Hi guys. Welcome to the Fintech Coffee Break. I’m your host Isabelle Castro.
Today I shared my coffee break with Zach Bronstein, COO of EnDAOment.
EnDAOment is a platform powered entirely by smart contracts on the ethereum blockchain. They hope to use the new Web3 technology to power improved ways of donating and grantmaking using digital assets.
In the aftermath of the FTX scandal, I wondered if donation-making and philanthropy using Web3 vehicles had been damaged.
We spoke about the benefits blockchain can bring to the nonprofit sector, as well as some of the challenges that come with the new technology and why a certain amount of centralization and use of fiat currency is still necessary.
Isabelle Castro – Hi, Zach; nice to meet you. Thank you for coming in.
Zach Bronstein – Of course Nice to meet you as well. Thanks for having me.
Isabelle – So to begin with, what gets you up in the morning and gets you motivated to do what you do?
Zach – So typically, my dog licking me awake wakes me up in the morning. But the thing that gets me up and gets me excited is really getting on the phone with nonprofits and with donors and making it really simple to make donations of cryptocurrency-delivered dollars to nonprofits. So many times, I’ve been on the phone with folks who don’t know a tonne about cryptocurrency who are working in a nonprofit. I’m giving them a call to let them know that there’s a grant that’s been made to their organization. Those are the best calls that I make every day because we get to get in touch with people that are getting their hands dirty and doing good work out there in the world. And we fund that activity through cryptocurrency.
Isabelle – Nice. When did you realize you wanted to do what you do – working within the Web3 nonprofit space?
Zach – So it took me a while. Admittedly, my background is sort of split half between nonprofit and for-profit. I spent the previous five years before joining EnDAOment at Morgan Stanley. And before that, I was working at various nonprofits doing development work and volunteering. I was a teacher, I was a tutor, so I was still figuring it out. And really, my entry to Web3 was EnDAOment.
I got a call from my now CEO Rob Heger. He was talking to me about a project. He was working on some ideas that he had about something he wanted to put together. And pretty quickly that went from just a conversation to me spending a lot of time volunteering for EnDAOment getting work done all the way to me leaving Morgan Stanley and joining EnDAOment. And that’s really how I fell down the Crypto or Web3 rabbit hole, figuring out and seeing how efficiencies that are reliant on blockchain technologies could be brought to new and novel causes. In this instance, specifically, using blockchain to benefit nonprofits, which to me, meant that I could go back to nonprofit work while still being able to do that kind of hard finance, techy thinking, and merge those two together. That’s my work at EnDAOment.
Isabelle – Okay, tell me a bit more about that. And what kind of benefits do you see from blockchain technology and Web3 technologies in general, that kind of lend themselves to the nonprofit environment?
Zach – So, excellent question. I think, really, two things come to mind more than anything else.
One is efficiency. And the other is transparency.
For transparency. What’s really nice about the way that we run our donor-advised fund platform is that everything is happening on-chain. What that means is that anyone with sufficient knowledge about how the blockchain works, about how to use a block explorer like ether scan.io, can look into EnDAOment activities and essentially conduct their own public audit of our entire ecosystem. From the moment that a donation is made into a funded EnDAOment, or to any organization smart contract and EnDAOment, all that activity is captured on-chain and can be reviewed publicly.
The only things that we do not store on-chain are PII, so personal identifiable information for donors, and information about bank accounts on the nonprofit side because typically, we do pay out nonprofits via USD bank wire. Right. So that’s the transparency piece. And honestly, when I talk to nonprofits, that’s the thing that they’re most interested in, figuring out how they could potentially bring Web3 tech in-house and use it to leverage transparency in some way or demonstrate transparency in some way.
Next is the efficiency bit. Usually, when folks are making donations to charity, whether they’re going directly to that charity or through a donor-advised fund, there are a number of hoops to jump through. There are waiting periods for how long it takes a trade to execute. If you’re giving stock, for example, how long it takes for those dollars to be delivered to the organization. And what’s great about Web3 is everything moves really, really fast. There is no time that you can try to access endaoment.org. and it’s down. It’s always online, you can always make a donation, and you can always get money moving to charity.
Then on our end, the only slow bit is when we actually have to make that bank wire, which is always delivered in between 24 and 36 hours, depending on when we initiate that wire. But we’re able to move funds directly to 501C3 nonprofits at a much more rapid pace than we would if we were a traditional Fiat-based donor-advised fund.
Isabelle – Are there any challenges? Like? Do you retain some of the old systems around nonprofits that maybe Web3 doesn’t solve so well that the old system is does better?
Zach – I think two things come to mind there. So first, when we’re working with nonprofits, there’s always a little bit of skepticism, I would say healthy skepticism. And this is not about Web3 structures or non-Web3 structures. But crypto is new. Even without, you know, recent scandals in the crypto space, people, appropriately, I think, as people have fiduciary responsibilities to their nonprofits, pump the brakes a little bit and want to learn a bit more about our organization. Right. And this is when the transparency comes in handy. We can demonstrate exactly what we’ve done based on this indelible digital ledger, which is a source of truth for people to look at. Right.
The second item that I think perhaps more addresses your question of like what doesn’t really work for these nonprofits in the Web3 system. Most nonprofits do not want to have custody of crypto in any way. They don’t want to hold a bitcoin. They don’t want to hold ether. They don’t want to hold USDC stablecoins, they don’t want to hold anything. And initially, when we were thinking about endaoment.org and how we were spinning it up, our goal was to give every nonprofit a crypto wallet. We’d set them up, we’d onboard them into the space, we would deliver gifts to them in stablecoins.
In crypto, we learned very quickly that that was untenable for most of the nonprofits that we were talking to, and we needed an alternative. So instead, we work closely with Circle internet financial to utilize their USDC API payment rail. So we can make programmatic wire payments of USD to nonprofits so that they can receive funds that start out as crypto, but they’re actually delivered in dollars. And they never have to do any reporting of crypto received. They also never need to deal with custody and crypto with changing their gift acceptance policies with working with, you know, you to swap or Coinbase or Binance to trade it into a currency that they can use or move it off chain. We take care of all of that. So at the end of the day, the nonprofit just receives the funds and can do what they do best – putting those funds to good use, getting their hands dirty, doing that good work I was referring to before.
Isabelle – In your first point from that. You mentioned the scandals. Have you seen that any of the scandals from last year have affected this kind of space? The nonprofit? Web three
Zach – It’s both yes and no. Absolutely. Because crypto is still such a small industry, individual bad actors can have an outsized impact on the way that others view this space. Certainly what’s been going on with SBF (Sam Bankman-Fried) and FTX, nevermind Terra Luna before, that had been problematic for the space, and I think have given people a little bit of let me take a step back and see what’s going on here.
With that said, donation activity hasn’t slowed down. What’s been really interesting and exciting to see is that if you look not at the dollars raised, because market cap for cryptocurrency generally is pretty different in 2022 versus 2021- significantly lower, but if you just look at the amount of ether donated via endaoment.org. We saw a 2x improvement versus 2021. In 2021 we received about I don’t have the numbers in front of me, but about 4300 units or tokens of ether. And this year, it was over 8000 that ended up amounting to a lower dollar value because the price of ether when it was being donated was lower. But if we’re receiving twice as many tokens, while the market cap is low, while these scandals are happening, that tells me that there is a lot of activity here and perhaps pent-up demand for a desire to be able to gift cryptocurrency to nonprofits.
So to answer your question in a more concise way, absolutely- the recent scandals have changed the way that people think about cryptocurrency, but the actual donation activity in the cryptocurrency space and even inbound from nonprofits who want to get set up without even knowing if there’s a cryptocurrency donation, you know, waiting in the wings have not slowed down. And that’s been really exciting and encouraging to see.
Isabelle – I guess this kind of appeal applies to the crypto winter as well. Have you had to change any of your operations to kind of allow for these changes? Or has it just remained the same?
Zach – So again, my answer is keeping two parts, but two things come to mind.
One, the major piece of our operations that changed when the market cap started to turn was really just about marketing. You know, we put information out there about us, about your ability to donate crypto, being sensitive to the fact that so many people in this space were in the red or in trouble in some other way. We pulled that back a bit because we didn’t want to be seen as tone-deaf. And we know if there are fewer assets out there to give, people really need to take care of their own first. And that’s absolutely okay and appropriate.
I think the second thing that the crypto winter changed about our operations is not necessarily something that changed, but something that we were allowed to do a little bit of stress testing because of what was going on in crypto price-wise. So if you look at the Terra Luna collapse from a number of months ago, there were issues with stress testing. They did not build safeguards to accommodate kind of extreme price changes in the underlying assets that were backing up that stablecoin ecosystem. What was great is that even while all of these prices are changing, we were using the same infrastructure that we had built previously. We’re using the same smart contracts that we built previously, and everything is still working exactly as expected.
What that tells me is that we did a really good job building this infrastructure that will operate in a bear market, it’ll operate in a bull market, and everything in between. And that’s been pretty exciting. There’s not really a great way to test that without actually going through these market cycles. So while it’s not exciting to be, or it’s not as exciting to be in a depressed bear market, as it was to be in a bull market, where people were, you know, donating large sums of money much more frequently. It does provide a really great opportunity to test your processes to test your systems and make sure that in the good and in the bad, they remain consistent.
Isabelle – What do you think will be your biggest challenges for the year ahead?
Zach – I think the biggest challenge for the year ahead is really undoing the negative impact that actors like SBF have had in the space. Talking to people whether they were crypto savvy before or don’t really know anything about crypto, they know Sam Bankman-Fried’s name- they know about what happened with FTX.
Helping them to understand that that’s not a specific failing of crypto or of decentralised finance. But instead, it’s a failing of an individual. There have been individuals in various fields before that have run Ponzi schemes that have done things that are rather untoward. And all that’s happening here is exactly that in the crypto world.
What’s interesting is that the only reason that FTX the whole FTX SBF scandal unfolded as a did is because that is a completely centralized structure. There is no decentralization of FTX, there is no decentralization of control over the funds that were in question between FTX and Alameda research, right? That was a process controlled by a small group of people. And as we’ve been learning by one person via a backdoor in some accounting software, right, so in a way, and this is kind of a weird thing to say, but in a way, the failure of SBF and FTX underscore the importance of creating decentralized structures that can operate in a trustless environment where one single bad actor can’t take an action that totally destroys the system.
Isabelle – One thing that I was thinking when I looked at how EnDAOment is, do you have any issues with kind of deciding who you’re going to donate to how do you get around those kinds of decisions?
Zach – Yeah, yeah. So it’s a good question. First, I’ll say that we have, and this is important, a funding policy that says that we won’t one only fund 501 C3s that are in good standing with the IRS and two, we’re not going to fund any groups that are on the Southern Poverty Law Center’s list of hate groups. And also that we’re not going to fund any groups that traffic and misinformation like Crisis Pregnancy centers or conversion therapy camps outside of those pretty broad exempt exemptions to who we choose to work with; we really just follow what the donors are doing. Donors come on our platform, open up a donor-advised fund make a gift of any one of about 1000 Different cryptocurrencies that we currently accept. And then they get to determine which organization they send those funds to, provided the organization is in good standing with the IRS and doesn’t fall into those categories I was just outlining. We’re going to support that gift, we’re going to get that money to that organization, so they can do whatever it is that they do. There has not been a like grant-making activity from endaoment.org as the entity supplying the money, right. That’s activity that donors take. So we haven’t had to get into questions of who is EnDAOment choosing to fund because, again, we’re providing the service and donors are actually choosing where their money goes.
Isabelle – Okay. What do you think? What do you hope will happen over the next five years in the Web3 nonprofit space.
Zach – So my hope is that nonprofits, whether they are, tech-savvy, crypto-savvy nonprofits, like the Electronic Frontier Foundation, or nonprofits that really have not updated their systems in a significant amount of time, are able to incorporate Web3 payments as a donation flow in some sort of native way. I want Web3 donations, crypto donations, into nonprofits, to be as ubiquitous as using PayPal, or act blue, to donate to any one of these nonprofits, another service that you tack onto your system so that you’re able to accept assets of a specific type that you weren’t able to accept before.
Really what we’re doing in EnDAOment is we’re trying to build a publicly accessible public good infrastructure for nonprofits to do fundraising, right? We don’t have a model of ‘hey, nonprofit, come on board, pay us, you know, $5,000 a year, we’ll take 5% of every donation you receive, and we’ll, you know, make this happen for you’. Instead, we want to build infrastructure that’s easily usable by every nonprofit for free without needing to take on additional overhead, whether that is, you know, specific costs related to financing, hiring additional folks that are crypto savvy, understanding what things like liquidity providers and MetaMask are, and instead, just make that whole process super easy. And they just add this note to their site, whether that’s the smart contract that they use on EnDAOment or a link to their EnDAOment page, they can receive donations, and it’s all really nice and smooth.
On top of that, I want to see nonprofits go out there and tell their existing donor base, hey, we accept this new asset, not just if someone inquires, Hey, can I give some ethereum? Can I give some bitcoin, but instead, they’re going out there, and they’re saying just like they already do with stocks, and they say, Hey, we’re all set up with this, you know, stock giving widget or this donor advised fund account. They should be doing that with crypto as well. There are plenty of people out there that have even now in this bear market. A lot of crypto, they want to be generous and philanthropic with their crypto, but they want to see an organization have some buy in have some interest and not just be receiving the crypto and then kind of forgetting about and pretending like they received it in cash.
Isabelle – Given all of this negative press that crypto has had, and the fact that the nonprofits normally, as you said they receive the money as a fiat currency, is there a way of using this infrastructure, but still opening it out to kind of people who don’t hold crypto people who are new to the space? Is there a way of streamlining that and making that easier? And inputting that without the added? ‘We accept this crypto’ or something like that?
Zach – I think so. You know, what we’re trying to do is build a better giving experience that is powered by crypto but goes beyond just cryptocurrency. Right? So if you went to our site EnDAOment.org right now, and you opened up one of our community funds, let’s say the Stands With Asian community fund that was created in early 2021, based on some really problematic and really terrible, I should say, activity surrounding misconceptions about COVID and members of the AAPI community and violence against them. If you went to that community fund page, now you’d be able to give in crypto, again, over 1000 different tokens you can give natively in the application. You can also give to them using your PayPal account. Okay? Right so putting all these things together. So you can give him PayPal, you can give me a PayPal, you can give via crypto if you are connected to our UI, and also was pretty cool that we’ve done recently, it’s a little more on the tech focus side is that every single fund on EnDAOment and every single organization one it has its own smart contract, that’s always been the case. But now to that smart contract is what’s called fully composable. And that means that instead of using our UI, if you don’t want to, you can just open up your wallet or open up any DeFi application that has some kind of payout address and direct ether or any ERC 20 directly to your fund, or to a specific organization smart contract, that smart contract is able to custody those assets, trade those assets for that US dollar coin. Then we use that US dollar coin to pay out the organisation. Or if you’ve put it into your fund, you get to make a grant of those funds to another nonprofit.
Isabelle – Right. Perfect. That sounds really, really interesting. I’m excited to see the future, before you go, I have a few more questions. So first, what is the best piece of advice that you’ve been given that you would like to give to someone else?
Zach – That is a fantastic question. I think the best piece of advice that I’ve ever been given was given to me by a co-worker, when I was working at an overnight summer camp a number of summers ago. It was ‘just keep your head on a swivel’.
There are always going to be problems that you don’t foresee, as well as opportunities that you don’t foresee. And only by constantly kind of shaking your head around, looking around, figuring out what’s going on, not taking what you know to be fact. But taking what you know to be a small portion of the fact are you going to be able to figure out what your place in a company is or in the world is or in your family. And I think I think about that a lot because so much of what we do in EnDAOment is multifaceted. We’re talking to donors who are crypto-savvy, some of which have been involved in the Web3 ecosystem for the better part of a decade. We’re talking to nonprofits that have, you know, individuals there who have never had a conversation about crypto before, they don’t have their own wallet, they don’t have any understanding of the difference between a cryptocurrency like bitcoin or a stablecoin, like US dollar coin, and being able to context switch and explain the same concepts in these vastly different ways to these different communities.
That’s really a skill that I learned because of the advice that I received that you always have to keep your head on the swivel. And more than that, you have to meet people where they’re at. They’re really technological, you can talk to them as if you were talking to engineers. And if they’re not, you need to figure out a way to explain something pretty complicated in layman’s terms.
Isabelle – Okay, I like that. I like the phrase, keep your head on swivel. Now, I’ve got my curveball question. If you could turn into another person for the day, who would you choose to be?
Zach – Interesting. If I could turn into another person for a day? Who would I be? That’s a tricky one. Based on where crypto is at, based on what we need from inside of the industry, as well as what we need from legislators in DC, I’m thinking that it’d be really interesting to be, for example, Gary Gensler for the day, and try to make some impact on the way that our government is choosing to legislate surrounding cryptocurrency. There have been, I think, some positive moves in the last year. Some negative moves in the last year. And I don’t want to get involved to say, you know, such-and-such currency is a commodity versus a security, like, let’s leave that for, you know, heavier finance conversations. But figuring out the right way to bring crypto into the wider American economy and the ecosystem that revolves around that economy is important.
There are problematic use cases. If you are only looking at FTX, you’re not going to feel positive about crypto in the world. There are positive use cases, too, and it goes far beyond just EnDAOment. I like to think that we’re a pretty positive use case, but plenty of others as well. And I would use that opportunity to talk to people around him and explain that there are really good positive use cases of crypto, and it’s all about creating legislation that allows those positive use cases to flourish while punishing those that would seek to use crypto in some sort of problematic scheme. or to do something that we like to call in the crypto world, like a rug pull. But doing something problematic, let’s guard against that while still opening the space for activities like those that endowment engages in to take place.
Isabelle – Cool. Well, thank you. That was a really good answer. Thank you for coming in. It’s been really nice to talk to you.
Zach – Pleasure has been mine. Thank you so much.
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