The ConstitutionDAO Failure

Dwayne Harris   ·   About 982 words

The ConstitutionDAO. From the FAQ:

So, what’s going on?

We’re buying the US Constitution.

For the first time in thirty-three years, one of thirteen surviving copies of the Official Edition from the Constitutional Convention will be publicly auctioned by Sotheby’s. It is one of the two copies that are still owned by private collectors. The proceeds from the auction will be given to a charity that has been established by the current owner.

ConstitutionDAO is a DAO that is pooling together money to win this auction. We intend to put The Constitution in the hands of The People.

This was attempted on Nov 18th, but the group lost the auction.

Some quick, simplified, definitions:

Crypto - Cryptocurrency: A form of currency that uses a ledger instead of physical objects to record who owns what. The things you own are interchangeable (fungible) tokens. For example, a Bitcoin. Basically digital dollar bills. Note: There are many cryptocurrencies, and each one is its own ledger. For example: Bitcoin, Ethereum, Dogecoin, and Litecoin are all individual currencies/ledgers.

NFT - Non Fungible Token: Tokens, from the definition above, that are not interchangeable. Basically, like a dollar bill that you drew or wrote something unique on so that you can then sell to someone else. A lot of the talk of NFTs have been about ones that link to artwork, but they can be any unique crypto token. Note: Because these are digital, they can also be programmed and can execute actions.

DAO - Decentralized Autonomous Organization: Any kind of organization whose rules are encoded as a program instead of through actual verbal/written agreements or contracts between people. DAOs are popular these days because you can use NFTs to keep track of ownership, votes, etc.

So, becoming a part of the ConsitutionDAO meant buying one of the specific tokens of a specific cryptocurrency that states that you have some ownership in the organization. In the strained analogy to real money I’ve been using, it would be like finding a group that took a bunch of dollar bills, wrote a special symbol on each one (now they’re not fungible), sold them, and then said something like, “Every person that owns one of these gets a say in our thing. The more you own, the more votes you get.”

And, like with most NFTs, there’s always the possibility that you can probably sell those tokens for even more (fungible) money later when people see how cool the thing/organization is of course.

With the ConstitutionDAO, not only did people get to be a part of the organization, but they were also contributing to the fundraising effort too. Most people understood that that’s how it worked, and the group may or may not succeed at the auction. If they succeeded, then everyone involved got a say in what happened next. If they didn’t succeed, at least they would have gotten the word out about DAOs and this interesting fundraising effort. And people would still get a say in what happened next.

So what did happen? Some billionaire (Ken Griffin), who obviously knew exactly how much money ConstitutionDAO had to work with, outbid them.

Now, for the messy part.

Jordan Pearson, from an article titled ‘Buy the Constitution’ Aftermath: Everyone Very Mad, Confused, Losing Lots of Money, Fighting, Crying, Etc.:

The community of crypto investors who tried and failed to buy a copy of the U.S. Constitution last week has descended into chaos as people are realizing today that roughly half of the donors will have the majority of their investment wiped out by cryptocurrency fees. Meanwhile, disagreements have broken out over the future of ConstitutionDAO, the original purpose of the more than $40 million crowdfunding campaign, and what will happen to the $PEOPLE token that donors were given in exchange for their contributions.

Some cryptocurrencies have fees attached to every transaction. It’s additional cryptocurrency you pay during the transaction that gets distributed back to the “miners” that keep the network running. Those fees happen to be very high right now on the cryptocurrency (Ethereum) used for the ConstitutionDAO. So, many of the people who bought in will lose all of it:

And that’s the rub. About half of all people who contributed to ConstitutionDAO are in this exact same boat, according to ConstitutionDAO itself. Admins posted on Discord immediately following the auction that “we had 17,437 donors, with a median donation size of $206.26. A significant percentage of these donations came from wallets that were initialized for the first time.”

This means that about half of all people who donated to ConstitutionDAO are now going to either lose basically everything they put into Ethereum network fees or will have to become a supporter of an organization that tried to buy the Constitution, failed, and now essentially has no purpose.

Additionally, some are speculating that the core team may be profiting off the aftermath of the whole thing:

@ConstitutionDAO core team is either incompetent or malicious.

They’re making internal decisions that are causing insane volatility. The type that insiders could easily trade on.

This went from an interesting experiment to a complete mess very quickly.

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