ConstitutionDAO Pays Back $27 Million, But The Cost Is High To Get A Refund - Gadgets Price
ConstitutionDAO Pays Back $27 Million, But The Cost Is High To Get A Refund

Last Thursday night, ConstitutionDAO found itself in possession of approximately $49.8 million that it was unable to spend. The group’s organizers were mandated only to spend the crowdfunded money on one thing—a rare copy of the US Constitution that they couldn’t win at auction—so instead of trying to get community approval to use the money for another purpose, they instead started the process of returning the money to lenders.

However, returning that much money was a tricky process. Lenders have to manually apply for refunds, so even a week later, there are still tens of millions of dollars in ConstitutionDAO’s pockets. And because all the money is pooled in Ether and sending money through Ethereum involves high transaction costs, getting money back has become an expensive affair for backers.

The returns process wasn’t as messy as the worst moments made it out to be – at least not yet. According to figures from Andrew Hong, a data scientist working in the crypto space, more than half of the money raised by ConstitutionDAO has since been returned. Nearly $27 million, or about 54 percent of the total raised, has been returned as of this afternoon. But that also means there’s still nearly $23 million waiting to be returned.

ConstitutionDAO said there is no time limit for donors to get their money back. However, because the returns must be requested manually, the soon-to-be-dissolved organization could theoretically sit on a large and otherwise unusable refund pile for a while if backers don’t know or don’t want to get their money out of it.

The ConstitutionDAO team has talked about creating educational resources on how to get refunds, said Jonah Erlich, a core contributor to ConstitutionDAO who has created a guide to donating money. “People are new to this; it’s hard to understand,” he said The edge. “It’s not the ideal situation.”

The other issue was transaction fees. All contributions are made through Ethereum, and Ethereum requires fees – often high – to send currency (along with performing many other tasks). That was already a hurdle when it came to raising funds to buy the Constitution. These fees, known as gas, don’t shrink meaningfully when someone sends a small amount of Ether, so small-dollar donors often had to pay large sums to send their contribution in the first place, according to Alex Kroeger, an engineer in the crypto space. To send about $170 worth of Ether to the project, he had to spend about $50 in fees.

According to figures from Kroeger and separately from Richard Chen, a general partner at the cryptocurrency investment firm 1confirmation, a total of more than $1 million was spent on gas costs making contributions to ConstitutionDAO. Erlich also estimated that the gas contributions for contributions were about $800,000 to $1 million. The Ethereum system that ConstitutionDAO relied on “is not currently optimal for low-value use cases,” Kroeger said. The edge.

Anyone who now wants their money back has to pay petrol costs again on the repayment, and according to Kroeger and Chen, more than $200,000 has already been spent on that. The fees may not be an issue for large donors — if you get $100,000 back, $50 is a small amount to pay — but that’s not the case for most ConstitutionDAO donors. The average contributor sent $217. If that person spent $50 to send the money and another $50 to get it back, they would have lost nearly half of their money.

And that estimate may be conservative. A contributor tweeted that they paid $70 in gas to send $200, then spent another $70 to get the money back. That means they lost $140 on what should have been a $200 refund. For everyone who sent less than the current gas price, getting a refund just won’t be worth it.

That’s part of what made this situation so complicated. Many contributors had hoped ConstitutionDAO would shift its focus and redirect its massive account balance to another purpose. The organizers briefly floated around launching a new token for those interested in reorganizing around a different purpose, then turned around and eventually announced plans to shut down. It was a disappointment to many in the group’s Discord channel, where employees were expected to influence the group’s decision-making. But the organization never achieved its goal of becoming a true DAO – a decentralized autonomous organization, allegedly controlled by its members – and the organizers themselves made the decision to close and focus on refunds.

The result shows both the promise and the challenges of DAOs and other crypto-oriented groups. ConstitutionDAO was able to raise an impressive amount in a week. But high fees (not to mention the challenges of setting up and buying the Ethereum ecosystem) made the project difficult for small donors to contribute to, and the organization’s decision to disband showed that, despite all the promises around decentralization, there is often still a core group at the top. And in the end, it’s those who contributed the least that get burned the most.

Additional reporting by Creighton DeSimone

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