Robot Philanthropy: DAOs and the De-Humaning of Charity(?)

Abstract

Decentralized autonomous organizations (“DAOs”) promise a future of democratized corporate (or, at least, quasi-corporate) governance. This future stands in contrast to the contemporary world of business entities, where every state corporations law separates ownership in and control of corporations, allocating control to the board of directors. DAOs promise to eliminate this board-level intermediation, instead allowing anybody who purchases a governance token to vote on strategy, and to implement that strategy automatically, through smart contracts.

While originally DAOs focused on profit-making ventures, the universe of DAOs also includes DAO founders who want to leave aside entirely the world of profit, instead creating charitable and philanthropic DAOs. Putting charity on the blockchain—and taking humans out of the management of these charitable organizations—would represent a huge break with the past. It also fits uncomfortably with both current regulation of tax-exempt and nonprofit organizations and with the ethos of formal charitable organizations. Removing humans from the active management of charitable and nonprofit organizations would frustrate the principal lever regulators have to oversee charitable organizations that have been granted the benefits that come with tax-exempt and nonprofit status, and would frustrate the best interests of the charitable sector.

This Article explores the regulatory disconnects of removing responsible individuals from charitable and nonprofit governance. Ultimately, charitable regulation and reputation depends on having human fiduciaries who can be held responsible for charitable mismanagement. While crypto proponents can use DAOs to pursue charitable ends, current nonprofit and tax law should not be altered to allow DAOs to skirt rules that impose fiduciary obligations on individuals.

Keywords: decentralized autonomous organizations, DAOs, nonprofit, tax-exempt, fiduciary, cryptocurrency, decentralized, excise tax, self-dealing, smart contracts, ai, artificial intelligence