding

Incentive structures

What is the incentive to participate in this philanthropic DAO (apart from true altruism)? In addition to allowing DAO members to vote on the management of the entire organization, voting tokens can also be used to reward specific types of participation among members across the ecosystem. Through this system, fees collected through the use of the platform could: (1) be used to compensate active participants in the Endaoment ecosystem, and (2) be distributed through our philanthropic system to non-profit organizations. lucrative based on community vote.

To ensure that rewards are distributed fairly, a committee elected by the DAO is tasked with establishing transparent and easily understandable metrics for measuring impact within the organization. Based on user interactions, members are assigned a score and may receive a proportional reward on a recurring basis.

Non-profit DAO

Nonprofits are full of rhetoric about emboldening and creating platforms for the communities they impact — and many do — but few, if any, are truly democratic or inherently transparent. By fusing Web3 innovations with traditional philanthropy, we hope to realize an opportunity that empowers communities to manage the nonprofits created to help them. Individuals are given voting power commensurate with the work they contribute or the interactions they have with the nonprofit DAO.

The nonprofit DAO can use blockchain technology to create transparent, easy-to-understand structures and processes so community members have complete faith and confidence that their role is both legitimate and valued. . Merging these two disparate sectors creates an opportunity to create a new kind of organization: one that leverages new technologies to bring democratic, transparent, and incentive-based systems to the nonprofit space in ways previously not possible. .

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Noah Gallant leads protocol and human interface design at Endaoment. Previously, he was director of the Design For America studio at Columbia University, coordinating the execution of forward-thinking impact projects for local nonprofits and community organizations. Noah went on to found a design and development studio called Sight, which focuses on creating products in the areas of crypto, e-commerce, social impact, and art. In 2021, he joined Endaoment with the goal of using human-centered design and Web3 toolkits to help create effective new forms of nonprofit philanthropy and fundraising.

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