In the short history of widely-known DAOs, ConstitutionDAO stands out for all the right and wrong reasons. Birthed from an unlikely origin, the decentralized entity was formed to bid on and purchase an extremely rare copy of the U.S. Constitution that was being auctioned by Sotheby’s. The stakes were high.
The plan to buy the U.S. Constitution as a DAO started when two friends, Graham Novak and Austin Cain, shared the idea on Twitter on November 11th 2021, a week before the auction.
This sparked interest across the web and created huge excitement among certain digital communities, leading many to join the cause. The impact was swift. The DAO collected an astonishing $47M (worth of ETH) in 6 days, even though the original target had been set at $20M on Juicebox, an early stage DAO platform. They also broke records for the most money crowdfunded in less than 72 hours.
A majority of the contributors had done less than 40 transactions and were quite new to the crypto-world. 17,437 donors contributed to the project with a median donation size of $206.26.
“One of the lasting legacies of ConstitutionDAO was how many people it galvanized to take their first step into the world of web3.”
$PEOPLE was the governance token related to ConstiutionDAO, and it was distributed at a rate of 1,000,000 PEOPLE for each ETH given to the DAO treasury. Initially, the token promised fractional ownership, e.g. owning a piece of the constitution, but this was later changed to governance, which meant making decisions on where to display, how to exhibit the document, etc. The funds were stored in a wallet controlled by 13 core contributors, with 9 being required to approve transactions (based on the 9 states required to ratify for the constitution to take effect).
In a twist, ConstitutionDAO lost the auction to Citadel CEO Ken Griffin at a meager margin; with a winning bid of $43.2M (outbidding ConstitutionDAO by less than a half million dollars). After winning the auction, Griffin approached ConstitutionDAO and proposed for a joint governance of the artifact, deciding on where to display it and also for mining NFT to the contributors; but they couldn’t come to a mutual agreement.
Constitution DAO in 2022
In the end, it was nearly all for naught. ConstitutionDAO was shut down on November 24th 2021.
There are two options for the contributors – receive a refund for the donations made or continue holding the $PEOPLE token.
Having lost the auction and following the core team's choice to wind down, the $PEOPLE token now possess no rights, governance, or utility other than redeeming them for ethereum from the smart contract held in Juicebox at a ratio of 1,000,000:1 — the same ratio at which contributions were made to the initial crowdfund to buy the Constitution. In short, early contributors can be made financially whole.
It is also an option to keep $PEOPLE tokens if contributors wish to incorporate them into future projects. ConstitutionDAO would not endorse any future plans for the token.
Earlier, there were plans to move the $PEOPLE token to a new token called “We the People” ($WTP) for any future projects, but the idea was shelved.
According to Dune Analytics, about 56% of the funds have been returned and 44% of the funds is still left with the non-existing DAO ($PEOPLE tokens still circulating in the secondary market).
Instead of losing significant amounts on transaction fees, some donors plan to hold the tokens with hopes of creating meme coins similar to Shiba Inu. The current token price (as of April 6th 2022) is $0.061.
What went wrong with ConstitutionDAO
Donating to the ConstitutionDAO was a little complex and involved high transaction “fees”. To buy a $PEOPLE token, the contributors had to purchase Ethereum through an exchange that involved a transaction fee (aka “gas”). The purchased Ethereum had to be sent to the crypto wallet with another gas fee. Then from the wallet ETH is sent to the juicebox platform with a third gas fee.
“There were cases with contributors paying $75 gas fees to donate roughly $75 to the project.”
Logistics and Regulation Issues
Since it was the first time Sotheby’s worked with a DAO, the entire process was quite confusing and daunting for both parties. There were a few logistic issues like Sotheby’s not accepting cryptocurrencies for this auction, and regulations to conduct KYC compliance checks for DAO contributors. To solve these issues, ConstitutionDAO collaborated with a crypto exchange to convert ETH to USD, a non-profit organization to place bids and an FTX to act as a facilitator. Knowing these hurdles in advance would have smoothed the overall process and created greater confidence from the community and from their partners.
Even though the DAO raised $47M, it had to set aside a reserve for taxes, fees, and storage with the max auction bid set at $43M. The auction bid was transparent to others through blockchain records which likely put the DAO at a disadvantaged position. Had it been a 100% blind auction, it is unlikely the winning bid would have been so close to ConstitutionDAO's upper threshold.
ConstitutionDAO’s post-auction message to the community:
Lessons learnt from ConstitutionDAO
ConstitutionDAO was different from the other DAOs at that time, as it was a donation-based DAO rather than investment-based DAO. Because the DAO received donations, it had the obligation to refund those donations should the DAO not win the auction. This was relatively a new concept.
A primary downside of the DAO was its myopic focus on purchasing the rare document, without consideration or discussion about what was to be done after the purchase. The voting infrastructure was not set up properly, and there were no discussions on using the $PEOPLE token to decide on the future of the token. So, when the auction was lost, there was a void where there should have been a community decision on the future paths to be taken or how the refund should be handled. It was decided by the “core members” only. Something in natural opposition to the core ethos of a large-contributor DAO entity.
With about 17,500 people contributors, it was vital to communicate the mission, process and work of the DAO to the entire community. Lacking in clear planning and communication created confusion and misunderstandings throughout the entire process. Moreover, ConstitutionDAO was scaling its community so fast with a truly global network that it necessitated different language channels in Discord with moderators just to communicate the most basic of concepts to the community.
Future of ConstitutionDAO
Commemorating ConstitutionDAO, the moderators have created ‘The People’s NFT - Lux Expression’ to reclaim important cultural artifacts.
The goal for the Lux Expression web3 application is to create an unparalleled collector's experience. It offers a variety of different digital assets to collectors and craft NFTs that have special traits, utility, flexibility and innovative ownership rights.
ConstitutionDAO can still be seen as a success in the awareness it created about DAOs in general, and in how it onboarded a large swath of individuals into a community-driven web3 event.
It, in a way, showcased the power of people/community coming together at a short notice, to compete with wealthy individuals.
It also showed that crowdfunding through DAO could be a success, though the process has to evolve to concentrate on the intrinsic and operational details of an ambitious effort.
This article does not constitute investment and/or legal advice, and is strictly for education purposes only. Upside is not an SEC registered investment advisor, practicing legal entity or any other type of licensed body that can legally provide investment and legal advice. Upside is not responsible for any errors or omissions in this article, due to the changing nature of laws, rules and regulations or otherwise, or for results obtained from use of the information it contains.
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