The existing charity structure is inefficient in its deployment of capital as it goes by the following equation:
$1 worth of value by way of donations is converted to $1 worth of value minus administrative and logistical costs of providing value.
Reducing administrative and logistics costs means more value to receivers of charitable efforts.
Here I describe a novel approach to funding charitable projects via a decentralized autonomous organization (DAO) where funders retain agency in the allocation and management of the funds they provide. This provides a greater incentive for funders to donate as they can ensure the impact of their donations. Further it allows for a long tail of small project to be run where the costs of administration would otherwise be too high to justify (e.g rabies vaccination and sterilization of 10 homeless dogs in some area or the hosting of 5 after class maths tuition lessons in an under resourced school).
Such a structure will reduce the administrative burden on charitable projects allowing for more efficient allocation of resources.
The system could be considered an improvement on current charity based crowd funding platforms in that projects have to produce deliverables to obtain the funding allocated to them, thus funders act as project supervisors. Further, it uses its pool of project supervisors to manage donations by funders who do not wish to manage their donations (they want to donate and forget). Still further, the use of a DAO removes the requirement of any corporate governance and compliance overhead.
User onboarding: A funder registers an account and verifies their identity. The funder then credits her account. From here she may allocate funding to a specific project, allocate funds to a general pool for management by others (see below) or allocate funds to a sector pool (eg. health care or education) for management by others (see below) or any mixture of the above.
Funding projects: Doners specifically allocate the funding to projects they see as being valuable. Projects are required to have a minimum funding requirement and a amount to ensure project is viable but is also not over funded. Project needs to obtain its minimum funding before the funding deadline is reached or reach its hard cap for project to obtain ‘in progress’ status (otherwise ‘rejected’ status given). When in ‘in progress’ status, funds are held in reserve for the project but the project does not yet receive the funds.
Project deliverables: Projects are required to demonstrate deliverables to funders before funds can be received (as a reimbursement of the project expenses). This way funders are able to manage projects, take greater risks on projects and are able to ensure in a decentralized manner that only honest projects are funded.
Once the project is completed it moves from ‘in progress’ to ‘assessment phase’ where it is required to provide proof of services rendered. Using the examples mentioned above a local vet could provide a certificate for the vaccination and sterilization of the 10 dogs and a school principal could sign a letter indicating that the math lessons took place. Funers then vote to approve or deny release of funds. Voting requirements may involve requiring some majority percentage of doners to vote (eg. 80% of funders need to vote to release funds) and some percentage of funds (eg. funders contributing to at least 70% of the total funding amount need to vote). What should be done if insufficient votes are provided? The project is taken to Aragon style court to decide? Voting period extended? Notifications sent to voters? Call to random other members of DAO to vote?
Contesting deliverable: Once deliverable have been proven and majority vote to grant funds is passed. A contestation period is entered into where any user on the DAO may contest the deliverables. Any user may contest the project. A deposit is paid by the user contesting the deliverable. The project is required to match the deposit (should deposit made by user and project be proportional to amount of funds project required, this would dis-incentivise trying to cheat for a big pot as there would be more to lose and would incentivise users to inspect well funded projects more closely). The matter is then determined in an Aragon style court where the winner receives both deposits. Should the project lose the court case the funds allocated to the project are returned to the funders.
Members of the jury for the court may be obtained from DAO users at random.
Over payment for a deliverable should also be contested. This prevents a situation where a user funds her own projects in order to increase her contribution percentage and take control over larger percentages of general pool funds.
Contesting may result in all funds confiscated from project or a lesser amount given to project as may be suggested by the contesting party.
Adding a general pool: User may divide donation between DAO general pool and user account (between 0 to 100% allocated to user account by user, remainder given to general pool).
The funds allocated to the general pool are divided (say monthly) among all users of the DAO in proportion to the total amount they have allocated to successful projects over the entire existence of their account. For example if Alice allocated $1000 to a project which was completed successfully and the total amount allocated by all users to all projects was $1m then Alice would be able to spend 0.1% of all funds donated to the general pool for the previous month. If Alice feels there are presently no project she is interested in then she may defer the 0.1% to the following month. If Alice does not spend or defer the general pool allocated funds allocated to her, the funds will be allocated to other users for spending (to ensure active participation and prevent pools of funds becoming unused).
Funds allocated from general pool by users do not count toward their total contribution amount (as this would cause a centralizing feedback loop).
Adding different sectors: The DAO may cover various charitable sectors for example human health, education, animal welfare, environment. A separate general pool may exist for each sector. This allows users to specialize in specific sectors. For example if Bob has donated and allocated 20% of all funds to successful educational projects he would receive 20% of the general pool funds to spend in this sector. Bob may be an expert in education philanthropy but not in animal welfare, he should therefore not be permitted to spend general pool funds he receives for his work in education on animal welfare.
Adding reputation: Project proposers may earn reputation points for the successful completion of funded projects. The reputation may be in proportional to the size (measured in funding received) of the project (eg 1 reputation point per $1 of project funding). Loss of reputation for a project which failed to deliver should be some multiple of project funding (e.g -2 reputation points per $1 of project funding). A greater loss of reputation may be appropriate where a user contested the successful project and the project lost the case. Reputation may be sector specific.
Miscellaneous: To prevent spamming, a project proposal fee is charged which is sent to the general pool.
Projects may reasonably add a fee for administering the project and cash flowing. A better alternative would be to have multiple centralized organizations available which cash flow charitable projects at zero interest. The centralized organizations may be in a better position to evaluate projects for provision of at risk funding. The centralized organizations may look at the reputation of the project proposer for guidance.
The system I could find which most closely resembles the above can be found at DAOstack built on Ethereum.
