One year later: Why did anyone take ConstitutionDAO seriously?
Lessons from the rise and fall of Web3
It has been a long year for the tech industry. An eventful year. After a decade of stability, we are now entering into a period of serious chaos and change. 2022 will be remembered as the year of the tech crash — the end of an 18-year run of irrational tech exuberance. The closest analog is the 2000 dotcom crash.
I’ve been thinking recently about how abrupt this change has been. I’m writing this post in November 2022. Every major tech stock is worth 33%-75% less than a year ago. Every major tech company has frozen hiring or laid off thousands of workers. The industry is facing an unexpected reckoning.
A year ago, tech evangelists were enthusiastically imagining what the Internet’s next chapter would be. There were three main stories they told — the metaverse future, the artificial general intelligence future, and the web3 future. 2022 has turned out to be a good year for AI futurists, and a terrible year for the other two camps. Web3 has slipped from “cutting edge” to “obvious scam” real fast.
In this post, I want to reflect a little on the mechanics of the Web3 hype machine. Bitcoin hit its peak in November 2021, hitting a price of $68,000. Today it has fallen to the $16,000s, and the fallout from the implosion of FTX will probably drag it even further.
(…you could say that 2021 was the year of “fucking around,” while 2022 has been a year of “finding out.”)
This week is a minor anniversary of sorts — the ConstitutionDAO social experiment happened a year ago this week. Over the course of a few days, “Let’s Buy the US Constitution” went from Internet meme to organization with $49 million in assets in under a week. The effort was hailed as a milestone in the development of “Decentralized Autonomous Organizations" (DAOs) — proof of the potential of Web3 to reshape social structures and do real stuff.
I paid only a little attention to ConstitutionDAO at the time. (I read the hype-coverage, frowned, and wrote some snarky tweets.) I was listening to PJ Vogt’s podcast, “Crypto Island” recently, which includes a multi-episode arc interviewing ConstitutionDAO participants to reveal who they were, what they were trying to accomplish, and why they got involved. (The podcast is great. Check it out.) What really struck me was how the ConstitutionDAO team resembled a fledgling digital activist organization — the types of groups I’ve studied for years. And, from a digital activism lens, the interesting thing is that there was nothing new about ConstitutionDAO at all. They existed to promote the crypto boom by generating positive attention cycles. They succeeded, because not enough observers realized that was all they were doing.
So, on the anniversary of ConstitutionDAO, let’s take a look back at the hectic peak of the crypto boom. There are lessons here that will be useful in the aftermath of the tech crash,
Here’s an abridged version of the ConstitutionDAO story:
-Sotheby’s put a rare original copy of the U.S. constitution up for auction.
-Some of the Web3 crowd started creating memes about how they should “Buy the US constitution.” Packy McCormick was a particularly effusive promoter.
-A few of them got on a zoom call and decided, what the hell, let’s do it. They formed a DAO (“Decentralized Autonomous Organization”) to crowdfund the money and manage collective decision-making.
-They drew a ton of attention. In the space of a week, they raised nearly $50 million for their cause. This was an intensely grassroots effort — they had 17,437 donors, with a median donation size of $206.26.
-They were outbid by Ken Griffin, an anti-crypto billionaire.
-They nonetheless declared victory, since the episode raised public knowledge about what Web3 is capable of accomplishing.
-Then they had trouble refunding people’s donations, since Ethereum “gas fees” can be crazy-high.
-But then! The ConstitutionDAO $People token became a popular memecoin, leading everyone who held on to turn a sweet profit in the end. (So ConstitutionDAO lost the auction, and maybe-sort-of won the war.)
If you’re a crypto-skeptic (as I am), there’s so much to loathe here. They weren’t buying the constitution. They were buying an original copy of it. If 17,437 people chip in $200 or so to buy a copy of the constitution, they still only have one copy! The fact that they could crowdfund $49 million so quickly tells us less about the novel organizational capabilities of Web3 technologies than it does about members of the crypto community getting filthy rich and looking for places to show it off. And if you can fail to acquire the constitution but still earnestly declare victory, then it means the real goal was never the auction, it was the publicity.
The ConstitutionDAO team billed the effort as proof of what can be done with the blockchain, but none of what they did here actually constituted an original use-case. DAOs are a clever way of structuring vote shares in online voluntary associations. (Structuring vote shares is almost never the problem that undermines voluntary associations.) But they didn’t actually use the DAO structure for any difficult collective decision-making. The core team (between 6 and 13 people, it appears) was in charge of making all of the decisions. All the complicated questions (like, for instance, what to do with the single copy if they win) were left unresolved.
The rest was just Twitter and Discord and Zoom and talking to reporters. The DAO might have been useful for gathering binding financial pledges, but those small-dollar pledges could’ve easily gone through Kickstarter instead. And the big pledges were few enough that you could adapt existing infrastructure more cheaply than with blockchain.
But what really gets me is those numbers: 17,437 people, with an average donation of $206.26. They are numbers that reinforce a story about the broad, grassroots nature of this project. But $206.26 is the median donation. Arrange all the donors/crypto wallets from smallest to largest, and that’s what wallet #8,719 donated. Half of the donations were larger, half were smaller. The mean donation isn’t anywhere close to $206.26. If $206.26 was the average amount donated per person, then ConstitutionDAO would have only had $3.6 million). The actual mean donation was something like $2,810, which is a pretty strong hint that the vast majority of these crowdfunds were coming from just a handful of rich Web3 boosters.
There are three reasons why these numbers matter:
(1) It isn’t hard to set up multiple crypto wallets. If, let’s say, you were trying to generate positive publicity for this DAO (and, by extension, convince more normies that Web3 is the inevitable future), one thing you could do is to generate hundreds of crypto wallets and make 500 separate $50 donations in lieu of a single $25K donation. That 17,437 donor number is likely inflated, but there is no way to tell how much.
(2) Crowdfunding $49.8 million in six days is a lot less impressive if you’re actually just getting a handful of billionaires to pledge $46 million to a short-term joint venture and then run a publicity campaign that entices crypto-bros to throw in $50-100 while they tell jokes in the Discord channel.
(3) The whole point of a DAO is that it’s supposed to solve governance problems through the immutable blockchain. Everyone who donates to the project has a share of the decision-making authority (represented by $People tokens). But larger donations equal larger voting power. If a few billionaires are putting in 92% of the money, then the actual DAO is controlled by those few billionaires.
Here’s an alternate abridged version of the ConstitutionDAO story: the value of any cryptocurrency is a collective myth-making activity. Bitcoin and Ethereum still, circa 2021, have no significant use-case beyond facilitating illegal activity. So the value of cryptocurrencies and the larger Web3 ecosystem is based entirely on convincing more people to invest in cryptocurrencies. A thing is good if it generates credulous stories in mainstream news outlets about the promising future of Web3. A thing is bad if it fails to generate credulous stories. It’s a perpetual, intentional hype-bubble, forever searching for the next greater fool.
-So when Sotheby’s put a rare original copy of the U.S. constitution up for auction, a handful of crypto-boosters saw an opportunity to generate credulous stories about how Web3 is using novel organizational structures to crowdfund record sums and “buy the U.S. constitution.”
-They generated a full week of positive headlines. They didn’t win the auction (which, bonus, meant they get their investments back minus the ETH gas fees).
-But they kept insisting that this was a first-of-its-kind mass collaboration, with 17,437 donors and an average donation size of $206.26.
-When journalists started focusing on the negative fallout for the retail investors in the Discord channel (whose $150 donations weren’t large enough to cover the gas fees on the refunds), a few of those crypto-rich stepped up and pumped the value of the (now worthless) $People tokens.
-This provided a tiny windfall profit for the few remaining retail investors, and added a cost-effective positive spin on the story.
-So ConstitutionDAO generated credulous mainstream news stories, further inflating the cryptocurrency bubble.
-ConstitutionDAO lost the auction, but the auction was never the point to begin with. What mattered all along was the attention.
My primary field of research is digital activism. And, if you look at the ConstitutionDAO team through a hybrid media activism lens, this is really quite savvy.
The Web3 proponents have some unique assets: (1) a passionate fanbase, that is (2) extremely online and (3) familiar with a bunch of common web tools like Discord and Twitter (neither of which uses blockchain, but both are great for promoting blockchain).
They also benefit from:
(4) the aura of futurity and technical complexity,
(5) media-savvy benefactors whose wealth is tied up in crypto, and
(6) a tech press, financial press, and mainstream press eager to amplify their stories in an attempt to cover the Next Big Thing.
So they develop tactics that mobilize their retail investor/grassroots supporter base, leading to engaging narratives that are amplified by reporters. When this works well, the value of their crypto holdings goes up. If it falls apart, the value of their crypto holdings goes down.
What makes these tactics ultimately so hollow is that their sole product is financialization. The purpose of Web3 media activism is to entice more people to invest in cryptocurrencies. The publicity is the point. And, when they succeed, these new retail investors reap a small reward. It’s a bit like running a casino where you can guarantee everybody has a good time and wins a little during their first, low-stakes trip.
If the crypto winter ever starts to thaw, we’re going to see efforts like ConstitutionDAO again. They’re going to craft sophisticated hybrid media communications campaigns. They’re going to mask the emptiness of the underlying technologies by telling elaborate stories that fall apart upon closer inspection. They’ll do it all this again because the publicity is the whole point. Publicity is the engine that drives a crypto bubble.
One year later, it’s easy to shake our heads and laugh at the ultimate emptiness of Web3 efforts like ConstitutionDAO. NFTs and DAOs and Web3 games all look like obvious ponzis, symptoms of a tulip mania destined to fail. Compared to the collapse of Terra/Luna and FTX, ConstitutionDAO seems adorably well-intentioned and harmless.
But it’s worth remembering what the mood was like at the height of the Web3 bubble. The signs were all there. Plenty of people saw them. Those that pointed out the signs were dismissed as narrow-minded luddites and techno-pessimists. Fewer people would have had their financial lives ruined by crypto if tech journalists had been more recognized the strategic nature of these plays for attention.
ConstitutionDAO was never meant to buy the constitution. It was meant to buy positive press cycles. It worked in 2021, perpetuating a hype cycle that got out of control and caused ruin when it ended. We needed a more adversarial tech press to ward against this type of operation. That’s what we will need if the post-tech crash years are to turn out better.