Can DAOs be a game-changer for environmental conservation?

You may have heard stories about DAOs. A DAO tried to buy an original copy of the United States Constitution. Another DAO wants to buy an NBA basketball team. From nowhere, these new crypto-based organizations that few people understand are out flaunting their money and raising millions in short periods of time for esoteric causes. DAOs have our attention, and for anyone concerned with conservation, we rightly ask ourselves, can DAOs be a new vehicle for conservation?

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The first question is: what is a DAO?

DAO (DAO rhymes with cow, but some people still say D-A-O) literally stands for decentralized autonomous organizations, but as a16z says, “In practice, not all DAOs are decentralized or autonomous, so it is best to think of DAOs as internet-based organizations that are collectively owned and controlled by its members.”

DAOs in other words represent new types of organizations that exist on the internet, and maybe their closest physical-world equivalent is workers’ collectives.

Unlike real-world organizations, DAOs exist on the Blockchain, meaning that setting one up requires code rather than paperwork, notary publics, business identification numbers, bank accounts, etc.

As a result of existing on the internet, they’re fairly easy to set up and fund: within a few minutes anyone can create a DAO and start selling the DAO’s tokens, which are somewhat similar to shares. How DAOs interact with the physical world is still being defined, with Wyoming being one of the only jurisdictions in the world to recognize DAOs.

In the crypto world, DAOs can take different forms. For example, some DAOs exist specifically to collectively invest in things like NFTs or crypto tokens. Other DAOs exist as the governance structure for collectively-built software projects. DAOs can do anything on the internet that normal organizations can do in the real world, only they’re governed through collective ownership.

Since most DAOs exist on Ethereum almost in the same way that apps appear in an app store, you can in theory set up a DAO in 10 minutes.

Participation in a DAO is represented by owning the DAO’s token. The number of tokens you own can represent your total percentage ownership of the DAO, but governance does not necessarily follow the one-person-one-vote structure or one-token, one vote.

In large organizations, assigning one vote per token can give too much power to too few people, while one vote per person can give too much power to people not properly invested in the DAO’s success. DAOs therefore often use a system called quadratic voting to make decisions, which basically allows DAO members to express the intensity of their preference for a certain topic.

Some decision-making in DAOs is built into the DAO’s code, similar to how organizations have bylaws. These laws are often called Smart Contracts and represent automated decisions based on certain things happening. How new DAO tokens are created, for example, represents an example of a smart contract. To summarize, if we think of organizations as human collaboration governed by contracts, DAOs are human collaboration governed by code.

So why would anyone choose to use this strange internet structure for conservation?

The primary benefit for conservationists is that when you create a DAO and sell the DAO’s tokens to raise funds, instead of asking for donations, you’re selling an asset whose value can increase or decrease over time, representing an alternative to donation-based conservation models. In other words, a DAO allows conservationists to solicit investment, rather than donations, harnessing the power of good capitalism to fight the ugly side of capitalism. So how exactly would a DAO for conservation work?

Imagine, for example, I set up a DAO to buy land in an environmentally sensitive region off the coast of Ecuador that is under threat from loggers and industrial shrimp farmers.

Imagine that I need $3 million USD to buy all the land I want to conserve. I set up my DAO on the Ethereum blockchain and I develop the smart contracts, including the DAO’s rules for governance.

Maybe one of those rules is that, if the land is ever sold for commercial purposes, the DAO has to return all of its funds to investors.

Because DAOs are only legal in Wyoming and I need a legal vehicle to purchase land, I register my DAO in Wyoming. Then, if Ecuador doesn’t allow foreign organizations to directly own land, I set up a company or a foundation that belongs to the DAO and can act as the local land-holder.

Because I need $3 million USD to purchase the land, I create one million tokens and set an initial price of $3 apiece. Another option would be to create a token price that corresponds to a hectare of land. Because my DAO is built on top of Ethereum, I am quickly and easily able to sell my DAO shares on crypto exchanges like UniSwap. Since the initial tokens belong to the DAO, the DAO can insist on its $3/token price.

Once others have the token, the value of the token can increase or decrease based on supply and demand. If people think my project is fraudulent, the price may decrease. If people believe in the project, it may increase over time. What’s particularly attractive about the DAO model is someone can spend as little as $3, or as much as $3 million. With no papers to sign o ACH bank transfers to make, the process of purchasing tokens is frictionless. Once all of my offered tokens are acquired, I can convert the proceeds into USD and proceed to purchase the land.

Now that we understand the basics of DAOs, it’s worth mentioning some of the other issues we’d have to solve.

For example, we’d have to figure out the governance and voting mechanism of the DAO; in other words, we’d have to program how the DAO makes decisions.

Then, we’d have to formalize the relationship between the DAO and the local entity, ensuring there are no loopholes that could allow for fraud.

Also, the DAO would have to decide under what conditions it would issue new tokens. If the DAO can issue new tokens on a whim, for example, the value of each individual token could easily decrease. If the DAO wants to raise more money to buy more lands, it should have a collective decision-making process to do so.

The DAO will have expenses related to the management and protection of its land-holdings: it may choose to sell tokens to finance its operations. If so, funding such expenses needs to be approved at the DAO level. Unlike NGOs that have no imperative to open their books to the general public, DAOs are built with a level of transparency that is meant to make it easy to see how funds derived from token purchases are used.

Finally, in order to be attractive to investors, how might the DAO add value over time?

Maybe the DAO has rules that commit the organization to develop carbon and biodiversity credits within the land-holdings which can later be sold to buyers (i.e. organizations) looking to either compensate for carbon emissions or meet certain commitments to protecting biodiversity.

Maybe the lands can produce a certain amount of food while enhancing, rather than depleting, the ability to sequester carbon, and that food can be sold in local markets.

Maybe the DAO also has a built-in revenue share with local communities for its different revenue streams. For example, if the DAO is able to generate $1,000,000 USD in the sale of carbon offset credits, $500,000 USD will be distributed to the local community, and $500,0000 will be returned to the DAO treasury in order that the DAO can buy more land.

Maybe when the DAO is launched, local communities are surveyed and individuals are assigned a crypto wallet such that any funds paid for carbon credits are immediately deposited in the wallets of the locals thanks to a smart contract.

Maybe a smart contract takes available satellite data to confirm the area has suffered no deforestation and pays out a fee to the locals every hour on the hour for protecting the land.

With the DAO now generating cash flow, maybe the $3/token looks cheap, and the value increases to $6-$9-$12/token. Early buyers are rewarded, and the DAO now has the means to finance its continued operation.

With earning potential, the DAO for conservation is no longer interesting only to conservationists, but also to investors looking to turn a buck. As the DAO organizers, we’re agnostic as to where the money comes from, so long as it allows us to continue to pursue our goal of conserving the land.

One of the main uses of DAOs today is to buy digital art, meaning NFTs. There’s therefore no reason that a DAO couldn’t be used to purchase land. Of course, there are lots of potential problems.

Will a big buyer funded by the international community create distortions in the local market, unwittingly hurting the people it sets out to help? Will local governments respect the property rights of the DAO? What happens if the lands are later expropriated to form a national park? What happens if illegal loggers invade the lands and begin clear-cutting? Anyone with extensive experience in the global south knows that all of these scenarios are possibilities. It’s likely impossible to account for all risks within the limits of a forward-looking smart contract.

Everything we’ve said up until this point may sound easy, but it’s not enough for a conservation project to merely exist as a DAO; it needs to be marketed to be successful, and marketing means building an interested and engaged community.

To be successfully marketed, a conservation DAO requires both reach (getting to as many people as possible) as well as credibility (who is behind the project and why should we trust them?).

In addition, as many traditional donors don’t understand DAOs, the conservation DAO will have a lot of explaining to do.

Having said that, DAOs, in theory, require less trust than say an NGO. A DAO’s funds are meant to be spent in a transparent manner such that anyone can audit the project and identify potential wrongdoing. NGOs, on the other hand, have less accountability; their financing can be opaque and their overhead can eat a significant chunk of their donations. I’m speaking in generalities, but it’s safe to say that in their design, DAOs can be more transparent than NGOs, thus providing greater accountability.

Whether or not DAOs can be a vehicle for conservation depends on how they are designed to interact with the real world.

Most banks, for example, are required to comply with “know your customer” verification, meaning they have to be able to verify the identity of the individual whose money they are handling (in practice we know that a lot of illegal activity occurs without banks really knowing who’s behind certain accounts).

Crypto wallets can be anonymous, and it may therefore create a regulatory tension for banks to manage DAO funds.

Hard-core crypto believers will say that crypto negates the need for banks; practical conservationists know that banks will likely be necessary for certain transactions.

Lastly, technology and crypto trends tend to follow a boom, bust, and disrupt pattern. If a number of conservation efforts are successfully launched as DAOs, there may be a speculative boom followed by a crash in which the value of the DAOs’ tokens falls below the value of their landholdings. We’re still early in crypto; there are a lot of problems yet to be solved.

No doubt there will be some people that object to DAOs for conservation because their discomfort with capitalism is greater than their sense of environmental urgency.

As an unapologetic optimist, I am hopeful DAOs can succeed in becoming new vehicles for conservation. As a realist, I have no doubt that a number of nefarious actors will take advantage of the trend and that a lot of unintended consequences will be discovered along the way. Nonetheless, the potential is real: if we want to save the planet, we need to build things, including new models. As Brian Shatz says:

Capitalism is not evil; capitalism is indifferent. If people can make money protecting the planet, capitalism will oblige. What’s more: we have to recognize that the existing models of NGOs and government lobbying are not enough to, on their own, save the planet. We need new models, and DAOs can be the start of something.

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