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.
Over the weekend, the next steps of the project repeatedly changed. In the immediate aftermath of the Sotheby's auction, in which ConstitutionDAO lost to hedge fund CEO Ken Griffin, the founders of the project asserted on its official Discord that, though they lost, "we still made history tonight."
"We have educated an entire cohort of people around the world—from museum curators and art directors to our grandmothers asking us what eth is when they read about us in the news —about the possibilities of web3," an admin of the project posted on Thursday.
Many donors are indeed getting an education about Ethereum and web3, but it's certainly not all positive as the community tries to quickly come up with a reason it should exist at all after failing in its initial goal.
The specifics of what is happening are quite complicated, but, basically, ConstitutionDAO raised more than $40 million worth of Ethereum using a crowdfunding platform called Juicebox. In exchange for donations, contributors had the option to redeem a "governance token" called $PEOPLE at a rate of 1 million $PEOPLE tokens per 1 ETH donated, issued through Juicebox. If ConstitutionDAO had won, those $PEOPLE tokens would be used for voting on what would happen to the Constitution.
It was never explained exactly how voting rights would be apportioned (the DAO said "Due to the unusual and extremely short timeline of needing to rally around obtaining the Constitution during the auction window, we have not been able to focus on giving the technical aspects of DAO governance mechanics the careful consideration and community deliberation this topic requires.") But many DAOs use a proportional voting structure; for explanation's sake, one way of doing this would have been to give 1 vote per $PEOPLE token, allowing people who donated more to have an outsized say in what happened to the document.
Crucially, ConstitutionDAO repeatedly said that donors were not buying a fractionalized share of the Constitution and that individual donors would not "own" part of the Constitution, they would merely have a say in where it was displayed, etc. ConstitutionDAO also said that donating to the project should not be looked at as an "investment."
"You are receiving a governance token rather than fractionalized ownership of the artifact itself. Your contribution to ConstitutionDAO is a donation with no expectation of profit," the DAO's FAQ section read. "Some examples of this would be voting on advisory decisions about where the Constitution will be displayed, how it should be exhibited, and for how long."
That's all well and good, but regardless of the intentions of the core team, many people of course were looking at this as an investment (the meme was "buy the Constitution," after all.) This was a somewhat reasonable expectation—many cryptocurrencies have skyrocketed to ridiculously high valuations off the strength of a meme alone, and DAO governance tokens are themselves a $40 billion market. Clearly, some people expected to be able to flip either a tiny ownership stake in the Constitution or $PEOPLE tokens for a profit. This did start happening over the weekend, with some investors selling $PEOPLE tokens on decentralized exchanges such as Uniswap. ConstitutionDAO repeatedly said on Discord that it "neither prohibits nor encourages any secondary trading of the $PEOPLE token."
This is all important because, on Saturday, ConstitutionDAO's admins announced two important things. First, it announced that it would be moving away from the $PEOPLE token into a new, yet-to-be-created token called "We the People" ($WTP), which would govern whatever future the project had. $PEOPLE, meanwhile, would go by the wayside because "we did not acquire the constitution and $PEOPLE's explicit reason for existing has now run its course," an admin said in what was billed as "a note from our legal team." They also announced that they were going to try to issue refunds outside of the Juicebox platform to those who wanted them.
These announcements had the effect of cratering the price of the now apparently worthless $PEOPLE, according to hundreds of angry messages on the Discord ($PEOPLE's price is not currently tracked by any exchanges, but recent trades on Uniswap show it going for $0.0044), as well as sowing confusion and anger within the community. Many posters on the ConstitutionDAO Discord felt like the team was moving away from $PEOPLE tokens for reasons that weren't well-explained; this also led to a bunch of arguments about what the purpose of the project was, what the intentions of the founders were, and whether they were being scammed or not. As the price of $PEOPLE cratered, some people bought tons of the now close-to-worthless token.
By Sunday night, however, ConstitutionDAO announced that it would "return to the original plan." This meant issuing refunds through Juicebox as was originally intended, as well as shelving the idea to create the $WTP token, which means that $PEOPLE was suddenly "useful" again, in the sense that if the project does continue in any way, $PEOPLE is currently the only token in existence.
"One of the reasons for this reversion to the prior plan is that the decision to launch a new token and a new governance token (the previously discussed $WTP token) requires careful consideration, time to incorporate more community feedback, and thoughtful planning around the technology and structure of that governance," an admin posted. Previous references to $WTP in the Discord were edited out of the old announcements, leading to additional confusion.
The peer-to-peer price of $PEOPLE has continued to fluctuate, according to transactions viewed by Motherboard on Uniswap. Basically, $PEOPLE went from being a hype-y DAO token to orphaned and totally useless to potentially valuable again within a 24 hour period. Its future is still very much uncertain, but people on the Discord are still very angry, wondering if this is a scam, and wondering if $PEOPLE will still skyrocket in value because of the apparent "historic" nature of it as part of a failed meme attempt to buy the Constitution.
It is difficult to convey exactly how this is playing out on the Discord, but, basically, at any given moment a few dozen people are beefing with each other in the Discord’s “general” section about whether or not ConstitutionDAO is now a scam, whether they’ve been “rugged” (had their money taken), the intentions of the core team, what should happen next, whether this is just an unfortunate situation caused by disorganization and the speed at which everything happened, etc. This is mixed in with a bunch of people earnestly asking how they can get their money back, how to claim $PEOPLE tokens, what document they should try to buy next, etc. This is the general vibe:
Part of what makes all of this even funnier and more chaotic is that, all along, this entire project has been billed as a DAO, which is a Decentralized Autonomous Organization, a new type of "web3" organization that is governed quasi-democratically via a transparent voting process using the governance tokens. However, as we mentioned, ConstitutionDAO's voting infrastructure was never actually set up, and so the community is currently being governed in darkness by a centralized "core team" of developers and some lawyers. This means the community itself cannot use its governance tokens to vote on the future of the governance tokens, and that it's really not much of a web3 project at all.
"core team should have asked people to vote with their tokens," one user posted on the Discord. "there was no need for anything. there was no need for anyone in the core team to deliberate. whole point of dao and crypto infrastructure + ethos was missed."
"this project lost the community the moment publically [sic] made announcements were deleted. it created speculation and uncertainty that could have been avoided," another added. "it's leaderless chaos. worst of both dao and real world. people had $people token, why weren't they asked to vote."
Complicating things even further is the fact that many donors have basically two options.
- They can leave their money invested in a project that is making things up as it goes, has repeatedly changed course, and has no obvious reason for existing once it failed to buy the Constitution.
- They can lose a large portion of their money paying "gas fees" trying to get a refund.
In its "how to donate" video, a member of ConstitutionDAO recommended that donors add "recommend adding about $150 to $200 more than you'd like to contribute" to their donations to pay gas fees, which are transaction fees on the Ethereum network. Motherboard contributed a small amount of money to the project to see how this would play out in practice. Here is how it worked:
ConstitutionDAO accepted only ether, the token on Ethereum. For someone to convert USD to $PEOPLE tokens, the process had several steps. First, we had to buy Ethereum on an exchange (we used Coinbase). We bought $200 worth of Ethereum. Coinbase took a $3 fee. Then, we had to send the Ethereum from Coinbase to a MetaMask crypto wallet. To do this, we had to pay a $12 network fee. Then, we had to send the Ethereum from MetaMask to Juicebox. So-called "gas" fees vary wildly and depend on how busy the Ethereum network is at any given moment and the complexity of the transaction. Right now, gas fees on Ethereum are very high, and a highly complex operation could end up costing hundreds of dollars in fees. In our case, we paid a $75 gas fee to contribute roughly $75 to the project. Of the initial $200 we bought in ETH, $90 was eaten up in fees simply to donate to ConstitutionDAO.
Motherboard was not alone in paying exorbitant fees to simply donate to ConstitutionDAO. The total cost in fees for donating to the project was nearly $1 million, with much of the cost being borne by people donating relatively small amounts (because the fees are paid per transaction, meaning people who donated huge sums of money paid a lower amount, percentage wise, when donating).
In order to get a refund, we have to do this in reverse, basically. And so to get our ETH back from Juicebox, we would have to pay gas fees again, meaning essentially the entirety of the amount invested would be wiped out.
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.
Interactions with the Juicebox contract on the Ethereum blockchain reveal numerous instances of people getting their money back only to have it significantly reduced by fees or wiped out entirely. Here's someone transferring .011 ETH ($46) out and paying .015 ETH ($63) in fees, meaning they ended up paying $18 for their $0 refund. Here's someone else getting .018 ETH ($76) refunded and paying .0175 ETH ($74) in fees, so they got $2 back when all was said and done.
Some are clearly seeing this as not worth it, with many choosing to "burn" their ETH refund (i.e. send it to a dead-end address) in exchange for redeeming $PEOPLE tokens.
It didn't necessarily have to be this way. Before ConstitutionDAO announced that it would be refunding people's money in straight ETH, members considered going the "layer 2" route, or using another blockchain to refund people and get around Ethereum's high fees. If one were to consider many people's donations being completely wiped out as a worst case scenario, then some wondered if it may be worth it to explore giving people the option to take their donation in another token. In a post on Discord, a ConstitutionDAO team member called using ETH and Juicebox the "fairest and safest path forward available at this time."
The total disaster that is ConstitutionDAO's refund process adds to the complicated legacy of the project. The attempt to buy the Constitution was portrayed as a kind of populist revolt against billionaire private collectors, and people piled in on those grounds. To many, it was cryptocurrency (or, perhaps, the "cryptocurrency community") itself that enabled the massive flash-fundraising campaign, but it turns out to have also been possibly the worst technology one could imagine for this type of application.
While this debacle may well turn many people off of the idea of crypto-crowdfunding or even cryptocurrencies in general, ConstitutionDAO is still being held up as a success by many. It did, after all, raise enough money and jump through enough hoops to go toe-to-toe with a Wall Street villain at an auction within a week, and that isn't nothing. But as a proof-of-concept, the idea of crowdfunding with DAOs clearly has a long way to go.
Motherboard reached the ConstitutionDAO team for comment but did not hear back.