Tech

ConstitutionDAO’s bold crypto bid for US Constitution falls short

There are 13 surviving copies of the original print of the U.S. Constitution. Today, a decentralized autonomous organization (DAO) announced it lost its bid to buy one from art dealer Sotheby’s after a high-stakes bidding war that captured the internet’s attention. Still, the bold ascendance of the DAO, a group of people who met on the internet, is a unique case study into the art of on-ramping swaths of people into crypto, one meme and auction at a time.

After a brief flurry of excitement on Twitter, where some members of the group mistakenly announced they had won in a live Twitter Spaces chat, the group released a statement saying it had lost after all. The group “broke records for the most money crowdfunded in less than 72 hours,” per the statement.

One organizer said in the group’s Discord channel that it lost because it had not raised enough money to establish a reserve required to maintain and care for the document on an ongoing basis. Participants in the ConstitutionDAO will be able to get their money back, minus gas fees, according to the group. Given the fact that there are no governance tokens that have yet been given to participants, the return of money could be further complicated if some members want to remain in the group.

Austin Cain and Graham Novak, two 25-year-old Atlanta residents working in finance, first started a Discord chat to launch the effort, which now has more than 8,000 members. Within a week of launching, the DAO raised over $40 million worth of ETH on Juicebox, an early stage DAO platform.

The effort, largely spun up through Twitter and a ballooning Discord server, is a window into what a community effort could look and feel like in a Web3 universe, where shared ownership and transparency are guiding principles. The opportunities presented by the DAO structure are sparking widespread interest — the value governed by DAO treasuries is now at over $6 billion, per some estimates.

Last week, Daniel Monteagudo got a message at 7:57 p.m. from a friend asking if he wanted to hop on a call in three minutes with other people who wanted to buy the Constitution using ETH. He finished up the movie he was watching, hopped on the phone and decided to support the cause: he’s thrown $1,000 of his own money in so far, and currently runs the Twitter account for ConstitutionDAO.

Unlike most DAOs, ConstitutionDAO is not token-gated, meaning that someone who joins the Discord for the community doesn’t need to have made an investment in the organization. It’s different than say, a Bored Apes Yacht Club, in which users have to be able to afford one of the pricey NFTs in order to get access to the members-only community.

”It’s been really weird,” Monteagudo said, of the momentum of the project so far — which has attracted over 19,000 members, including Grimes, to join the DAO. “But I think people are excited at the prospect of raising a ton of money really quickly to mobilize action for a specific goal.”

Using a third-party dashboard, Monteagudo estimates that 13% of contributors to ConstitutionDAO are using ETH for the first time. The same platform indicates that about 44% of people who have contributed to ConstitutionDAO have less than 40 transactions to their name.

The thrill of onboarding people into crypto is thus an exciting side effect of ConstitutionDAO, as theatrical as it may seem. It’s giving people a way to understand the impact and feel of a decentralized community, while also appealing to their emotions in a way that the U.S. Constitution might be able to over a work of abstract art.

“DAOs help large groups of people work together from all over the world. Companies can do that, but they tend to take a long time to get set up and it can be difficult to pay people across borders,” he said. “With DAOs, it’s easy to create a worldwide organization.”

The slew of fresh users may be exciting, but it also means that someone has the responsibility to educate the crypto-new on where their money is going — and if it’s even going to come back. Early on, for example, the ConstitutionDAO team had to change their pitch from “own a piece of the Constitution” to “you will get governance tokens” so contributors would understand exactly how their money would be spent.

“I just think that because the Constitution is the reason that many people — let’s say 3,000 people, have gotten into crypto, then I kind of feel responsible for making sure they do it well,” Monteagudo said

Upstream founder Alexander Taub wants to do away with the term “DAO” altogether; instead, his company is taking a page out of the Dapper Labs book and renaming the structure to “collectives.”

“We’re not reinventing the wheel. Pooling money with friends has happened for a long time, paying dues with communities has happened for a long time,” Taub said. Instead, DAOs are a bet by individuals who want one of two things, the founder continued: to make money, or to gain a sense of ownership and transparency within a community. The latter piece, while more promising, feels “less researched, talked about and discussed right now.”

It’s part of the reason Upstream announced today that it is creating a platform to offer DAOs-in-a-box. He envisions a world where collective members can contribute money into a shared ETH wallet, write proposals for how money should be used, vote on decisions and choose delegates to have more voting power within the community. By creating a full stack spot for people to set up DAOs, Taub thinks that there will be more clarity around governance and compliance.

“The Upstream collective is going to be a lot of people’s first time in a DAO and using a Metamask wallet, Ethereum and getting comfortable with it,” Taub said. “It’s a good thing in general for more people to understand the future of how money is going to move because we’ve crossed the chasm.”

Upstream is just one of multiple startups that have entered the fray to accelerate DAO development recently. Andreessen Horowitz backed DAO tool builder Syndicate in August, and Utopia Labs raised $1.5 million for a DAO operating system in October.

While groups like ConstitutionDAO embody promise for DAO proponents of the emerging structure, they are not immune to the critiques commonly leveled against new crypto technology. Some view ConstitutionDAO as just another stunt purchase, pointing out the vast number of alternative uses for the millions of dollars spent on buying the document.

Attention-grabbing schemes have helped people understand the power of new technologies like NFTs, but they aren’t and shouldn’t be the sole allure of crypto. That said, as it often is in the early days of a new technology, an event that appeals to those who aren’t crypto-fluent can be useful for education, albeit imperfectly so.

Beyond organizing to bid on rare historical documents, DAOs have a wide range of potential use cases. There are creator DAOs like Mirror that allow people to fractionally monetize their work and projects like PieDAO that use the structure to make business decisions similar to the way a corporation would. Most prominent DeFi (decentralized finance) lending platforms, like Uniswap and AAVE, are governed by DAOs.

Some established DAOs that launched with the purpose of making a one-off purchase have since widened their scope. PleasrDAO, for example, was originally formed to buy a Uniswap NFT artwork, but has since made inroads into DeFi and launched an incubator. Because it has gained so much traction and attracted copious resources, ConstitutionDAO could easily do the same.

Taub envisions potential long-term uses for DAOs that could serve the public interest — for example, in local government, where residents of cities could vote directly on how the treasury’s funds are used. But Taub also acknowledges that their newness and association with a notoriously homogenous, white, male Web3 community mean that DAOs have a long way to go.

It’s worth noting that the governance token structure underpinning many DAOs assigns voting rights based on how much money each individual has donated. ConstitutionDAO will likely sport this structure in the future, although ConstitutionDAO’s Discord chat is open to all for now. So while DAOs do provide transparency and ownership, it might be a stretch to call them democratic, as those who can’t afford larger stakes will not have the same level of say over the group’s decisions.

And like with other emerging Web3 technologies, DAOs facilitate huge transfers of capital with little formal oversight or regulation. Those who are attracted to the vision of community they offer may still harbor anxieties about losing their money or falling victim to fraud.

Joining a DAO can come with huge risks, given the regulatory grey area in which they exist today. In most U.S. states, DAOs are not governed by a concrete legal structure, so protocol developers and participants hold heightened liability compared to shareholders of regulated corporations.

Until these hurdles have been surmounted, DAOs are likely to center around social groups and niche communities like ConstitutionDAO rather than providing any material threat to entrenched corporate and societal structures. But once the infrastructure exists, DAOs could transform from groups of crypto-curious users buying niche items and having fun on the internet to serious collective entities that act like companies but can be more nimble and inclusive in their decision-making.

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