Experiments with grant-making in web3
Being CTO of a large community of nonprofits means that my team can explore the frontiers of technology. I’m excited to announce that Stand Together will be launching two new experiments in decentralized technology, known as web3, alongside our partners, The VELA Education Fund and Sky’s The Limit. We believe that emerging web3 technologies have the potential to encapsulate our principles into software, making philanthropy a more bottom-up process.
Although many people see the wild side of web3 as NFTs and cryptocurrencies, my team at Stand Together has focused on web3’s potential to coordinate large groups and distribute capital more efficiently than ever before. In this post, we’ll describe why we think community grant-making is a perfect web3 use case, why we think building in web3 drives innovation in philanthropy, and show how these experiments put our principles into action.
Community knowledge in grant-making
Grant-making nonprofits do just that: they give out grants.
The organizations raise money from donors, accept applications from potential grantees, and then go through an internal, top-down process to decide whether to give money to the grantee. A well-run grant-maker will track how well its grantees perform and use those data points to improve their selection criteria and process, thus amassing a certain kind of domain knowledge.
Here at Stand Together, one of our guiding principles is that we prefer bottom-up solutions rather than top-down solutions. Under what conditions could grant-making become a more inclusive, democratic, and bottom-up process?
Imagine that, instead of a centralized organization making decisions, we outsourced that decision-making to the community; and delivered superior results.
To make this more concrete with examples, let’s introduce our partners.
VELA Education Fund was launched in 2020 to accelerate education innovation. They’ve given out thousands of micro-grants from $2,500 to $10,000 to educational entrepreneurs, whether that’s students, families, educators or community members. VELA was inspired by the Fast Grants model pioneered by Tyler Cowen and Patrick Collison with the theory that the grant application process should be simple and straightforward and that it’s better to support many innovations and back the ones with the most promise.
Right now, VELA is distributing millions of dollars every year with a tiny team. Not only could they scale up more quickly by letting the community decide on grants, they hope that the community will strengthen the proposals by integrating local knowledge, leading to more impactful investments. After all, those that are closet to the problem are the ones with the best solutions. (If you want to geek out, I strongly recommend reading Hayek’s classic paper, “The Use of Knowledge in Society,” whose knowledge problem was inspirational in this project.)
Imagine that there’s a proposal to improve STEM education through outdoor activities. After that proposal is submitted, other STEM education experts in the community weigh in and the proposal morphs into something stronger based on that feedback. After that feedback is integrated, the community votes and decides to fund the proposal. Perhaps even those who had lent their expertise then follow the project and continue to support even after the grant has been made, creating peer-to-peer connections and increasing the likelihood of success.
We still have to work out the details, but that’s exactly the kind of system we want to build for VELA. Someday, VELA hopes that all grant-making decisions are made by the community.
Our second partner is Sky’s the Limit, a nonprofit that empowers underrepresented entrepreneurs, primarily by connecting them with business mentors. They also help entrepreneurs access startup funding by giving out a $2,500 grant every month from a “Friends & Family” fund, which has distributed over $300k in startup grants. To decide who receives grants, Sky’s the Limit uses mechanisms in their web2 community to accumulate points, and those points can be used to vote on entrepreneurs’ pitch proposals. The proposal with the most votes wins.
Sky’s the Limit believes that when people feel more ownership over their communities, they are more likely to take care of the community. Their innovative point system aligns incentives so that the members who create the most value for others in the community have the most say in who wins the grants. In Sky’s the Limit’s case, they want to increase the size of their grant fund, give out many more grants, and create a real sense of community ownership, while incorporating the expertise of their entrepreneur and mentor community.
Fun fact: in 2018, Sky’s the Limit designed, built, and launched a private blockchain on IBM’s Hyperledger fabric in partnership with and funded by Accenture’s Blockchain Labs. That experiment was years ahead of its time.
We all believe that the time is now for web3, so we’re going to build some experiments to bring community knowledge into the grant-making process.
Why build in web3?
You don’t need to be a web3 expert to understand the problem we’re trying to solve, but it’s important to understand the basic concepts of web3 to appreciate why we’re so excited to experiment at the bleeding edge of technology.
At its core, web3 is a collection of technologies that allow for decentralized coordination. You’ve probably heard of — and maybe even own — cryptocurrencies like Bitcoin. What makes Bitcoin so remarkable is the system to verifies who you are, how much money you have, who you are sending it to, and executes the transaction — all without a central authority blessing the process. Bitcoin is truly digital cash. Contrast this with making a payment with your Visa card. You have a physical card that you tap onto a machine, which sends a signal to Visa’s centralized system that authorizes you to spend that money with that merchant.
Core to making cryptocurrency work is the ability to establish trust digitally. The mechanics honestly don’t really matter unless you’re an entrepreneur or developer. What’s nifty about web3 is that it decentralizes coordination in many domains , not just money. This will challenge our notions about how humans exchange value, assign value, and organize ourselves. If that sounds abstract, it’s because web3 is a general-purpose technology with many different specific applications. As such, web3 has the potential to be really big.
In the case of decentralized grant-making, we are going to use a web3 theme about reshaping organizations: the Decentralized Autonomous Organization, or DAO. In a DAO, all decisions, including how a DAO is governed, are made by the community, making them inherently bottom-up.
A key use case for DAOs has been distributing capital. The Constitution DAO raised $41 million to buy (though unsuccessfully) a copy of the US Constitution and Ukraine DAO raised money to help the people in Ukraine. We were particularly inspired by Big Green DAO, a web3 experiment connected to Kimbal Musk’s Big Green, focused on local food sustainability. Big Green DAO allows the community to make grant decisions and has been evolving its governance over the past year. These early initiatives have shown us how web3 tools have made it easy for thousands of people collectively to raise and distribute millions of dollars.
The reason we decided on using a DAO rather than building in more traditional “web2” technology is:
- DAOs are focused on distributed coordination — DAOs are experimenting with how to coordinate a large number of people on a single problem. We face this very problem every day, and solving it is critical to our success.
- DAOs have a standard software stack corresponding to our needs — many DAOs raise a treasury, accept proposals, debate proposals, vote on proposals, and distribute funds. These are the functions our partners need.
- The DAO community is innovating on governance — DAOs are trying to coordinate hundreds and sometimes thousands of participants, they are innovating on all kinds of distributed governance structures. We will benefit from what the DAO community has learned already. Plus, we believe that the principles of human progress and liberal democracy will help inform DAOs innovations.
Through our experiments, we hope to demonstrate a real use case for web3 technology in philanthropy.
If you’re still not convinced on web3, don’t worry. Our biggest opportunity in these projects is to create an experience layer that makes it easy for everyone to interact with — and benefit from — web3.
Like any experiment, we are excited about the potential but humble about what we still don’t know. Web3 truly is a new frontier and we have a suspicion that philanthropy could be a major web3 use case, but that’s a thesis that needs to be proven.
If you’re a member of the web3 community and would like to support these projects either with your brainpower or by donating to the treasuries, we’d love to hear from you. And, if you’re a nonprofit who is considering a web3 experiment of your own, please reach out to us so we can compare notes.
Lastly, a key part of the web3 ethos is transparency. Expect us to report out regularly on our progress with both projects.
Oh, maybe most importantly, my team is hiring. We’re currently looking for a web3 product manager and a web3 futurist, in addition to a few other roles on my team (UX designer, Director of Product Management, & Senior Product Manager). If you’re a technologist who wants to apply your skills to the social sector, reach out for a chat. My DMs are open.