How to escape the nonprofit system and build a brighter Web3 charity future.

The choice

Charity is on the cusp of Web3 transformation.

Charities will become innovative startups that attract our brightest entrepreneurs. They will solve issues instead of endlessly treating them. And donations will no longer be sacrifices—but purchases more desirable than our favorite consumer goods.

But this vision is not guaranteed. Two paths lie before us.

Path one, we add Web3 on top of the existing nonprofit system. Or path two, we build a completely new Web3 charity system.

Path one is charity as usual. Charity gets a cosmetic Web3 upgrade but we gain none of the above benefits. This is our current path.

Path two transforms charity and takes us into The Altruverse.

In this article, I explore the Altruverse. What is it, how to create it, and why we must escape the nonprofit system if we are to succeed.

Part 1. Escape

Nonprofit is an anomaly.

Charity was practiced across cultures for thousands of years. Altruism is the deep product of evolution. The nonprofit system, by contrast, is only 100 years old.

Yet while historically young, the nonprofit system is already technologically and culturally dated. The US created nonprofit laws in the early 20th century. This was the industrial age. The age of Rockefeller and Carnegie. There were no computers, cellphones, or internet. Electricity was scary.

It’s time to cast aside the limitations of the past century. Web3 is a new, near-limitless design space to reimagine charity. But we will never explore it until we free ourselves from the nonprofit system.

Free our minds

We use “nonprofit” and “charity” interchangeably.

Yet, all nonprofits make a profit. Revenue minus expenses is profit. And profit is good. It enables nonprofits to grow and do more good. Nonprofit is a euphemism that reassures the hesitant donor. It doesn’t depict economic reality.

We think of charity as distinct from business. For-profit and non-profit must be different things—their names are opposites! But there are businesses that donate clothes to the needy. And nonprofits that sell clothes to the wealthy. What’s the difference?

Is it that nonprofits pay zero taxes, give zero dividends to shareholders, and reinvest 100% of profits toward the mission? So does Amazon, one of the largest for-profits on earth.

Nonprofit is an artificial distinction. Nonprofits may have different tax laws than businesses. But they obey the same economic incentives, business logic, and human psychology.

We must unlearn “nonprofit” to open our minds to the potential of the Altruverse.

Free our entrepreneurs

To build the Altruverse, we need courageous founders. But the nonprofit system hinders charity entrepreneurship in three key ways.

1. Legal

Nonprofit laws (501c3 in the US) prohibit organization ownership and therefore eliminate founder financial upside. Founders must take high risk for low reward. This steers most founders away from charity.

2. Economic

Unlike businesses, most nonprofits don’t have individual products and prices.

Without products and prices, donors decide based on marketing and brand. The oldest nonprofits have the strongest brands. And the richest have the most marketing reach. Incumbent nonprofits have a nearly unbeatable advantage over startups.

3. Culture

Nonprofit corrodes the entrepreneurial spirit. Silicon Valley was fueled by a passionate startup culture. The nonprofit sector has the opposite. Don’t start a nonprofit is the prevailing mantra.

Where does this discouragement come from?

It starts with the term nonprofit itself. Dan Pallotta writes: “the word “profit” comes from the Latin noun profectus for “progress” and the verb proficere for “to advance.” Thus, “nonprofit” means, etymologically, nonprogress.”

Regardless of the source, the anti-entrepreneur mindset is counterproductive.

The nonprofit sector is stagnant. Top nonprofits are over 100 years old. Few founders enter the arena. Those that do are actively discouraged. And competing with the incumbents is nearly impossible.

There must be a better way. Let’s explore the Altruverse.

Note to those in the nonprofit sector: this may feel like an attack. It’s not. It’s an invitation. Nonprofit is the old system. Web3 is your portal to a better charity future.

Part 2. Imagine

The Altruverse is the new charity ecosystem built on Web3.

Rather than a what, the Altruverse is best described as a when. (I’m inspired by Shaan’s thread on the Metaverse.)

The Altruverse is the moment when altruism becomes as powerful as capitalism.

I won’t say more just yet. Keep this idea in mind as we explore how charity will evolve with Web3. I’ll define the Altruverse again at the end of this piece.

Part 3. Evolve

Tokenized donations

In the nonprofit system, a donation is a sacrifice. Donors give money and receive nothing.

With Web3 charity, each donation becomes a purchase. Donors give money and receive tokens (either fungible tokens or NFTs) in return. In some cases, donors may actually make money on a donation.

Let’s illustrate.

Donate-to-earn

Imagine you donate to save an endangered rhino. You receive a rhino NFT. Years later, another rhino philanthropist comes along. They value rhinos more than you so they buy the NFT from you for their collection.

Here’s why this matters:

• The market is discovering the true value of saving rhinos. Without this secondary sale, rhino protection goes undervalued.

• The rhino organization can earn a royalty from the NFT resale, earning some of this value for themselves.

• You just made a profit—from a donation.

• You can re-donate that profit to help more rhinos or any other cause.

Donate-to-own

Even without reselling, donors will benefit from their donations.

Imagine your donation tokens get you discounts at retailers, backstage access at concerts, or unlock video game items. Donations will no longer be limited to spare money. They will be discretionary purchases like any other.

And of course, the donation tokens will also have the inherent value of the good deed they represent.

The donation token value will be tied to the underlying project results. This will guide donors to make smarter donations and select the most beneficial projects. More on this later.

Tokens will also enable new charity innovation. Let’s see what that might look like.

Composability

Composability is the Web3 superpower. It’s the ability to combine software like legos into new useful types of apps and ideas.

KlimaDAO is an example of Web3 composability and an early taste of Web3 charity innovation.

KlimaDAO created a cryptocurrency backed by carbon credits. Buying Klima takes carbon credits off the market, increasing the cost of pollution and fighting climate change.

For Web3 experts:

Klima token is an ERC-20 on Ethereum. Klima protocol is a fork of OylmpusDAO. Klima token is backed by tokenized carbon credits from Toucan Protocol. Tokenized carbon credits are built upon carbon credits from organizations like Verra. And you can use your Klima tokens in other defi protocols.

For everyone: KlimaDAO is a novel combination of finance, game theory, environmentalism, and builds upon open source Web3 protocols.

This idea wouldn’t get built in the old nonprofit world. Are Klima buyers environmentalists or investors? They’re both.

But not all charities will look like Klima. Next, let’s look at the Web3 upgrade to the nonprofit organization.

DAOs

Web3 charities will be DAOs.

DAOs are organizations native to the blockchain. They are run by rules written in code and programmable to suit any purpose. They can be created in minutes, unlike nonprofits which can take up to a year.

Their flexibility and speed will enable charity entrepreneurs to quickly respond to any issue. More importantly, DAOs invert the donor-organization relationship.

The mega nonprofits extract from donors. They collect our data, spy on our wealth, and use AI to make us donate more. They give decision power disproportionately to mega philanthropists and foundations.

DAOs serve their donors.

DAOs are member-owned. Donors receive DAO membership tokens in exchange for their contributions. Tokens give donors voting rights. Every donor gets a say in the organization’s direction.

DAO tokens can increase in value, like stock. This creates a fluid line between donor, team member, and investor. It incentivizes the entire organization to achieve the mission.

DAOs are transparent. Nonprofits share financial data through a past-century reporting process. DAOs govern, transact, and prove all their work on the publically viewable blockchain.

What about taxes?

Charity DAOs won’t be eligible for tax deductions. This is not an issue. It is an advantage.

Tax deductions save us 20-50%. Web3 enables 10x—that’s 1,000% —innovation. Staying nonprofit is a penny saved and a dollar lost.

Should $Klima holders get a tax deduction? What about donors to nonprofit carbon credit organizations? What about Tesla owners? What about people who don’t drive at all? All help the environment while only some get deductions. Tax deductions are arbitrary.

Without the subsidy of tax deductions, Web3 charities will have to double down on improving the donor experience and delivering on the mission.

We don’t need tax breaks on the things we buy. With donation tokens, donations will be the same. The donation will be inherently valuable.

Web3 charity will invert the donor mindset. The goal will be to create value and pursue purpose—not prevent tax loss.

Fiat charity → crypto charity

The biggest Web3 charity unlock is accountability. Web3 will take us from fiat charity to crypto charity.

Fiat currency is a currency unbacked by a hard commodity, such as gold. It derives value based on trust in the government that issues it.

Fiat charity is a charitable program unbacked by hard evidence of its results. It derives value based on trust in the nonprofit organization (a.k.a the organization brand and marketing).

Nonprofits are fiat in two ways:

1. Most nonprofits self-report their data with an opaque paper trail. If a nonprofit tells us they fed 1,000,000 children, we typically have no good way to verify. This is fiat information. It’s true because the nonprofit says so.

2. Nonprofits have no peg between marketing and programs. If a business wants to make an additional sale, it must make an additional product. But if a nonprofit wishes to raise an additional donation, it can do so without feeding an additional child.

Consider the #TeamSeas campaign from Mr. Beast. How do we verify $1 removes a pound of trash? How do we connect each dollar to each pound? This is fiat charity.

Web3 charities will show all program data on the blockchain. They will use video, GPS coordinates, first-hand testimony, receipts, satellite footage, and more to prove their work.

They will also handle all donations on-chain. Therefore, it will be possible to verifiably connect each $1 donation to each pound of trash (if that is indeed the real price).

Donors will now be able to make informed giving decisions based on real outcomes and prices. Startups will be able to compete with incumbents based on results, not marketing.

And most importantly, donors will see the results of their individual donations. They will see the smiling child or the exuberant puppy they save.

This brings us back to our central point.

Charity must be full-stack Web3

Web3 enables us to build the Altruverse. But it does not guarantee it.

We have two paths. Either build on top of the nonprofit system. Or build a new Web3 charity system. Only path two leads to the Altruverse.

Companies compete to create value for customers. In the long run, those who best serve customers win.

Nonprofits are different. They have two customers: donors and the needy. Nonprofit marketing and programs are unpegged. And only donors pay the bills. Therefore, nonprofits with the best marketing and donor experiences win. Not necessarily those best at serving the needy.

Layering Web3 on top of the nonprofit system doesn’t change this. In fact, it probably makes it worse.

Consider NFT projects that donate proceeds to nonprofits.

Donors love these charity NFTs. But underneath the fun, this is an ordinary donation. The organizations and programs haven’t changed. Donors still don’t know if their money is put to good use. And the nonprofit sector still has the entrepreneurship issue. This is empty-calorie charity. Tastier, not healthier.

The bottom line:

Web3 apps built on top of the nonprofit system are like defi built on Bank of America.

Charity must be full-stack Web3. We need DAOs that transact and govern on-chain. We need native Web3 donor experiences. And verifiable, on-chain results.

This is the only path to the Altruverse.

Putting it all together

1. The nonprofit sector already earns profit. It only pretends not to.

2. Profit isn’t the point. What matters is profit + purpose + proven results. We will create Web3 charities that provide all three better than nonprofits.

3. Tax status is a distraction. Web3 will create 10-100x improvements to both donor experience and program results that make deductions unnecessary.

4. Donate-to-own and donate-to-earn will encourage donors to give more and give smarter.

5. Entrepreneurship + Web3 composability + DAOs will create exponential charity innovation.

6. Charity MUST be full-stack Web3. Otherwise, we risk building a better donor experience on top of an ineffective nonprofit foundation.

So what’s the Altruverse?

The Altruverse is a world in which altruism is as powerful as capitalism. This is made possible by Web3, which combines charity with ownership, markets, and entrepreneurialism.

It’s a world where donors, investors, and organizations are rewarded for doing good. Doing good earns profit, enabling more good.

And a world where the brightest minds are hard at work solving mental health, climate change, and poverty—not getting teens to scroll feeds and click ads.

But the Altruverse is only possible if we choose to build it.

So let’s get to work.

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Thanks for reading!

Want to help create the Altruverse? Start a Web3 charity.