The DAO wanted to buy a U.S. Constitution Bill; what they did was show what DAOs are capable of. Find out all about this record-breaking crowd-funded effort leading up to the auction.
While it is hard to tell if this was indeed the motivation behind the ConstitutionDAO in their — sadly, unsuccessful, attempt at buying a copy of the 1787 U.S. Constitution, one thing is certain — the fact that the group was able to show the coalescing of a community for a singular purpose.
But what actually happened? Why did the ConstitutionDAO fail? Why are new DAOs emerging that are buying historical artefacts to NBA teams? Is this the next step in the era of digital communities?
Let's find out in this article.
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What Is the U.S. Constitution on Sale Here?
Before we dive further into the details about what happened to the ConstitutionDAO, let us understand the item that was actually up for sale.
When the convention ended, several delegates got more copies printed and to share with their friends and family. The copy in question was with Dorothy Goldman, whose husband had purchased it in 1997.
ConstitutionDAO Attempts to Buy a Copy of U.S. Constitution
A casual conversation between crypto degens on Twitter led to a full-fledged decision to pursue the buying of the 1787 first-edition printing of the US Constitution when it was listed for an auction on Sotheby's. The idea wasn't to buy the Constitution itself, but to send across a message that it was indeed possible with the power of blockchain and DAOs.
But wait, why would a DAO want to buy something like a Constitution? And if their purpose was to buy the Constitution, why did they not end up buying it? Was it a scam?
What Really Happened?
The story goes obviously much deeper than this. Here's how the events actually unfolded.
Nov. 11, 2021 — Planting the Seed
The idea was simple — to come together as a community and collectively buy the constitution.
The idea itself was unique and quite unheard of.
Who in their right minds would actually want to buy the Constitution? It serves no purpose to the average crypto user. However, if all of them could come together and do something, that would send a strong message to the next billionaire who was thinking of doing so.
Slowly, a community around the idea started taking shape. People started getting interested. Several started tweeting and even calling in their friends to contribute. The chants of "Web3 for We the People" were heard all around the world as hundreds (and quickly, thousands) of speculators and crypto enthusiasts started listening in. Nicolas Cage memes abound.
Nov. 12, 2021 — $20 Million in 6 Days?!
On Nov. 12, 2021, this image was shared in the ConstitutionDAO's Discord.
The entire ConstitutionDAO community was rattled.
How could they raise so much money in such a short period of time? Surely, this was going to be a huge test for the entire crypto community and its ability to really bring people together. The early members of the community started beating their drum on Twitter. The popular hashtag WAGMI (we're all gonna make it) slowly turned into WAGBTC (we're all gonna buy the constitution) and several tweets were flowing in.
Interestingly, there were absolutely no restrictions to where the people were joining this community — no one cared if you were American, European, Asian or others. As long as you believed in the DAO and had trust in the next member you were all just buying the Constitution together. This was truly a display of Web3 and the power it bestowed upon digital communities.
Within a few days itself, the total amount raised had ballooned to $1.6M. There was a shared sense of achievement with this amount along with the fact that it acted as a catalyst in inspiring more people to join the community.
The shared sense of purpose was amplified by the memes floating around - everyone within the community was contributing to its growth in some way or the other. Just a day later, this amount jumped to over $5M. A few days later on November 18, the community had collectively raised almost $20M. This was a feat like no other.
Nov. 18, 2021 — Funds Raised, But Was It Enough?
And this wasn't even where the community decided to stop. The bar was raised and eventually over $20M was raised within the next few days taking the total raise up to $40M. This amount reached its peak at an astonishing $47M.
But there was another task at hand that needed to be figured out — how could a DAO interact with Sotheby's? A fervent pursuit for understanding how the logistics would work followed.
There was another issue that they needed to deal with: the auction house did not accept anything apart from "government-issued currencies". They had accepted cryptocurrencies as payments previously but that option wasn't available for this auction. And the ConstitutionDAO was raising its funds only in ETH, which meant that they needed to be converted to USD prior to their use.
And if that wasn't enough, the community also needed to figure out how to deal with the KYC compliance checks that needed to be completed. How could the thousands of contributors to the DAO provide KYC? Most of them were just anonymous Twitter users.
To fulfil this task, the ConstitutionDAO decided to collaborate with a crypto exchange to convert its ETH to USD. A non-profit organization was also called for to place the bids on the behalf of the DAO. Some of the members of the DAO were also in contact with FTX to act as a facilitator for the process. Prior to the auction, the DAO had raised about $47M for the auction.
Nov. 18, 2021 — Auction Day at Sotheby's
One bid — and it all comes tumbling down.
The auction day was November 18. Everything was set up. The bids were received. An unknown investor bid $43.2M. The representatives of the ConstitutionDAO decided not to outbid this price. And it was all lost to the unknown investor.
The question that was being asked around was — why did the DAO not outbid the $43.2M? Where did it fail?
One possible argument that was circulated within the Discord of the community was that even after buying the Constitution, they would not have enough funds to securely store it and do "proper care and maintenance" that was required from the custodian of the Constitution.
Nov. 19, 2021 — Records Broken, History Made
For the first time, Sotheby's had worked with a DAO community.
For the first time, an exorbitant amount of money was raised in less than three days.
For the first time, museum creators, artists, collectors and everyday enthusiasts got to know about what a DAO actually is — and also witness its power.
For the first time, people from all over the world had a chance to participate in the buying of the Constitution of a country that they personally had no connection with.
While these points are certainly helpful for the overall growth of the crypto community, they still fail to address the core question about what the exact reason behind not attempting to outbid was. There were rumors of the DAO getting rugged given that it had so much capital which was of absolutely no use. The core members of the DAO, however, quashed those rumors saying that every single member of the community could withdraw their ETH back into their wallets.
What Happened to the Money Locked in ConstitutionDAO?
All the money were decided to be returned. Investors/contributors had the option to request for a refund after the failed fund. While some members said that they wanted to leave their funds in the wallet itself, some were thinking of withdrawing it completely.
Staying true to the core tenets of a DAO, all of them had the option to do whatever they wanted with their funds. However, if any investor decides to not withdraw their funds, then the ConstitutionDAO will retain custody of them - but they haven't specified what exactly is going to happen to those funds in the future.
The DAO has not specified any duration in which the investors can get their funds back — which means if some investor is speculating whether there might be some future action can feel free to leave their funds as is. However, the ConstitutionDAO has clearly stated that it has "run its course."
A primary issue that most investors who are thinking of withdrawing their fees are facing is that of transaction fees. The transaction costs on Ethereum are increasing and for those investors who had contributed not more than $50 are required to pay upwards of $10 for just the gas fees. This means they are losing almost 1/3rd of their funds (gas fees need to paid while depositing and withdrawing).
Gas costs on Ethereum have always been a bone of contention for several Ethereum users. They tend to go excessively high when the network is being used heavily and sometimes when you need to do a transaction of $50, you have to spend north of $25 just for sending it across! That is why some smaller contributors have lost almost half of their investment because of this.
That said, most contributors are appreciating the fact that the ConstitutionDAO is checking all the boxes of what a DAO actually is.
What Happened to $PEOPLE?
PEOPLE is the governance token of ConstitutionDAO. Despite the closure of the DAO itself, the token rose by almost 200%. This happened on the back of falling trading volumes and shrinking liquidity.
Several speculators revealed that the token had pumped almost 4x even after the DAO was considered wholly dissolved.
Governance tokens in DAOs bestow power to their users to have influence over all the decisions that the DAO makes. Naturally, the more governance tokens you have the more impactful your influence is over the entire community.
With the ConstitutionDAO, however, there weren't instances where $PEOPLE was actually used as a means of making decisions. Several from the crypto community are likening this token to a memecoin, because it seems to be soaring without any fundamental reason behind it.
Did the ConstitutionDAO Fail?
It wouldn't make sense for us to say that the ConstitutionDAO failed. In fact, it succeeded in doing exactly what it had set out to do — gather round a community for a shared purpose, give them something to believe in, raise capital from contributors who were truly inspired and keep repeating this process. These targets are still listed on the official website.
Furthermore, the core driver of the entire community was the idea of buying the US Constitution and not actually buying it. As mentioned above, there were no discussions around what would happen if the sale would be completed successfully. The logistics for that had not been figured out at all. And for a community of over 55K followers with (predictably) most of them having some amount of fractional ownership over the constitution meant that decision would have taken a really long time before anything could be finalized.
That said, it did manage to rattle the entire crypto community with its passion. And as a consequence of what it did, inspired several other DAOs that are aiming to do something similar.
New DAOs on the Block
Several other conceptual DAOs have sprung up in the wake of the ConstitutionDAO each claiming to do something revolutionary.
DAOs have certainly entered mainstream suddenly because of all the hype around ConstitutionDAO. It seems that what NFTs did a few months ago, DAOs are doing today (albeit at a much smaller scale).
DAOs represent a crucial step forward in the creation and proliferation of communities. The idea that everyone can participate in the decision-making has now boiled down to an enticing marketing narrative for several political entities.
A DAO, on the other hand truly gives people the power to influence the decisions of the community. However, there's a catch. The more governance tokens that a member has, the more influence he has over the DAO. We have already seen this with the Curve Wars — if you manage to bribe enough governance token holders, you can have a majority say on influential decisions.
There's another point in context of ConstitutionDAO that we haven't explored. All the decisions about bidding, not bidding and finally deciding to refund the amount were taken by a small group of representatives/core members. In essence, thus, the governance token holders of the ConstitutionDAO did not have any say over what decision needed to be taken. This has not only been disappointing to some, but some have even questioned the decentralized nature of such an entity.
Despite the arguable shortcomings, there was no denying that this was a major step in the right direction. It has showcased what the power of blockchain technology and web 3.0 could do when the community rallies around it. Several external factors notwithstanding, there is almost a sense of burning passion for forming anonymous communities on the Internet — communities that was able to organize, coordinate and put to use monetary and intellectual capital towards a common goal.