Visual representations of cryptocurrency Ethereum and Bitcoins are placed on Japanese 10,000 yen … [+]
Endaoment, the first provider of donor-advised funds on the Ethereum blockchain operating as a 501(c)(3) non-profit is publicly launching today. Run by CEO Robbie Heeger, Endaoment is also the first project incubated and launched out of Framework Labs, the sister technology studio to Vance Spencer and Michael Anderson’s investment firm Framework Ventures. Donor-advised funds (or DAFs) have been one of the fastest growing areas of charitable giving the past few years, with a 2019 report from the National Philantropic Trust showing a sharp 55% rise of individual DAFs year over year.
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With over 700,000 DAFs active today, the model is a great fit for crypto-natives interested in giving back. The crypto industry has suffered from bridging the gap between optimism and use cases, with only a few dominant financial use cases as yet proven. One important use case with proven demand that has often gone overlooked is charitable giving. So far, the friction hasn’t been on the supply side, with plenty of newly-wealthy crypto holders, or the demand side (charities would love more donations) but on bridging the technology gap. As of now, donating via crypto required getting set-up with a major administrator of DAFs such as Fidelity, Vanguard, and Schwab, or going to each charity individually.
Drawbacks with the major administrators for cryptonatives include high fees, limited cryptocurrency donation rails, and friction in the ultimate conversion of crypto to USD for the end donation. Working with charities individually offers its own issues, as they would need to be set-up with a wallet and linked bank account allowing them to accept a certain amount of limited tokens. Once that’s done, the ongoing burden of managing cryptocurrency, converting it, accounting, and cashing out to USD for use in daily operations is high for organizations with limited resources and technical know-how.
With Endaoment, that model is turned on its head. Says Heeger, “Endaoment is a new community foundation built specifically for the decentralized finance community. Effectively what we’re doing is providing people the opportunity to have a dedicated account that is specifically geared toward their or their families charitable giving.” Those interested in donating now simply need to go onto the Endaoment platform, create and fund a DAF. Then they provide guidance to Endaoment on where they want those funds to be directed, while Endaoment does the leg work of contacting the charity to let them know about their allocated funds and providing instructions to take delivery. The charity can receive the donations in USDC if they want to work with Endaoment on opening up direct crypto rails, but if not, Endaoment has partnered with Circle (the issuer of USDC) to use the Circle API to wire payment in USD directly to a charity.
“What we’ve built at Endaoment is basically two smart contract factories. One that creates a smart contract called a fund, or a donor-advised fund, and one that creates a smart contract that’s called an organization. Each time somebody searches for an organization using endaoment.org, and they go to create a grant from that fund to that organization, we create an organization escrow contract on-chain. That basically serves as a smart wallet for that organization. It is a smart wallet that is effectively custodianed by Endaoment.” The contracts have been audited by security research firm Open Zeppelin, with results available publicly.
Not only are they pioneering a new DeFi native model for giving, but Heeger has worked diligently to re-align the revenue generation mechanism for Endaoment from what he thinks is a broken traditional model. He sees the current DAF landscape as unduly profiting the major custodians, with funds deposited at major administrators of DAFs such as Fidelity, Schwab, and Vanguard recycled back into the system while they await disbursal. With average disbursal times of around 24 months from donation to disbursal, this incentivizes holding funds longer, while generating fees for the other side of the manager’s business on top of a fee for assets under management. Endaoment is attempting to fix this by charging fees only upon entry and exit from a DAF account that is weighted towards collection when funds are actually disbursed to charity, and no fee for assets under management.
Endaoment will take advantage of the progress made by automated market maker Uniswap in creating infrastructure to handle the long tail of cryptotokens being developed. Explains Heeger “We accept any Uniswap token with over $100k in liquidity, lifetime. We have unlocked a list of about 135 tokens and will continue to unlock more as Uniswap’s liquidity deepens and more tokens come on-line to Uniswap.”
While initially focused on providing the infrastructure for DAFs, Heeger sees a larger role for Endaoment as the Community Foundation for crypto, with crypto-native governance and operating protocols. The long term vision is to seamlessly integrate the technological advantages afforded by this new infrastructure to remake philanthropy at the community level in a way that accords with cypherpunk principals. Community Foundations are public charities that must be majority funded by the public, with a mission to support a specific region or community with targeted services.
“At Endaoment, we aim to be the standard-bearing Community Foundation for the Decentralized Finance industry. Our first philanthropic service we’re offering is the Endaoment Donor-Advised Fund. Down the road, we’ll look to emulate and develop other services like Community Endowment Funds, Issue & Org discovery tools and community powered governance controls. This will put Endaoment and its decisions, values and policies into the hands of its user base; its community.” Says Heeger via email.
A long-time friend of Spencer and Anderson’s, Heeger is the bright, energetic, loquacious face of the future of charity. By taking a tech-first approach and thinking deeply about creating fundamental incentive structures to encourage best practices, he has a chance to build a powerful platform for giving in the digital age. As more and more financial activity moves onto DeFi, the wealth generated by these protocols and the early users can at times be enormous—and happen fast. With Endaoment, a proven crypto use case of charitable giving finally has the organizational development its long needed to lower frictions for use. As time goes on, it will be fascinating to watch whether now that the model is being better developed if it can gain greater traction to become a force in the philanthropic world.
Disclaimer: Rory is an active trader and investor holding positions in several cryptocurrencies as well as equities and other private investments at any point.