The Breakdown - Can DAOs Be a 10X Improvement for Fundraising?

Episode Date: December 13, 2021

This episode is sponsored by NYDIG.   On this week’s “Long Read’s Sunday,” NLW looks at DAOs and their benefits over traditional fundraising, reading: “DAOs and the Next Crowdfunding Gold Rush” by Will Gottsegen “What Kickstarter Going Decentralized Means for Web 3” by Daniel Kuhn    - NYDIG, the institutional-grade platform for bitcoin, is making it possible for thousands of banks who have trusted relationships with hundreds of millions of customers, to offer Bitcoin. Learn more at NYDIG.com/NLW. - “The Breakdown” is written, produced by and features Nathaniel Whittemore aka NLW, with editing by Rob Mitchell, research by Scott Hill and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Dark Crazed Cap” by Isaac Joel. Image credit: mathisworks/DigitalVision Vectors/Getty Images.

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Sunday, December 12th, and that means it's time for Long Reads Sunday. And today, we are going to talk about Dows. I'm actually going to be reading two pieces from Coin Desk this week. The first is called Dows in the next. next crowdfunding gold rush, it was written by Will Gotsigan, and it was published on Monday.

The biggest crossover crypto story of the past few weeks is probably Constitution Dow, a rag-tag group of crypto believers who raised more than 40 million in ETH to purchase an original copy of the U.S. Constitution at auction. Much has been made of the ways in which the group failed. They didn't actually buy the Constitution. Their organizational structure spiraled into chaos. They bungled the refund mechanism leaving thousands of contributors in the lurch. But what they did accomplish is almost as staggering as the extent of their failures. Constitution Dow got tens of thousands of addresses to donate $40 million over the course of about a week without a marketing team or a dedicated growth director. Some of that is owed to the broader phenomenon of meme-based

populism, the same energy that galvanized Reddit's day traders to pump GameStop stock back in January. It's the thrill of collective progress with an ideological twist in the form of an identifiable enemy. Banks are bad. But the massive raise is also a testament to the fast and furious nature of crypto itself. Kickstarter, one of the most recognized crowdfunding platforms, doesn't actually take money out of your bank account until a project is fully funded. And in the U.S., Kickstarter operates through the U.S. Securities and Exchange Commission's legal carve-out for regulated crowd funds, which incorporates certain consumer protections. There's all sorts of things a project can't do. If a project runs off with your money or doesn't actually build what they plan to build, it can be held liable. Not so with crypto crowd funds, or at least not yet.

The Constitution Dow, the strategy was to raise the money first and figure out the logistics after the fact. Donations came in with zero guarantees beyond a set of tokens of portion pro rata according to what you put in. That's also the logic behind Constitution Dow's copycats. Spice Dow, formerly known as Dune Dow, which now counts the musician Grimes among its members, raised $11 million for a copy of Alejandro Jodorowski's Dune Storyboards. But it did so only after its initial failure to meet the requisite $4 million high bid for the manuscript. The new multi-part raise was an attempt to reimburse the one group member who purchased the manuscript personally. The major incentive is that if things don't work out, you've still got your tokens, which could

potentially be worth something on the secondary market. People, the token for Constitution Dow, has a market cap of 271 million on the strength of donations worth far less. It was trading at around 16 cents per token late last month. Spice tokens have had so far less success, but they're certainly trading. The whiplash nature of the crypto market is uniquely suited to these sort of impulsive communal gestures, and it's the logic of aping in the frision of excitement that comes from risking it all with an added ideological component. And it doesn't hurt that the hype around Web 3, that increasingly nebulous buzzword, is a shiny hook for wealthy investors to latch onto. Of course, this isn't really a new phenomenon. The Crypto-backed publishing platform mirror, which began as an alternative to

substack, has evolved into a tool for crowdfunding crypto projects through non-fungible tokens and token distribution models in the vein of Constitution Dow. Early adopters have used it to crowdfund art projects, essays, music collectives, and other amorphous crypto-powered endeavors. With all these projects, there's an implicit sense that you're not owed anything. It hinges on trust. We're donating to a Kickstarter as an expression of goodwill. Putting money in a crypto crowdfund is like helping bootstrap an early stage company. The recent crowdfunding gold rush is playing off that gambler's ethos. Sure, you might lose it all, but isn't that the point? Now, I think there's a lot of good stuff in here that Will has, but he's clearly coming at this

from a much more cynical place than I am. I've said before, and I'll say again, that I think that Dow's are a very obvious sort of part of the landscape, something that exists between the different levels of organization that exist now. With this idea of it only being driven by a gambler's ethos fails to recognize is the extent to which Daos are giving expression to the desire among clearly many market participants to come together around cultural or financial opportunities. The way that people spend money is not just a vector of returns, but also about what gets them personal utility. Shared ownership creates a greater bond, I think one could argue, a bond that's certainly reinforced by the type of structures that DAWS have created. Think Discord groups, think

chats. Think the simple rush of trying to achieve something to outbid Ken Griffith from Citadel, even if you don't know that's who you're bidding against. Now, on the flip side, I also think that they're much more financially opportune than is being given credit for here. And to be fair, well,'s not going deep into that, so I don't want to pin opinions on him that he doesn't actually have. The reality is, though, it doesn't strike me that it will be long before certain types of funding Dow's are out competing other types of investors for certain types of financial opportunities. If I'm the record labels right now, I am extremely concerned that there is a new source of money for artistic pursuits and careers that cuts the label system out entirely. And that's just one example.

NIDIG sponsors this podcast and they're integrating Bitcoin into everyday life, not only for Wall Street, but also for Main Street. Because NIDIG is built for Bitcoin and Bitcoin is built for everyone. Learn more at nydig.com slash nLW. That's nydig.com forward slash nlw. Let's get to our second piece. This one from Daniel Kuhn. It's from Wednesday and is called

What Kickstarter Going Decentralized Means for Web 3? Kickstarter going decentralized is the latest boon to the Web 3 narrative. The idea that cryptocurrency and other decentralized tools are reinventing the internet as we know it. On Wednesday, the crowdfunding site announced it will embark on an ambitious technical overhaul of its core business. Details are scant, but the entity will spin up a separate company to build a crowdfunding platform using the CLO blockchain. Once that's ready, there's no timeline. Kickstarter will transfer over and even open-source the tools for others to make use of the protocol. This is a significant turn of events. Although fading from cultural memory, Kickstarter was once a

key component to the creator economy, the financial revolution of sorts that saw individual strike out on their own to form new business models using powerful web tools. It was the golden goose of web a series of developments to websites that brought together social media and other collaborative efforts. As Bloomberg notes, Perry Chen started Kickstarter with a pair of art-loving friends in 2009, and it was a near instant hit, with cash-trap go-getters and eventually with celebrities and big companies looking to test consumer demand. The Peloton stationary bike started with a Kickstarter campaign, $307,332 dollars raised, and so did the Oculus VR headset, $2.4 million.

Kickstarter helped finance new records from Amanda Palmer, $1.2 million, and the pop group, TLC, and revived cult classic TV shows like Mystery Science Theater 3,000, 5.8 million, and Veronica Mars, 5.7 million. Crowdfunding has long been a potential use for crypto. As my colleague Will Gutsigan wrote on Monday, there is a developing trend of online groups gathering together, forming Dow's or decentralized autonomous organizations, and buying random things online. This was typified by Constitution Dow, a group that raised over $40 million to buy one of the original prints of the U.S. Constitution. All this could have happened with the tools like Kickstarter that we have today. And perhaps Kickstarter would have saved people on ETH gas fees or made it simpler to

return the funds, after the Dow failed to acquire the constitution. But crypto adds a radical new element in that these free software projects are designed for anyone to use, basically without restriction and more importantly, are uncensurable. Kickstarter as an entity will not let you donate to a North Korean startup, no matter how benign the project. With Ethereum or Bitcoin, it's completely your call, so long as you're willing to pay the fees and comfortable evading sanctions. It remains to be seen whether Kickstarter will retain some control over their new chain, or if this works out for them. Others have noted that the promise of Web 3 seems more like hype than substance. There are many curious onlookers that just want to see a functioning project.

Constitution Dow, for one, could be seen as a positive development or a demonstration of the hype, but it definitely brought attention to the industry. It also remains to be seen how other legacy companies, even former disruptors, like Kickstarter, adapt to this new internet landscape. It's easy to mint a few NFTs, harder to reinvent your business. But if Kickstarter is a signal above the noise, then we might expect a lot more Web3 developments down the pike. Now, I guess the thing that I'll note here is that I'm not sure that this argument, all this could have happened with the tools like Kickstarter that we have today, with Constitution Dow, is quite true.

I think that it might be arguable that the speed and lack of friction with which crypto rails allow collectives to aggregate resources, which is what happened in the case of Constitution Dow, is a change not just in scale as it first appears, but in fact a change in kind. I do agree with Daniel that no matter what, we're going to see a lot more of these experiments coming up. This week, for example, a group called Free Ross Dow won the auction for the first NFT collection from imprisoned Silk Road founder Ross Ulbricht. Now, many in the crypto community,

and in particular the Bitcoin community, feel that Ross Ulbricht has served more than enough time for his actual crimes and has been unfairly maligned. This NFT collection was meant to give Ross more resources to fight his imprisonment. The NFT collection is called the Genesis Collection, and it's a collection of digital items, including journals and art pieces created by Ross. There was some controversy with bitcoins who don't like NFTs saying that Ross shouldn't have done this.

And similar counterlash with other bitcoiners saying that if those folks couldn't get over themselves enough to support this cause, then where were their values really? The bidding ripped back and forth between someone called toxic Bitcoin men. Maxi, and someone bidding as Jess Powell, which is the Twitter handle of Jesse Powell, the CEO of Cracken. Ultimately, though, as I said, it was Free Ross Dow, which is a group supported by Pleaser Dow, who you may remember were the ones behind the purchase of the Wu-Tang album, that ended up bidding 1,46.46 Eth, or about $6.2 million to win the collection. Amazingly, Free Ross Dow said that they had raised over 2,800-Eth or about 12 million for more

than 1,300 supporters. There's just no way that we keep seeing this sort of action. and that more people aren't going to experiment with this format to figure out how DOWs can be a new tool, not just for fundraising, but for exerting collective will through financial means. All right, guys, thank you so much to Will and Daniel for those great thought-provoking pieces. I appreciate that you guys are actual journalists who have to stay within the bounds of reason, whereas I can just expound and be an op-head jerk. So thanks again for writing those great pieces and allowing me to share them on the show. Until tomorrow, guys, be safe and take care of each other.

Peace.