Thoughts on Blockchain Based Non-Profit Funding Mechanisms. Not Financial Advice.

Non-profit sustainable business models can be difficult to achieve. The majority of non-profits are dependent on individual donors, grants and partnerships with other non-profits. As discussed in Gregory and Howard’s article (2009) many of today’s funding mechanisms have a “strings attached” funding model. The non-profit is required to match the funder’s requirements and return monies that are not used according to the proposal accepted by the funder. These stipulations sometimes make it difficult for the non-profit organization to focus on its mission. These problems often leave non-profits struggling to make it (Gregory & Howard, 2009). Highly variable monthly donations or revenue can make it difficult to retain top talent and create cultures that help to train the next generation of social entrepreneurs. Typical non-profit funding models seem to be connected to three main types of transactions 💸:

1. Forced transactions (taxes, fines, etc.),

2. Mutually beneficial transactions (trading for goods, services, assets, etc.),

3. Charity transactions (donations, grants, and partnerships).

Non-profits often focus on charity transactions by creating a narrative around a specific need, problem or social gap. Many times, the charity transaction is required because the systems that are funded by the first two transaction types failed. Considering the difficulties previously outlined, how can non-profits build a sustainable funding model that allows for growth?

The solution is the 4th transaction. The 4th transaction is a hybrid transaction that combines transactions 2 and 3.

MUTually beneficial + CHarity = MUTCH

By combining these two transaction types both transaction participants can experience a MUTCH greater benefit. Non-Fungible Tokens (NFT) collections are a possible method for creating MUTCH transactions. The NFT allows buyers the opportunity to reap the financial gains of an NFT investment and indirectly contribute to the public/social good that NFT promises to fund. Additionally, the NFT collection owner is easily audited because all transactions are publicly available on the blockchain. The NFT collection owner can easily manage this disbursement with a splitting contract such as moneypipe, developed by Skogard. The final aspect of this transaction is a donation given to the charity of choice. A service like every.org can be used to convert cryptocurrencies directly to USD. The following figure demonstrates an example of how this could work.

The group address represents the splitting contract. Zerobeings.eth represents the NFT collection owner. The address for Hope NLC is an address storing the allocated funds promised to donate to Hope NLC.

There are a number of NFT communities that have been leading the way in this area. One example is, RainbowRolls.eth. RainbowRolls.eth is structured to support three specific organizations: Gitcoin, Giveth and RIP Medical Debt. Gitcoin is focused on the advancement of web3 development and education, Giveth is a platform that rewards you for supporting various social good, and RIP Medical Debt is a non-profit that works to completely remove people’s medical debt. It’s incredible to see one NFT Collection doing so much good, amazing work!

One of the current challenges with this funding model is NFT adoption. According to Murphy and Oliver’s research (2021), the total number of NFT holders in November of 2021 was around 360,000 for ERC721 and ERC1155 tokens (Murphy & Oliver, 2021). The NFT market is technically challenging and full of risks. Setting up a wallet for the first time can be intimidating. Additionally, there are many people taking advantage of FOMO & hype in order to scam and steal assets. As new NFT holders enter the marketplace there is a need for education around wallet management.

Perhaps onboarding beginners with the following wallet management workflow could be helpful. Obviously, each person needs to develop their own system that fits their needs, but this could be a starting point.

Another knowledge gap that needs to be addressed is, “what is the utility behind holding a token?” It seems that the first thing that comes to mind when people discuss utility is a cool hoodie or hat, but I would like to suggest the primary utility of an NFT is community. The community that invests into the NFT is ultimately what gives it value. This may also be why many cc0 NFT collections are so strong. I would like to suggest the Home Builder Analogy as a method of onboarding newcomers and explaining community-built value.

Let’s say a home builder wants to begin a new development. Generally, a large undeveloped plot of land is purchased, a model track home is built, and a plan for the future community is displayed for the surrounding area. Essentially a developer is saying that if you purchase a home from them, your home will have value because they are going to work on building out the surrounding area. With a new development you are buying into the idea that the community will be built and it will invest in itself over time, therefore increasing the value of your investment. In the same way, the NFT gains value as the community grows and is developed. In the MUTCH funding model this also means an increase in donations for the charity the community is supporting. This analogy puts a physical wrapper on the digital solution.

I’m convinced this model could work well for many non-profits. I have launched Zerobeings.eth to build an NFT community that supports a non-profit I started in 2017 called Hope Neighborhood Learning Center. Everything I do for this non-profit is voluntary and I do not receive compensation. I’m hoping we can join RainbowRolls.eth and the many others who have seen the potential to build amazing good into the communities around us. Good that spreads beyond the digital space and into real life. Let’s go! 🪐

🏡 #FamZerb 🎉

Hexagonal Zero is just the beginning!

Written by h0ward.eth

References

Gregory, A. G., & Howard, D. (2009). The Nonprofit Starvation Cycle. Stanford Social Innovation. Review, 7(4), 49–53. https://doi.org/10.48558/6K3V-0Q70

Murphy, Hannah & Oliver, Joshua. (2021, December 30). How NFTs became a $40bn market in 2021. Financial Times. https://www.ft.com/content/e95f5ac2-0476-41f4-abd4-8a99faa7737d