2 Lessons From The Early Years Of Impact DAOs

Lately, impact DAOs have been sprouting like mushrooms after the rain. They are a way to organize distributed teams around various objectives. Goals of an impact DAO can vary from local causes to topics that have a global impact - such as climate change. The Internet and web3 are a significant part of the infrastructure of impact DAOs. However, its backbone consists of ideas and people who invest their time, effort, knowledge, and money to build the desired change.

DAOs are decentralized autonomous organizations, built on web3 technologies, that enable the decision-making and synchronized collaboration of diverse groups. In the general case, a DAO will be run by smart contracts. Decisions that drive the DAO towards its goals are usually reached by token holders voting for proposals to act or take no action. As new DAOs emerge, so do the tools that DAOs use - platforms and dApps that allow connecting to crypto wallets, submitting proposals, and casting votes.

Prompt reactions to crises and events leave no time for the preparation and implementation of robust tooling and elaborate operational frameworks, so impact DAOs have begun to implement non-tokenized forms of governance. Non-tokenized impact DAOs tend to organize, synchronize and reach decisions within different chat apps - Discord, Telegram, Signal; they collaborate using tools they have at hand - such as Google Docs. Typically, the DAO treasury remains on the blockchain as a multi-sig wallet, that prevents an individual from issuing transactions without the consent of other keyholders in the form of a cryptographical signature.

There are many types of impact DAOs that operate with different means, tools, and objectives.

There are no specific rules when it comes to impact DAOs - they can be anything we want them to be. This, however, doesn’t mean that we can’t make mistakes - be it when we decide to pursue an objective by forming an impact DAO, be it when the operation of the organization is inadequate.

The brief history of impact DAOs has already given us examples to learn from.

Lesson #1: Objective - what is the target of the DAO, and can the DAO achieve it with the means it has?

FreeRoss DAO was formed in December 2021 by a group of crypto and NFT enthusiasts, as well as friends of Ross Ulbricht, the founder of Silk Road, the infamous online black market. The initial objectives of the FreeRoss DAO were formulated as the FreeRossDAO Manifesto (which is now available only as a snapshot on the Wayback Machine):

This DAO picked up significant media attention after collecting 12.5 million USD in a fundraiser. The governance tokens were airdropped to donors, thus turning them into the decentralized governing entity of the DAO. Proposals and decisions of the DAO were diligently documented. During its operation, the FreeRoss DAO created and adopted a constitution, allocated and paid funds to contributors, artists and operational staff. However, in May 2023, the DAO voted on a proposal to stop operation completely, dissolve and transfer the remaining funds from the treasury to different organizations. The reason to halt the operation of DAO, as stated in Proposal #17:

Per the Ulbricht family’s wishes, the Free DAO will cease its operations entirely. Amidst concerns that the DAO’s existence is not helpful to Ross’s clemency efforts and can even harm his clemency, the family has asked that the DAO ends its operations. Because Ross’s life is at stake, the Free DAO’s mission has always been to support Ross’s family and respect their wishes.

Proposal #17 was rejected by the DAO, but FreeRoss DAO ultimately voted to dissolve the DAO and cease all operations in Proposal #18.

One might wonder how come an organization that had a lot of success in funding and organizing its work, has to cease operation because it “can even harm” the clemency of Ross Ulbricht - the most significant objective of the DAO.

At the time of the formation of the DAO, Ross Ulbricht has nearly exhausted all legal options that may change his situation, but today we know - the only way for Ross to be a free man again is a Presidential pardon.

Setting up an unregistered organization, that fundraises from anonymous donors, without implementing KYC and AML procedures, and handling millions outside any legal framework… simply does not help him. Some government agencies are even inclined to frown upon such operations, and this is why FreeRoss DAO had to dissolve - because Ross Ulbricht is better off without FreeRoss DAO than with it.

Lesson #2: Repurposing donations post-factum and misleading information are not the way to go

UkraineDAO was another impromptu impact DAO that was formed several days before Russia started its full-scale invasion of Ukraine. The initial objective of UkraineDAO was to help and support Ukrainians suffering from the war. The core group of co-founders of the DAO had previous experience from impact DAOs - PussyRiot’s Nadya Tolokonnikova among them, and in less than a week, they’ve set up the multi-sig wallet, created an NFT of the Ukrainian flag, organized an NFT auction and spread the word to relevant audiences and the media. Everyone was invited to place a bid for the NFT, and all participants of the auction were to receive fractional ownership of it, proportional to the amount donated. The funds collected through the NFT auction, as well as direct donations to the wallet, were intended to be transferred to charities and NGOs that help the war effort and deliver humanitarian aid.

The NFT auction was completed on March 3, 2022. The group collected a total of 7 mil USD. Most of the funds were transferred as planned in the next few days.

Nadya left UkraineDAO on March 6. Afterward, the remaining core members of UkraineDAO voted to use the funds that remained as a salary for Alona Shevchenko, the operational lead of the DAO.

Later, in June 2022, Decrypt published Nadya’s statement that:

.@cryptodrftng is involved in @TheChoiceDAO, i'd be very careful about donating to someone who has a history of mismanaging

i left @Ukraine_DAO mid-march after distributing the majority of funds. there was never an understanding that whats remained will be @cryptodrftng's salary

UkraineDAO still holds around 200,000 USD worth of crypto in their wallet, which hasn’t been distributed as promised, and has been paying a monthly salary of 5000 USD to the operational lead for 14 months.

Subsequent claims made by Shevchenko that UkraineDAO is endorsed by the Ministry of Digital Transformation of Ukraine, as well as the way the remaining funds were used, raised the interest of the media in the work of the DAO.

Deputy Minister Bornyakov denied in an interview for Kyiv Post that the Ministry has ever endorsed the DAO. Further investigations by journalists raised additional suspicions about some of the outgoing transactions from the DAO wallet, that are not listed as donations - with Global Crypto Press reaching the conclusion that around 200,000 USD that were donated to the DAO are gone from the wallet and unaccounted for.

As more media outlets are picking up the story of UkraineDAO (the most recent being Polish TVP World), which went from fundraising for a good and noble cause to becoming a personal piggy bank, the DAO itself remains silent - refusing to acknowledge the situation and refusing to communicate with the media and the public, that seeks explanations and accountability.

Dima Buterin, the father of the famous Vitalik, who replaced Nadya as a keyholder for the multi-sig wallet of UkraineDAO, in a Twitter thread discussing the UkraineDAO situation added that:

Obviously, the DAO can vote on how the funds will be allocated - but in this case, it is not sure that this was a good and ethical decision.

Clearly, if we are asking the public to support and contribute financially to our work, or in this case - if we seek donations with a promise that “100% proceeds will go to support Ukrainians suffering from the war” - it is just fair that we answer to the public. Legal means to pressure UkraineDAO to fulfill its original promise are limited, as the DAO was never incorporated. However, it is highly unlikely that the trust Dima Buterin has in the DAO will be there in the future.

The takeaways from this piece should be that there are goals that can’t be achieved via impact DAOs, and at times the DAO will do more harm than good.

As the story of UkraineDAO is still ongoing, for the time being, we can conclude that going back on a promise given in public and communicating false information definitely doesn’t help - nor the cause, nor the reputation of the people behind the DAO.

Impact DAOs are in their nascent phase - technically still a toddler, mistakes are likely and expected. The future will certainly bring opportunities to improve the way we work and collaborate and to use the benefits of collective decision-making.