The Web3 Playbook for Nonprofits

What’s the big story?

First, there is Bitcoin ($BTC), the original cryptocurrency. Bitcoin remains the most valuable. Bitcoin’s adherents span institutional investors to supporters who see it, more or less, as a perfect form of gold, an asset that can be a universal store of value without the undesirable characteristics of gold (e.g., volume, quality). Bitcoin is, in essence, a form of digital gold.

Exchanging Celo EUR stablecoins for USD stablecoins on Ubeswap

So what is Web3?

Web3 is the ecosystem enabled by blockchain technology, smart contracts, and crypto-economic incentives. Web3 includes, but is by no means limited to, non-fungible tokens (NFTs), decentralized applications (dApps) and protocols, and decentralized autonomous organizations (DAOs).

Non-Fungible Tokens (NFTs)

NFTs (non-fungible tokens) represent unique digital assets. They are currently used to create tokenized versions of digital art on such marketplaces as OpenSea and SuperRare.

Cryptopunks
Poolsuite membership NFT

Decentralized Applications (dApps)

Decentralized applications (dApps) and protocols are the applications that are hosted on blockchains, including financial services, marketplaces, social media, games, and network utilities.

NFT Marketplace OpenSea
Metamask Wallet

Decentralized Autonomous Organizations (DAOs)

Decentralized Autonomous Organizations (DAOs) represent a new organizational form that uses smart contracts to manage contractual obligations and decision-making through on-chain governance, i.e., member voting recorded on the blockchain.

Wait, why is this important, again?

Web3 creates new economic, social, and cultural value. This technology is important because it reduces costs on an unprecedented scale, provides improved tools for social organizing, and transforms our relationship to technology and data.

Nonprofit uses and benefits

Nonprofits stand to benefit from developments in this technology in four areas.

  • Fundraising
  • Programming
  • Finance
  • Governance

Fundraising

Opportunities exist in donations, partnerships, and Web3 engagement strategies. Donations can be denominated in cryptocurrency, which your organization can exchange for US dollars, exchange for another cryptocurrency, or leave on deposit. Web3 native companies, such as exchanges, are eager to partner with nonprofits, as many have similar interests in positive social outcomes as nonprofits. Finally, there are Web3 enagement strategies, such as NFT auctions.

Finance

There are a number of different applications that can improve operational efficiency. Vendor, Staff, and Volunteer payments may be more efficient and less costly using stablecoin technology, especially at scale or across borders. There are cash account management strategies that can lead to higher interest rates on deposits. There are opportunities for innovative finance products, such as social impact bonds or donor-advised funds.

Programs and Service Delivery

For programs and service delivery, initial applications existing in economic development, direct cash aid, and possibilities exist for nonprofit banking services, credentialing, identification and civil registry, and municipal service management.

Governance

There are several Web3 native solutions to organizing and funding for social impact. Nonprofits can consider the benefits of organizing as a social impact DAO. Nonprofit entities can use tokenized membership and on-chain voting to record decisions and specify funding. Quadratic funding is Web3 native idea that enables fairer funding practices for public good financing.

Criticisms

While there are transformational properties of this technology, it does come with criticism.

Risks

There are also risks in dealing with cryptocurrencies that nonprofit organizations should be aware of.

The 3 step Web3 action plan

Now that you have the background understanding and have some idea of the areas your organization can benefit from, you are ready to be a Web3 champion.

  • Fundraising
  • Programming
  • Finance
  • Governance
  • List materials to prepare
  • List people to meet plan and align with
  • Document steps to a pilot

Final Thoughts

There is substantial innovation in the Web3 space. It is expected to grow significantly over the medium term. Nonprofit and civil society leaders should understand how this technology is affecting our greater society and business and how the use of blockchains can impact fundraising, programs, finance, and governance. The Web3 industry has many grant funding opportunities available to expand nonprofits’ capabilities in this area.
The ethos and technical implementations of decentralization, democratic governance, and transparency built into Web3 technology should appeal to mission-driven organizations seeking to empower their clients and serve their donors.
Top Web3-native companies are community first. Defi offers the possibility of ultra-low-cost financial services, which can improve the reach, scale, and productivity of capital in the most challenging places and for the most underserved communities, including those living in extreme poverty. DAOs offer new, transparent, democratic organizational tools and structures.
Organizations driven to empower their clients should be aligned with these aims and values, support the development of the Web3 industry, and work to understand how the uses of Web3 can improve fundraising, payments, programming, and financing.

  • Web3 enables ultra-low-cost operating models for services
  • Web3 enables transparent, democratic organizational governance
  • Web3 offers new ways for donors to engage and support social impact
  • Web3 can benefit nonprofits with new fundraising, programs, finance, and governance capabilities

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Daniel Coughlin

Daniel Coughlin

Director of Data Insights, Systems, and Architecture for the International Rescue Committee.