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ConstitutionDAO Will Shut Down After Raising $49M


blockworks.co 23 November 2021 19:42, UTC
Reading time: ~5 m

A group of crypto investors raised roughly $48.9 million to buy a rare copy of the US Constitution at Sotheby’s auction house last week. Despite the effort invested by 17,437 people, the ConstitutionDAO lost the bid to hedge fund billionaire Kenneth Griffin.

Today, the group announced that its nascent operations would be shutting down. 

“The community has taken all actions that it was organized to accomplish,” Graham Novak, a ConstitutionDAO member, said in the group’s Discord.

The ConstitutionDAO download

Following the auction at Sotheby’s on Thursday, an admin in the project’s Discord posted that the DAO “still made history” adding that the group’s efforts “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.” 

The big question then was, what would happen to the money? There were discussions about how to keep the project going, to pivot to a new focus, or perhaps fund a political organization. But ultimately the primary business of the ConstitutionDAO was to win the US Constitution, and that didn’t happen.

“Ultimately, we’ve come to the decision that continuing on without the unifying mission of buying the constitution, setting up more official governance, and embarking on a new chapter is not something that we as a core team are able to support,” the DAO said in a tweet.

gm frens 👋

The past 10 days have been an incredible experience. We are so honored and appreciative to have shared it with all of you, our web3 community.

We know that everyone is eager to hear what’s next for ConstitutionDAO, and we’ve been deeply exploring many options.

— ConstitutionDAO (📜, 📜) (@ConstitutionDAO) November 23, 2021

If the group had won the bid at Sotheby’s, the original plan called for token holders to vote on what happened to the rare copy of the US Constitution. In exchange for financial contributions, donors had the option to redeem a governance token dubbed $PEOPLE through Juicebox at a rate of 1 million PEOPLE tokens per 1 ETH donated.

In the absence of a governance mechanism, the ConstitutionDAO was a DAO in name only. None of the actions of the group were actually determined by the community at large — it was neither decentralized, nor autonomous.

ConstitutionDAO found consensus enough to promise to return contributors donations, but some community members are already concerned over how much will actually be returned.

For context, the funds collected were being held in a multi-signature wallet controlled by 13 “core contributors” to the ConstitutionDAO. This was an attempt to mirror the 13 colonies at the time of the nation’s founding, according to the project’s website. Nine of the 13 core contributors were required to sign a transaction in order to move any funds.

Over the weekend, the project issued specific guidance to donors, adding that this option was “the fairest and safest path forward available at this time.”

“After careful consideration of feedback given by our community members and partners, we’ve decided to issue donation refunds through the same Juicebox mechanism by which donations were originally collected, rather than attempting to immediately launch a new governance plan and token at the same time as the refund.”

The process to refund the donated ether has been the subject of controversy, however, particularly after investigation from Nick Bax, a would-be member of the DAO, who outlined in a tweet thread on Sunday that core contributors of the DAO may have been “making internal decisions that are causing insane volatility.”

@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.

Anybody know an on-chain analyst who knows what to look for? https://t.co/V8dAxTeHOS pic.twitter.com/afQu1tKmkL

— Nick Bax (@bax1337) November 22, 2021

According to information compiled by Bax, the team announced via Twitter a snapshot of PEOPLE holders at a specific Ethereum block — at approximately 6:12 UTC on Friday — despite warnings from Juicebox team members of possible ramifications of such an approach. 

Immediately following the appointed snapshot time, certain token holders dumped their $PEOPLE holdings in exchange for ETH at the expense of liquidity providers. This dropped the value of the PEOPLE token in relation to ETH by over 82% within minutes on Uniswap.

Since the snapshot had already been taken, the former PEOPLE holders expected to receive their pro rate share of ether, and no longer had any use for the token, thus traded it for as much ether as they could.

However, curiously, the token did not fall to zero. Speculators jumped in and purchased the token, a move which was either prescient or nefarious — the team later decided that the previously announced snapshot method would be scrapped, a move which resulted in PEOPLE reclaiming its prior ratio to ETH. 

This situation could have been avoided had the team made the token untradeable until a future date, once token governance processes could have been put in pace. Whether maleficent or merely disorganized, there’s no doubt that some benefited from the chaos while others were harmed by this manufactured volatility.

Ultimately, the group said that they had made full refunds available to contributors as promised, and that ConstitutionDAO will subsequently shut down.

Donors still have to pay gas fees if they wish to claim the amount of ETH originally put into the project. Specifically, investors in the DAO have spent nearly 200 ETH or $866,918 on fees while making donations, according to Dune Analytics. For some small contributors, the cost of fees many be worth more than the contribution itself under the current state of demand for Ethereum block space. The ConstitutionDAO multi-sig address still holds $2.3 million at the time of publication.

In closing out the project, the group endeavored to put a positive spin on the situation. “We hope this project will inspire others to build together and use the power of web3 to make a positive impact in the world,” organizers said in a statement via Twitter.

ConstitutionDAO’s press contact did not immediately respond to Blockworks’ request for comment.

Sam Martin and Macauley Peterson contributed reporting for this story.

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