A merge between crypto and philanthropy is already underway as decentralized autonomous organizations (DAO) and nonfungible token artists alike fundraise and donate crypto to nonprofits. But what does the age-old institution of philanthropy have to learn from emerging technologies in the crypto space? Additionally, what does crypto have to offer philanthropy that could improve the sector generally?
Crypto offers the potential for nonprofits to be governed in a decentralized fashion, creating conditions that maximize the influence of communities most impacted by these organizations.
Despite its meme-based reputation at times, the crypto industry is actually in the midst of a major push toward true democracy. This effort begins by leveraging blockchain technology that has created the conditions required for decentralization.
Blockchains can host smart contracts, a sort of unadjustable code that automatically enforces rules, removing the need for central figures of authority. Rather than an individual or group bearing responsibility for operations, smart contracts can be interacted with through token voting. When blockchains are built with tokens and smart contracts, they empower online communities to build systems of token-powered self-governance called decentralized autonomous organizations.
What if a nonprofit structured itself as a DAO in order to leverage the aforementioned benefits to further its mission? To successfully create a Community Foundation built on a DAO would transform fundraising, grant distribution and even nonprofit management into a transparent democratic process. This is the thesis that led us to create Endaoment as an organization that is completely on-chain and embraces the benefits of decentralized technologies.
The challenge with creating compliant nonprofit DAOs, at least in the United States, is transitioning a nonprofit organization to a DAO governance structure without compromising its charitable status.
Related: NFT philanthropy demonstrates new ways of giving back
The roadmap
For a nonprofit organization to become a DAO while remaining compliant with U.S. Internal Revenue Service rules, traditional entities such as committees, officers and boards would need to remain intact. DAOs, however, can leverage blockchain tools to govern the privileges of those 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…
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