Five ways DAOs will revolutionize social impact
Decentralized Autonomous Organizations (DAOs) are one of the most exciting developments to come out of the crypto world in recent years and have experienced rapid growth towards becoming a vital part of the blockchain and crypto ecosystem.
As these organizations have grown, there has been an emerging theme of social impact that has grown with them. Many leaders in the DAO space have recognized that there is a natural harmony between DAOs and social impact, and have capitalized on this relationship to develop DAOs that are contributing to important social causes in new and innovative ways.
In this blog post, we highlight five reasons that DAOs will positively disrupt, and dare I saw, revolutionize the social impact sector.
What is a DAO?
Before we dive any deeper, it is important to briefly highlight what a DAO is, and some of the key features behind them. There could be whole courses on the more technical components of DAOs and how they work, but for the purposes of this post, we will provide only a basic overview.
Decentralized Autonomous Organizations (DAOs) are organizations created by developers that have no centralized leadership (hence the word decentralized), a horizontal structure that is governed by community members, and a set of automated rules built in to the protocol which enables it to continue functioning without the need for leadership such as a Board. DAOs are open sourced so that all members can contribute to its development and see the rules (built in to the code) behind the DAO.
Central to all DAOs is the importance of community governance, which makes it a natural fit for the social impact sector. Whereas non-profits have traditionally been more centralized in their decision making, more and more are beginning to see value in the importance of community-based decision making, where beneficiary communities make collective decisions about how funds are spent.
So, now that we’ve covered what a DAO is, what makes them such a good fit when it comes to social impact?
Creating new models of accountability
One of the most interesting use cases of DAOs, is how they create new models and processes for accountability. Through the use of smart contracts and governance protocols, DAOs can enable the community to take ownership over causes they care about, and to hold leaders and organizations accountable.
While charitable organizations must have a Board, and most also have some sort of membership, the opportunities for community engagement in organizational matters – including how funds are spent and the types of activities and services that the organization undertakes – are often limited. By decentralizing the governance of these organizations, it presents new opportunities for community members, including beneficiaries, to have a direct say in the operations of the organization.
Now, could there be some downside to this? Of course. One of the fears is that, by having too many people involved, that it could slow things down, and inhibit organizational process. There is also always the risk of a 51% attack in which bad actors accumulate enough governance tokens to take control of the DAO. However, the likelihood of this seems low due to a lack of financial incentive to carry out a 51% attack on a social impact-driven DAO. That being said, these are certainly risks that need to be accounted for when designing a mission-driven DAO.
Flipping traditional fundraising on its head
One of the most obvious social impact use cases of DAOs, is utilizing them as a means for fundraising and providing direct donations to charitable causes. DAOs can be set up to accept membership from anyone interested in supporting the cause, through the purchase of governance tokens, and the group can decide collectively how the funds are dispersed. For example, let’s say 100 individuals purchased $100 of the DAOs token each, granting them membership and voting permissions, and 25% of the value of the tokens goes towards the DAOs charitable fund. The members (token holders) could then vote on which cause they want the $2,500 raised to support, based on a number of projects proposed by community members. As new members join, more funds are added to the pool, which can be paid out to charities at a pre-determined basis with collective input from the community.
The DAO could also organize fundraising events, NFT auctions, or other campaigns to raise funds from community members. A recent example of this is Ukraine DAO, a DAO that emerged shortly after the Russian invasion of Ukraine. The purpose of Ukraine DAO was to raise funds in support of Ukrainians suffering from the war, and they did this through the sale of a 1/1 NFT, and through cryptocurrency donations. In total, Ukraine DAO was able to raise over $8M USD in just a few weeks.
Bringing greater transparency to the social impact space
DAOs create new opportunities to bring greater transparency to the social impact space. Transparency is central to web3, and by bringing more charitable activities “on-chain” such as fundraising and the disbursement of funds, it will enable donors to know how much money is coming in, how it’s being spent, and how much of it is going directly to charitable causes.
Beyond finances, DAOs also allow for more transparent decision-making when it comes to important organizational matters. When it comes to DAOs, there are no in-camera voting sessions or secretive Executive decisions. Records of all important decisions, voted on by members of the DAO, could be available to the public on-chain to ensure a high degree of accountability and transparency.
Creating new incentives for social impact
Another interesting use case of DAOs, and crypto more broadly, is how they can use tokenization to incentivize positive behaviours and charitable activities. Let’s use a simple example.
Let’s say there is a DAO called Tree DAO that has the simple mission of encouraging individuals to plant trees. Their “TREE” token is used as a way to incentivize tree planting, by rewarding tree planters with a token for every tree they plant. These tokens then give the individuals ownership in the DAO, and the ability to even exchange them for goods and services.
A good example of a project doing something similar is Fishcoin, a blockchain-based seafood traceability platform that enables individuals in the seafood supply chain to earn rewards for capturing important supply chain data. In essence, “the flow of digital vouchers (tokens) moves from buyers to sellers in supply chains, thus rewarding those who make the extra effort to capture and communicate data. This shifts the economic burden to downstream actors such as hotels, restaurants and retailers who benefit most from traceability.” Although Fischoin is not technically a DAO, it still meets many of the criteria and demonstrates the ways that DAOs can make use of tokens to drive social impact.
Enabling greater community agency
Finally, DAOs create new ways to organize the community that previously didn’t exist. They provide a structure that communities can take advantage of to organize, raise funds, and deliver important services. This could include local neighbourhood groups creating a DAO to raise funds for local projects, or even municipal governments utilizing a DAO structure for participatory budgeting, or even for referenda. When it comes to DAOs, their potential as a tool to organize communities is truly amazing.
A great example of how DAOs can be used to organize communities, is with impactMarket, a crypto-UBI platform that, to date, has disbursed $2.5M in UBI to over 43,000 beneficiaries. Through their unique community-driven approach, they enable communities to take ownership of their own UBI programs, by acting as the program manager and being responsible for the onboarding of beneficiaries. This enables the community, or local organizations within the community, to take ownership of the program, as opposed to it being managed by a centralized body thousands of miles away.
Conclusion
DAOs are in their infancy but have already achieved so much, and there is limitless potential for them to be a true force for social good. The inherent nature of DAOs as open, decentralized, community-based organizations lends perfectly to the social impact sector, where greater emphasis is being placed on the importance of grassroots and community-level decision making, as opposed to the traditional hierarchical structures of charities and non-profits.
DAOs will be a vital part of the social impact ecosystem in the not-so-distant future, and it will be exciting to see the incredible growth that comes in the coming years.
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