Stablecoins & Improving Donation Transparency
Note: This several part series is the result of a paper I wrote in January 2019. Rather than publish it, I thought it’d be most helpful to break things down and share it with the broader crypto-community. You can find the long form PDF version of the paper here and each part here:
- The Problem of Social Sector Transparency and an Introduction to Stablecoins (Pt. 1)
- Stablecoin Market Trends & Societal Obstacles the Present (Pt. 2)
- Stablecoins & Central Banks (Pt. 3)
- Stablecoins & Fiat-Crypto Payment Ramos (Pt. 4)
- Stablecoins & Improving Donation Transparency (Pt. 5)
- This is a much longer post….my bad..
- Charities, NGOs and social enterprises today face a tough funding environment: donations have long been stagnant in the West, and while impact investing is growing rapidly as a source of alternative social funding, it is still far from reaching its full potential
- There are many emerging donation/cash transfer transparency platforms within the blockchain for social impact ecosystem
- Download the full paper here
Fraud & Inefficient Use of Charitable Funds
Charities, NGOs and social enterprises today face a tough funding environment: donations have long been stagnant in the West, and while impact investing is growing rapidly as a source of alternative social funding, it is still far from reaching its full potential. This is mainly due to the fact that social organizations aren’t transparent enough about their impact. As a result, donors are losing trust, and have become obsessed with the “wrong kind” of transparency: social organizations are under massive pressure to cut costs, which has led to under-investment in talent and infrastructure, and shifted the focus away from the much more important issue of delivering real impact.
In fact, trust in global institutions is at an all-time low. The results of the 2017 Edelman Trust Barometer, an annual online survey of trust, paint a picture of a broken global system and a population with little hope for things to improve. NGOs are caught in the web of distrust — a long way from the first survey in 2001 when NGOs were considered a rising influence. The survey of 32,200 people in 28 countries, representing diversity in gender, age, education and income, found that there has been a decline in trust in the past year for our four main institutions: business, government, media and NGOs.
Perceptions of trust in NGOs specifically has dropped 2 percent since 2016. In eight countries — Russia, Sweden, Japan, Germany, Ireland, the Netherlands, the U.K. and Poland — NGOs are distrusted. In 11 countries, trust levels are “neutral,” while the remaining nine countries maintain high trust. In India and Mexico trust is at 71 percent. China has suffered the largest drop in trust of NGOs (10 percent), followed by Argentina, Germany, Ireland and Russia (each 6 percent). Scandals, particularly dating back to 2016, have impacted the development sector and public perceptions of NGO capability. World Vision and the United Nations Development Programme were accused by Israel of working to support Hamas. Cross-border relief operations to Syria were implicated in a corruption probe. And the closure of Bridge Academies in Uganda left questions hanging over programs supported by respected donors.
It seems that NGOs earn and lose social capital just like people do, and the behavior of engaging in corruption and fraud does not stop in the social sector. Behaviors like these, in addition to getting too close for comfort to government, causes their donors to lose trust. The pattern of overpromising and under-delivering is starting to become expected.
Existing Donation Transparency Platforms
Many social enterprise startups in the blockchain ecosystem have taken on the task of attending to donation transparency issues in the traditional social sector. Below, we list stand-out organizations that are building applications to solve the issue of non-transparent donations:
- Alice: Alice, founded in April 2016, is a social funding and impact management platform built on the Ethereum blockchain. The organization incentivize social organizations (charities, NGOs, social enterprises) to run projects transparently, by making sure that they get paid more when they achieve their goals. The performance of each project is publicly available, making it easier for funders (philanthropic organizations, impact investors, small donors) to identify and help scale social projects that actually work. The social enterprise is attending to the pressing issues of donation transparency and nonprofit funding.
- Helperbit: Helperbit, an Italian Blockchain startup founded in 2014, uses blockchain technology to enable philanthropists to donate digital currencies to underfunded, hard to reach nonprofits in remote regions of the world. The social enterprise mainly leverages bitcoin as its cryptocurrency of choice in its efforts to achieve donation transparency and nonprofit accountability. Helperbit’s flagship partnership its collaboration with Italian non-profit organization Legambiente. In the partnership, Helperbit supports Legambiente to raise funds for various charitable campaigns, and, most notably, a previous campaign entitled “The Rebirth has a Young Heart” dedicated to youth entrepreneurs in the Italian areas affected by the earthquakes in 2016.
- Binance Charity Foundation: Blockchain Charity Foundation (BCF) is a not-for-profit organization dedicated to the advancement of blockchain-enabled philanthropy towards achieving global sustainable development. BCF aims to transform philanthropy by developing the world’s first decentralized charity foundation to build a future where blockchain technology can be used to end all forms of poverty and inequality, advance sustainable development and ensure that no one is left behind. The foundation is initiated by Binance, the world’s largest cryptocurrency exchange by trading volume, headed by Helen Hai, UNIDO goodwill ambassador, with Marie-Louise Coleiro Preca, President of Malta as the Chair of its senior advisory board. In 2018, BCF launched its blockchain-based donation portal at the UNCTAD World Investment Forum. The platform is slated to ensure full donation transparency, accountability and direct reach to end recipients.
- Giveth: Giveth, founded in 2016, is a community of Makers that is building the Giveth Galaxy, an ever-expanding collection of initiatives that is driving Blockchain for Good innovation. Giveth strives to model the DAC concept as one of the first non-profit blockchain based entities. The Giveth Decentralized Altruistic Community (DAC) is an eclectic mix of people from the Ethereum and nonprofit worlds. They are dedicated to building the tools that will make it easy for anyone to build a global community around a cause. The Giveth Donation Platform is currently live in beta stage on the Ethereum main-net, bridged to Rinkeby test-net. You can read our most recent public updates here and are welcome in our chat for any question! Giveth is re-engineering charitable giving, by creating an entirely free, open-source platform, built on the Ethereum Blockchain. Our system cuts out bureaucracy and enables makers to create a high level of transparency and accountability towards Givers. For example: At any point until the moment funds are locked, a Giver can decide to withdraw them. You can read more about the basic components and the logic behind our DApp (Donation Application) in this post.
- AidCoin: AidChain is a platform that provides an ecosystem of services through an easy-to-use interface, connecting the nonprofit community while allowing full transparency and traceability of donations. Donors, charities, causes, projects and many more will benefit from the services provided by the AIDChain platform. Two of AidChain’s services include AidCoin and AidPay. AidCoin is the ERC20 token that aims to become the preferred method to donate transparently through the Ethereum blockchain and to access the ecosystem of services provided by the AIDChain platform. The adoption of cryptocurrencies will impact the way we donate in the future, and AidCoin is poised to play a leading role in this new era of fundraising. AidPay is a payment gateway/embeddable widget that allows charities registered on the AidChain platform to accept donations in different cryptocurrencies directly on their website. The cryptocurrencies are then instantly converted into AidCoin. This allows charities to simply manage all donations received within a single wallet while providing transparency and traceability. Since its inception in 2013, CharityStars’ team of 25 professionals has worked with 500+ charities including Unicef, Save the Children and WWF.
- CareBit: CareBit claims to be the first non-profit organization in the crypto world, and the first digital charity to have its own blockchain. The organization hopes to revolutionize the charity world by leveraging blockchain technology to provide transparent end to end tracking of charitable donations. Carebit will consist of two funds. One emergency fund to respond to disaster situations and one fund which partners with existing charities. In addition, Carebit offers an ability to earn a passive income by staking Carebit coins (PoS) or running a Master-node. The CareBit blockchain has its own cryptocurrency, called ‘CARE,’ which has a market capitalization of $23,485, a maximum token supply of 250M, and a token price (at the time of this writing) at $0.000202 per token.
- MameCoin: MameCoin is an Ethereum based donation transparency platform based in Japan. The platform has its own ERC20 token, called mameCoin, which is has used, like many ICO (Initial Coin Offering) projects, to partially fund the organization’s operations.
- Pinkcoin: Pinkcoin is a community and donation driven, altruistically inspired crypto-currency. It is also about rewarding its users using state of the art staking technologies unique to PinkCoin, such as flash-stakes and side-staking. Pinkcoin leverages a mechanism called ‘Donate4Life, which is a dynamic fundraising pool for charities. Coins generated by Donate4Life are distributed to Charities and Nonprofits that we have partnered with.
- Sempo: Sempo is an end-to-end platform to rapidly and efficiently deploy cash transfer programs. This means NGOs spend less resources finding vulnerable people, and more resources empowering them out of a crisis. Sempo solves beneficiary identification, cash disbursement and program monitoring in one seamless cash platform. Sempo allows digital credits to be sent directly to recipients, who are then able to spend these credits at partnered merchants using a number of transfer modalities such as via SMS, physical payment cards, or an android app. The platform is heavily pictorial based and offers multilingual functionality. The enrolment and purchase process is simple, and requires low levels of digital and financial literacy. The platform has offline functionality for recipients and vendors in remote regions, so that transactions can continue to occur through a cryptographically secured process. Solutions like Sempo offer more efficient and transparent models to attend to conditional cash aid in a wide variety of communities.
The list is by no means exhaustive, but it does paint a good picture as to how social innovation is developing within the cryptocurrency and blockchain community, and the various methods of problem solving being employed (and their respective successes). Interestingly enough, very few of these implementations, which were all founded within the last 3–4 years, leverage stablecoins. Rather, many have developed their own niche cryptocurrencies and or focus on the usefulness of smart contracts. In addition, many of the platforms are based on Ethereum.
Recommended Steps Concerning Donation Transparency
Based on the availability of public tools like the Wyre’s API, Coinbase’s API, and fiat-collateralized cryptocurrency platforms developed by initiatives like Project i2i, the Utility Settlement Coin Consortium, and Project Ubin, nonprofits looking to leverage cryptocurrency and blockchain technology to achieve higher levels of donation transparency do have enough resources in place to conduct proof-of-concepts and small-to-mid scale pilots. Larger scale projects, at least ones that leverage public blockchains like Ethereum, won’t be feasible until a few years into the future when scalability concerns are tempered with sustainable and rugged layer one (blockchain layer) and layer two (sits on top of blockchain layer) solutions. The following lists several methods that nonprofits and social enterprises can employ to leverage cryptocurrency technology in the social sector:
- Accept stablecoins like DAI and USDC for crypto-donations. The first cryptocurrency that your organization should accept from donations should not be Bitcoin or Ether if you operate in a country with uncertain or unfavorable cryptocurrency regulations. Rather, stablecoins should be the first cryptocurrency your organization should accept, as it minimizes potential liability, reduces uncertain tax reporting, and, most importantly, preserves the value provided by donors by avoiding asset volatility.
- If you have access, build atop private-sector, fiat-collateralized platforms. It is uncertain which stablecoin(s) will dominate the world’s cashless future. Nonprofits should organize strategic partnerships with existing, commercially supported ventures within the stablecoin ecosystem in an effort to ensure their organization makes a space for philanthropic giving in the digital asset age. Of course, the lead time and operational investment in such initiatives will be higher than testing the development resources provided by Wyre and Coinbase, but it could serve as the basis for groundbreaking projects in the future. Such an initiative could potentially be supported by Wyre if a collaboration between participating companies is developed.
- Partner with existing donation transparency ventures. Nonprofits, particularly multinational nonprofits, need to expand their social innovation and partnership initiatives to include and collaborate with technology startups. Doing so reduces the technology expenditure of nonprofits on proof-of-concepts and empowers charitable organizations to test emerging technologies in sandbox experiments. The opportunity also provides startups a rare chance to iterate on their user experience and application functionality in the social sector.
- Convert accepted donations into stablecoins like DAI and USDC for expense accountability. Even if your organization chooses to hold off from accepting cryptocurrency donations, it should pilot experiments that leverage tools that convert fiat currency into stablecoins. The reasoning behind such a practice is that, by converting donated funds into stablecoins, your organization can maintain an immutable and public account of how the organization disburses and expenses its philanthropic funds. By doing so, and providing quarterly expense audits that reference on-chain transactions, donors will increase their trust in your charitable organization.
Conclusion & Recommendations
Cryptocurrency and blockchain technology certainly will have a revolutionary place in changing the way philanthropy is conducted in the future. With the advent of stablecoins, useful tools like the Wyre Widget and Coinbase API, and ongoing commercial partnerships driving large scale stablecoin initiatives globally, many nonprofits will be able to develop experimental pilots to both accept cryptocurrency donations and create new solutions for donation tracking and transparency. However, mainstream media anti-bitcoin sentiments, greatly varied cryptocurrency regulation, payment processing bans, and poor existing user experience and user interface design on current blockchain-based applications are obstacles that both the commercial and social sectors need to overcome.
Though there are several social enterprises in the blockchain space attending to the issue of donation transparency, the ecosystem is still very much underdeveloped, and many of the ventures haven’t operated long enough to leverage the technology for widespread social impact. Overall, the following is recommended depending on which part of the stablecoin-use spectrum your organization falls into:
If you’re a for-profit organization
As a social enterprise attempting to solve the issues of donation transparency, do not create your own token. The market is saturated by well-funded stablecoin projects and commercial bank initiatives as it is. Rather focus on providing a SaaS (software as a service) product that can easily integrate into a variety of widespread financial infrastructures. To do so, your product should focus on:
- A niche aspect of nonprofit work, as it relates to donations (i.e. facilitating cash aid vs. food bank vs. substance abuse recovery), that the enterprise can bootstrap around
- Onboarding fiat-collateralized tokens, developed by enterprise-scale engagements like Project i2i, the Utility Settlement Coin Consortium, and Project Ubin
- Onboarding mass-adopted, community developed stablecoins produced by MakerDao, TrustUSD, and others utilizing a stringent digital asset framework for adopting new stablecoins
As a consulting company attempting to support NGOs and banks strategically operate in an increasingly cashless, philanthropic ecosystem, your advisory focuses should provide for:
- Analysis as to which emerging and developed markets have a need for increased donation transparency due to recurrent and systemic fraud
- Project scoping services in an effort to potential build competing or collaborative fiat-collateralized token platforms (for financial service clients)
- Develop strategic MOUs (Memorandum of Understanding) with companies leading successful fiat-collateralized projects in an effort to develop revenue-share opportunities. Referral and advisory services can be realized by onboarding new financial service and social sector clients to existing fiat collateralized token platforms
If you happen to already be a strategic partner in an ongoing stablecoin project, then begin to form partnerships with organizations like Wyre to insulate your platform with an API that can bring more developers (and thus more innovation) to your platform
As a financial service firm attempting to take part in the beginnings of world’s cashless future, your strategy organization should focus on:
- Joining fiat-collateralized token consortiums that have agreed to leverage a single platform
- Investing in ongoing stablecoin projects to mitigate venture risk
- Proposing cash transfer programming related pilots and experiments (mainly targeting increased access to financial services in regions your firm is well established) in collaboration with prevalent social sector partners. Social impact oriented pilots serve as strategic value investments that can bring new consumers to your firm and, quite candidly, bring good press coverage to your firm’s brand.
If you’re a nonprofit organization
As a large nonprofit or NGO attempting to make their organization more transparent and leverage the operational benefits of blockchain and cryptocurrency technology (including, but not limited to use case provisioning in donation transparency) should focus on:
- Develop RFPs, leveraging the strategic value gained by proposal submitters in working with your organization, to test blockchain solutions
- Join social sector consortium efforts like the Bifröst Initiative, focused on cash transfer programming (CTP) initiatives, and Blockchain for Social Impact Coalition (BSIC), which incubates, develops, and implements confederated blockchain products and solutions that can address social and environmental challenges across the United Nation’s Sustainable Development Goals. Doing so keeps your organization informed to the latest solution developments within the social sector
- Invest in social enterprises through social impact incubators, and offer them the chance to experiment and develop proof-of-concepts with your team. Such efforts should experiment with different types of stablecoins where possible.
As a small-to-medium sized nonprofit or NGO attempting to make their organization more transparent and leverage the operational benefits of blockchain and cryptocurrency technology (including, but not limited to use case provisioning in donation transparency) should focus on:
- Working with social enterprise startups to test the technology and iteratively develop a solution your organization can reliably use (and generate press for). Doing such will help activate potential donors and make your organization a more viable recipient of grant funding (particularly from the technology sector)
- Develop test projects (if you have technical team members) leveraging open source APIs (like Coinbase and Wyre) with their respective, available stablecoins
- Accept stablecoin donations and create corporate social responsibility relationships with local technology companies within the blockchain ecosystem
Over the next few years, depending on how regulatory bodies proceed with cryptocurrency policy and how consortium partnerships develop between the technology and social sectors, the world will begin to see either a normalized use of digital currency and blockchain technology to support the process of donations or a institutional preference toward the use of fiat currencies in a cultural reproach to hyper transparent donation capabilities.
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I commonly write about crypto-economics and blockchain technology with a social impact focus, though I often times stray into lower-level, more technical analyses as well!