Step 6: Fundraising and Legal
6/7 steps beginners course on how to Impact DAO. Inject the basics 💉
Step 6: Fundraising (Tools + Web3 Funding Options) and Legal
6.1 Tools:
Step 6 is when you'll first start interacting with the blockchain, unless you've already issued SBTs/governance tokens in Step 5.
If you're fundraising in web3, you'll need a crypto wallet because payouts are made in cryptocurrencies. This is also the stage when you'll open a multi-signature (multi-sig) wallet, which is essentially a joint bank account on the blockchain. A multi-sig wallet builds trust among newly-formed groups of strangers and ensures that no single individual can abscond with the collectively raised funds.
Now, regarding fundraising, there aren't many options in web3 for impact DAOs unless you're incorporated as a nonprofit and can raise funds from traditional donors.
As a web3-native impact organization, your fundraising is primarily limited to crypto donors.
6.2 Web3 Fundraising
1. Crowdfunding
Gitcoin and Giveth are two web3 platforms where you can register your project and initiate fundraising.
Gitcoin hosts a two-week-long quadratic matching round every quarter and is the most popular web3 crowdfunding platform. I've fundraised on Gitcoin four times, and the quadratic funding (QF) match can significantly boost your funding.
The way quadratic funding works is that the more people you can get to support your project, the more funds you receive from the matching pool.
The donation amount doesn't matter as much as the number of supporters; more supporters will drive more quadratic matching grants. For instance, 100 people donating $1 is more beneficial than 5 people donating $100.
The success of your grant largely depends on the number of people supporting your project. Even if each donation is just $1, your QF match increases with more backers.
So, during the Gitcoin two-week period, your goal should be to rally maximum support and encourage as many people as possible to donate $1. For example, in Gitcoin Round 14 (GR14), 140 people supported IDM, and we raised $8K in quadratic matches. I shared my GR14 learnings here.
Success on Gitcoin also relies on factors such as how your project is categorized, its listing on the website, and your existing social media presence. If you're new and have few Twitter followers, you may not raise much. The marketplace is getting crowded, and those with influence have an advantage.
However, Gitcoin remains your best option for fundraising when starting out, and it's an excellent way to publicize your idea, gain visibility, and connect with the larger community. With Twitter spaces running 24 hours a day, it's a great way to get on stage, share your idea, and grow your community.
In my view, these opportunities for networking and visibility are the best parts of Gitcoin rounds, even more so than fundraising.
Giveth: Although I haven't fundraised on Giveth, I have written an in-depth piece about them in the past. It's another place where you can list your project and direct the community to donate. If you go through their due diligence process, they'll feature you on their homepage.
2. DAO Fundraising
There are DAOs where you can submit proposals to receive funding. The process typically involves going to their Discord, finding out the proposal submission requirements, submitting your proposal, and waiting for the DAO community to vote. If they vote YES, you receive funds. DAOs such as Public Nouns, Cult DAO, and MetaCartel are some of the organizations that donate to impact projects.
3. Web3 Foundations
The Near Foundation, Celo, and the Filecoin Foundation are additional places where you can fundraise. For example, at IDM, we fundraised from the Filecoin Foundation. Dream DAO raised funds from Near. Celo is popular for climate projects and financial inclusion projects with their mobile first approach, and the Regen Foundation and Climate Collective (Celo) sponsored Refi Spring (local refi events) in its first year.
The Ethereum Foundation does not directly support projects due to their stance on neutrality. However, they recently launched the "Next Billion Fellowship," which mainly provides connections, know how and networking opportunities.
6.3 Crypto Native Fundraising
Issuing coins is one method of fundraising. In the past, we've seen Initial Coin Offerings (ICOs), with many great projects, including Ethereum by Vitalik, raising funds this way.
Then came the DAO token phase in 2021, when most web3 projects transitioned into DAOs by minting tradable governance tokens and issuing them to their community. This served as a means of holding voting rights, ownership and an opportunity for growth with the success of the project. Gitcoin (GTC), BanklessDAO (BANK), and Human DAO (HDAO) all launched tokens in 2021.
Financial tokens are an excellent way to create your own funds to fund your impact.
However, financial tokens are considered securities, and today's regulatory climate has made it challenging to go down the token route unless you're ready to spend $200k+ for registration in jurisdictions like Dubai, BVI, Cayman, Marshall Islands, etc.
Non-Fungible Tokens (NFTs) present another way to fundraise and have proven to be a successful method.
For instance, Dream DAO conducts two NFT fundraisers a year, minting 40 NFTs for mentors who wish to participate in their 'Train GenZ' program.
Pact DAO conducted a Mirror fundraiser. They listed their Pact DAO concept article and minted the article. This was their very first step transitioning into web3 in Sept 2021.
Ukraine DAO minted the flag of Ukraine 🇺🇦 as an NFT to fundraise.
Kift DAO uses NFTs to unlock member benefits in the nomad community. They have various types of NFTs to represent different membership levels.
6.4 New Web3 Fundraising Avenues
Blockchain primitives are being utilized to develop innovative ways to reward impact. Two popular concepts are:
Retroactive Public Goods Funding: This means that the impact will be funded retroactively after it has been delivered. Essentially, you need to fund your own impact initially, in the hope that you can get retroactively compensated. It uses the Proof-of-Work (PoW) primitive. DAO Drops is one such initiative that uses retroactive public goods funding for ethereum users.
I shared my views on retroactive public goods funding in this Twitter thread, which features a great public discourse on the topic.
Impact Certificates: Hypercerts is the most popular impact certificate protocol. It's being developed by Protocol Labs in partnership with Gitcoin and is being rolled out to all Gitcoin grantees. Another impact certificate marketplace is SproutUp.
In my opinion, Hypercerts and other impact certificates currently in development represent fantastic new ways to fund impact. Therefore, I would definitely recommend giving them a try.
Hypercerts represent a novel set of open-source protocols designed to monitor and reward impact through blockchain technology.
When an impact entrepreneur initiates or completes a project (or a phase within a project), they can opt to generate a hypercert. The hypercert essentially functions as an impact claim that delineates the scope of work, the timeline, and the contributors involved. Hypercert can be sold or disseminated by its creator.
During the minting process, the creator may also designate specific "rights" for the hypercert holders, including public display, tax deductions, intellectual property rights, and more. - Carl Cervone of Hypercerts.
Decentralized Fundraising: I'm proposing a concept which I call "Decentralized Fundraising." This concept essentially turns every member of your community into an entrepreneur by incentivizing member fundraising through revenue sharing.
It represents a novel way to fundraise using blockchain/NFT primitives.
For instance, at IDM, our entrepreneurial contributor, Pedro, helped us mint two book chapters on Mirror in the OP token. We raised $250, which Pedro then used to translate the Impact DAO book into Portuguese and present at Eth Samba Brazil, thereby transferring Impact DAO research knowledge into Portuguese.
The concept of decentralized fundraising is explained here.
Legal
Listen to the podcast with Kyle Smith, Legal Engineer Lex DAO. I ask tons of legal questions around DAOs, transferrable tokens. Kyle shares tons of practical insights.
Disclaimer: This article should not be taken as, and is not intended to provide financial and legal advice.
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