A thesis on the future of DeFi, DAOs, and humanity
- The world is on fire, and we need to save it.
- DeFi can fund our world-saving.
- DAOs will do the actual world-saving.
- DeFi needs to unite behind the cause of world-saving starting today, or we’ll still be fucked.
DeFi protocols represent a radically new kind of entity, one that’s almost infinitely scalable in income, and at the same time blessed with the freedom to use that income at will. I claim that yield farming DeFi protocols will be the first for-profit non-state entities in history to be truly charitable.
This is a 4 part series of blog posts on saving the world using DeFi and DAOs.
- Part 0 is context on exactly how on fire the world is. It’s optional if you already agree that the world is on fire.
- Part 1 lays out why DeFi protocols are uniquely capable of funding charitable causes. If you want to be convinced that DeFi can actually save the world, this is the part to read.
- Part 2 talks about how an economy of Impact Certificates, funded by DeFi protocols, can generate startup-level funding for nonprofits.
- Part 3 will be concluding remarks and a call to action.
It’s gonna be a long ride, I hope you enjoy it!
Part 0: The world’s on fire, and we can’t afford water
The year is 2020, and what a year it has been. The coronavirus alone has devastated the world economy and caused hundreds of thousands of deaths, and it certainly has been enough to make the Australian wildfires–where up to a third of all koalas and up to a billion animals have been killed, not to mention people–feel like a distant memory. In the face of these disasters, our governments and politicians have demonstrated just how inefficient, ignorant, and corrupt they truly are, while the robber barons of our age wasted no time to capitalize on the unprecedented human suffering.
|Source: Techspot||Source: The New York Times|
The best part? It’s all downhill from here.
Within the 21st century, climate change will likely spell the end of human civilization as we know it (helpful Twitter thread), killing billions and rendering entire countries uninhabitable, unless our governments tough up on businesses and implement radical measures to reduce carbon emissions and extract existing CO2 from the atmosphere (ha–ha–ha). The inevitable invention of a super-intelligent general AI could help us solve climate change, cure cancer, and establish a post-scarcity utopia, but we still have no idea how to prevent such AIs from killing us all to make paperclips, or how to prevent a future where the rich monopolize AI-powered armies to enslave the rest of humanity for fun and profit.
Oh yeah, don’t forget that in the background, hunger, poverty, war, and lack of healthcare are constantly killing millions of innocents every year. And genocidal concentration camps locking up millions of minorities? Of course we couldn’t let Hitler and those 20th century folks monopolize it.
So we’re all fucked then. Who will be our savior?
Governments, in their current form, cannot be relied upon to solve these problems. Even if we magically got rid of the incompetent baboons running the show now, the way our political systems are set up means that politicians are likely always going to be one step behind technological progress (read the transcript of the 2018 Facebook senate hearing to get a feel for it), so they’re not the best people to put our money in the right places, or to make laws and regulations pertaining technology. Politicians are also mostly in the pockets of big corporations, especially the fossil fuel industry, who are willing to burn the world down as long as it uses fuel purchased from their company. Our politicians are neither capable of making the right decisions efficiently, nor are they incentivized to do so; even if they were both, getting through bureaucratic inefficiencies is another ball of knots to untangle. I could go on, but if you’re in 2020 like me, just look around and you’ll have all the evidence you need.
What about charitable billionaires, like Bill Gates? I assert they also cannot be relied upon. While notable billionaire philanthropists like Gates certainly exist, they’re the exception rather than the rule. While most billionaires do donate to charity, most only donate enough to buy themselves good publicity and keep the people from eating them up. The rich don’t have the incentive to do good for the public, despite what many of them claim. Simply look at corporate tax-dodging: between $54.5 billion and $76.4 billion a year of taxes are avoided by big companies like Apple, Google, and Starbucks every year in the EU alone (source). Meanwhile, according to the IISD it takes only about $11 billion a year to end world hunger. Not mitigate, end. The horrible conclusion, therefore, is that the rich can end world hunger and save millions of lives every year, quite easily in fact, but they won’t. Even worse, Jeff Bezos, the richest man in the world with a net worth of $189 billion, can single handedly end world hunger by donating just 5.82% of his wealth every year, which could be easily covered by profit from his investments: his wealth increased by $13 billion in a single day, more than enough to solve world hunger for a year. Has he?
(To be fair though, according to the IISD report there’s already $8.5 billion per year dedicated to ending hunger as of 2015. It doesn’t excuse the inaction of Bezos & co though, another $11 billion wouldn’t have hurt.)
Civil organizations–charities, NGOs, even crowdfunding websites–have been trying to mitigate the huge issues we’re facing. Intuitively they’re the right people to be solving the issues, since you’d expect that organizations founded for the purpose of helping people and doing good in the world would actually try and help out with stuff, and I agree with that. The fundamental problem with relying on nonprofits is that solving important issues involves making radical changes to the status quo, which puts nonprofits up against the 1% and billionaires who have every reason to maintain the status quo. Even though over $400 billion dollars are donated to nonprofits every year in the US alone, the 1% have hundreds of trillions.
- “The world’s richest 1% have more than twice as much wealth as 6.9 billion people.”
- “By June 2019, the world’s wealth was largely concentrated in the hands of the top 10%, who held 81.7% of the wealth–with the top 1% alone holding 45% of the world’s wealth.”
- “In 2019, the world’s billionaires, only 2, 153 people, have more wealth than 4.6 billion people.”
This is just stupidly broken. Asking the bottom 90% to donate to charities or adopt a low carbon lifestyle in order to fight climate change, is like asking a homeless person to help fight hunger in Africa: too cruel, man.
On a more serious note. There exists an enormous divide between the haves and have-nots, not just in wealth but also in terms of their interests.
- On one hand, the richest 1% have no incentive to save the world from any crisis, even though they could do so, because they will likely not be affected: just look at how the rich are “sheltering from coronavirus in luxury retreats with guns” as the rest of the world suffers. Furthermore, the rich likely even find global crises desirable, as crises are often opportunities for profit; this is already true for the coronavirus.
- On the other hand, the 99% (or maybe the 90%) have every incentive to save the world from crises, since they will be the most heavily impacted (already true for the coronavirus and climate change), but they’re also too poor to actually make any serious impact.
The consequence of this inadequate equilibrium is that the organizations who are serious about fixing the important issues have to acquire their funding from the 1%, who do not want to see these organizations advocating for radical changes that would disrupt the status quo and hurt the 1%’s interests, even though radical changes are often what is needed.
Hold on a minute, you might ask, if we’re giving $400 billion dollars a year to nonprofits, surely the money is being spent somewhere, and it should be enough to solve at least some of the major problems the world is facing, right?
The issue is twofold. On one hand, there are issues that are so difficult that the current level of funding is just not enough. Climate change is a big one: according to this UN report, $5-7 trillion of investments is needed each year in order to achieve the UN’s Sustainable Development Goals. How much are climate change fighters getting? Not a lot. If you look at this US GAO report, “federal climate change funding was $13.2 billion…in 2017”, and “94% of their reported climate change funding went to programs that touch on, but aren’t dedicated to climate change, such as nuclear energy research” (Bureaucratic inefficiency rears its ugly head again). Globally, only over $30 billion has been pledged to “multilateral climate finance initiatives designed to help developing countries address the challenges of climate change” (source). And oh yeah, remember the $400 billion given to nonprofits in the US each year? Only 2.9% of it was given to organizations working on “Environment and animals” in 2017, which is about $11.89 billion. We’ll need to 100x our investments in order to seriously fight climate change.
On the other hand, many nonprofits are working on the wrong things. Not that they’re using their money for evil; the problem is that they’re doing microscopically good but macroscopically inconsequential things.
Again using climate change as an example. En-ROADS is a climate change simulator developed by Climate Interactive, Ventana Systems, and MIT Sloan, and you can use it to explore the impact of different policies, such as carbon tax and energy subsidies.
If you start playing with it, you’ll quickly find that the things many organizations focus on, like planting trees and promoting electric vehicles, do very little to ameliorate climate change, each only able to reduce the temperature increase by 0.1 degrees Celsius by the year 2100. Less glamorous & much more difficult things, like reducing industrial methane emissions and introducing a high carbon price, do roughly 10 times more impact.
The issue, then, is that nonprofits often focus on doing easy things that make donors and volunteers feel better about themselves, rather than difficult but effective things that people often don’t really understand, because it makes them more popular and thus gets them more donors and more funding. Like for-profit organizations, nonprofits also have to face competition, since they require funding and attention to survive. If a nonprofit focused on doing effective but obscure things, like calling for reducing industrial methane emissions, then it would likely get outcompeted by nonprofits doing ineffective but “obvious” things, like planting trees. After nature does her selection, what we’re left with are organizations that are the best at attracting funding, getting news coverage, and making donors feel good about themselves, rather than those who are the most effective at solving the problems. In addition, it doesn’t help that the 1% are incentivized to give their donations to these ineffective nonprofits, since they can get good PR without actually disturbing the status quo and decreasing their precious profits. This leads to another bad equilibrium where even if the money dedicated to solving an issue is theoretically enough, because most of that money goes to ineffective organizations, the issue still isn’t getting solved.
In order to address this issue, we need to shift the process of natural selection among organizations to one that optimizes for effectiveness. We need to increase the level of coordination among organizations, perhaps even merging many of them, such that they no longer have to face intense competition for attention and funding. We need to change the landscape of nonprofits.