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By
Leo Henkels
In the fast-paced world of cryptocurrency and decentralized finance, few stories capture the imagination like ConstitutionDAO's. This audacious project, which aimed to purchase an original copy of the United States Constitution, exemplifies both the potential and the unpredictability of decentralized autonomous organizations (DAOs). While the bid failed, the aftermath of ConstitutionDAO has become a fascinating case study in crypto economics, community dynamics, and the power of memes in the digital age.
The story of ConstitutionDAO begins with a serendipitous confluence of events. Graham Novak, one of the founders of ConstitutionDAO, recounts the project's origins:
"Yeah, like a lot of things, it's the right mixture of people, events, and circumstances all at the same time. The very origin of it, kind of funny, I was in a group chat with a couple of friends from college, none of them are crypto, none of them are in Web3 or technology. One of them works at an auction house in Ohio and follows auction house news. Had seen this thing about this upcoming Sotheby's auction, there's an original copy of the Constitution."
This casual conversation among friends quickly snowballed into one of the most talked-about crypto projects of 2021. Novak, who had been researching DAOs, saw an opportunity to put theory into practice on a grand scale:
"There were two things that struck me: one, the estimated price of the auction was going to be way too low—they were estimating 10 to 15 million for a copy of the Constitution, like the Constitutional Convention copy, right? This is insane. And I was like, that's nuts. And also, fresh off thinking about all this DAO stuff, I was like, we could definitely launch a DAO to buy the Constitution."
What followed was a week of intense activity that would capture the crypto community's and mainstream media's attention. Novak describes the rapid sequence of events:
"So I messaged my buddy Austin, we put together a quick one-page plan, started messaging everyone we know on crypto Twitter saying, 'Kickoff call 8:00 PM. We're launching a DAO to buy the Constitution.' A bunch of folks showed up immediately after. We kicked off the Twitter, the Discord. By that point, we'd already reached out to Sotheby's. We had three different plans in process in parallel to start legal entities to be able to participate in the auction."
The speed at which ConstitutionDAO came together is a testament to the power of decentralized organizing in the digital age. Within days, the project had gone from a casual idea to a full-fledged movement with thousands of participants.
"We raised over $40 million in a few short days to try to buy an original copy of the Constitution. The whole project was literally one week from idea to auction, and we ultimately ended up losing to Ken Griffin."
This rapid mobilization of resources and community support demonstrated the potential of DAOs to coordinate large-scale action in a fraction of the time it would take traditional organizations.
Despite the impressive fundraising effort, ConstitutionDAO ultimately fell short in its bid to purchase the Constitution, losing to billionaire Ken Griffin. This could have been the end of the story, a valiant but failed attempt that would fade into crypto lore. However, what happened next would be even more intriguing than the initial bid.
Novak explains the mechanism design of ConstitutionDAO:
"This was very straightforward—the mechanism design that we used was if you put in one ether, you got one million tokens, and you would have proportionate governance of the document if we'd won it. So we didn't win, all the money went back into the smart contract. There's no fees, there's no cut, there's no pre-mine, there's nothing, and you could take your million tokens and redeem them for your underlying assets."
This design was intended to provide a fair and transparent way for participants to reclaim their contributions if the bid failed. However, the community's reaction to this option was entirely unexpected:
"People said, 'No, I don't want my money back; I want my token,' and they started speculating on this token on secondary markets. This thing is, I mean to this day, right now, hundreds of millions of dollars in market cap, doing hundreds of millions of dollars of daily volume, for the purpose of memes."
Many ConstitutionDAO participants' decision to keep their tokens rather than redeem them for their original contributions marked the beginning of a fascinating economic experiment. The PEOPLE token, originally intended simply as a governance token for the DAO, took on a life of its own in the secondary markets.
Novak expresses his astonishment at this turn of events:
"There's no rational explanation other than, you know, people want it. There are locked underlying assets. If you were to buy People tokens today, you could buy them on the market and go redeem them for the underlying collateral at the same original exchange rate. There's no game theoretic incentive because the secondary market price is just so much higher than the value people put into it."
This phenomenon raises intriguing questions about value in the crypto space. Despite having no intrinsic value beyond the ability to redeem for the original contribution, the PEOPLE token has maintained a market cap far exceeding its underlying assets.
The sustained value of the PEOPLE token speaks to the power of memes and community in the crypto space. ConstitutionDAO, even in failure, created a shared experience and narrative that resonated deeply with its participants. The token symbolized that shared experience, a digital artifact representing participation in a historic moment.
Adam Miller, host of the "Just DAO It" podcast, reflects on this phenomenon:
"It's just how much power is there in this market capitalization mechanism that you introduce anytime something can be traded freely or publicly—but I don't mean through the SEC, but through just crypto markets that are practically free and anyone can take advantage of them. So, like, what's the power of a meme?"
This question gets to the heart of what makes the ConstitutionDAO story so fascinating. In the digital age, where attention and community engagement can be rapidly monetized, the line between memes and valuable assets has become increasingly blurred.
Novak adds:
"I don't know exactly how it's going to pan out, but there is something that crypto has done, that the best representation of which is things that capture a lot of mindshare, things that people think about a lot, have some price, potentially value to them as well."
The sustained value of the PEOPLE token challenges traditional notions of value and raises questions about how we should approach valuation in the crypto space. Novak reflects on this problem:
"You know, there's the common value investing adage, I think from Buffett or Munger or something, that 'price is what you pay, value is what you get.' You could make an argument that the price of ConstitutionDAO's token is what you could buy on the market right now, the value is what is the underlying asset—there's an actual knowable value of Ethereum."
This disconnect between price and underlying value is not unique to ConstitutionDAO, but the project provides a particularly stark example of this phenomenon. It challenges investors and economists to reconsider how value is created and maintained in digital economies.
The ConstitutionDAO experience offers valuable lessons for future DAO projects. It demonstrates both the potential for rapid mobilization and the unpredictable nature of community-driven projects. Future DAO creators might consider the following:
1. The power of a straightforward, compelling narrative in driving participation
2. The importance of having a plan for both success and failure scenarios
3. The potential for tokens to take on value beyond their initial intended purpose
4. The challenges of managing community expectations in a highly volatile environment
Novak reflects on the unique aspects of ConstitutionDAO that contributed to its success:
"One of the reasons I think ConstitutionDAO was successful was it could be explained in a very simple, basic meme: 'We're all going to buy the Constitution.' People are like, 'Alright, I'm in.' It's straightforward, right? It doesn't have to be necessarily a crazy heady thing; it doesn't have to be a massive technological undertaking, but it needs to be very clear for people to be able to get behind."
This insight underscores the importance of simplicity and clarity in DAO projects. In a space often characterized by complex technological jargon, ConstitutionDAO's straightforward goal resonated widely.
The ConstitutionDAO story and the subsequent life of the PEOPLE token raise broader questions about the nature of value in the digital age. Miller ponders:
"As people are just more and more online and put more weight on the digital world, and as people are wealthier and wealthier—I mean, the wealthier people get, the more they have a few hundred bucks or a few thousand bucks to spend for fun on something. And if that fun thing is a token, well, now you have a market cap of like you said, maybe hundreds of millions of dollars. And what does that do to the economy at large?"
This observation points to a potential shift in how value is created and distributed in the digital economy. If memes and community engagement can create and sustain significant market value, it could have far-reaching implications for how we think about investment, value creation, and economic participation.
Novak adds:
"For a lot of these other things, I think we're going to have interesting questions, which is: do people actually care about value? And increasingly so, the answer to that question might not be yes. That people are disconnecting from what traditional measures of value have been—not for days or weeks or months but entire years."
This disconnection from traditional value metrics presents both opportunities and challenges. On one hand, it opens up new avenues for value creation and community engagement. On the other, it raises concerns about market stability and the potential for speculative bubbles.
The ConstitutionDAO experience also highlights the double-edged nature of liquidity in crypto projects. The ability to quickly mobilize funds and create tradable tokens enabled the rapid growth of ConstitutionDAO. However, this same liquidity can lead to unexpected outcomes, as seen with the continued trading of the PEOPLE token.
Novak reflects on the challenges this presents:
"I think that some projects have accidentally shot themselves in the foot, and the reason I say that is what we really need is a really a set of high-quality, like AAA games, and there's going to be a group that nails the mechanics, nails gameplay, nails experience. It's going to be great, and it's also going to happen to be on blockchain. It's going to have a lot of these properties that we know to be important. The problem is if you raise a bunch of money by selling NFTs, selling tokens, you've got all this money in the treasury, an operating team has this money, the incentives are a little bit backwards, right?"
This observation, while made in the context of crypto gaming, also applies to projects like ConstitutionDAO. The ease of creating and trading tokens can sometimes create misaligned incentives, where the focus shifts from the project's original goals to token price speculation.
Despite the unexpected turns in the ConstitutionDAO story, the project demonstrates the potential for DAOs to mobilize communities around shared goals. The challenge for future projects will be in harnessing this potential while managing the unpredictable dynamics of tokenized communities.
Novak reflects on the state of the DAO ecosystem:
"I think we actually saw this really tough period now, for the last two and a half or so years, where people have been using models that are somewhat inadequate to exactly what they need and what exactly their use case is. A lot of DAOs have struggled, a lot of DAOs had this initial burst, pop of excitement, pop of energy, enthusiasm, build out these large Discord servers, and then people are like, 'Oh yeah, what happened to them? What's going on anymore? What happened to the money?'"
This observation highlights the need for more sustainable DAO models that can maintain community engagement and focus beyond the initial excitement. The ConstitutionDAO experience, with its continued community engagement even after the failed bid, offers some clues as to how this might be achieved.
The story of ConstitutionDAO is far from over. What began as a week-long sprint to buy a copy of the Constitution has evolved into an ongoing experiment in community, value, and decentralized organizing. Novak expresses his amazement at the turn of events:
"This is how the crypto industry works. I didn't plan to make a meme coin, and it's hit over a billion dollars in value. Like, this is nuts."
This sentiment captures both the excitement and the unpredictability of crypto. ConstitutionDAO, in its failure to achieve its original goal, has achieved something even more valuable: it has provided a real-world laboratory for exploring the dynamics of decentralized communities and the nature of value in the digital age.
As the crypto industry continues to evolve, the lessons from ConstitutionDAO will undoubtedly inform the development of future projects. From the power of simple, compelling narratives to the challenges of managing community expectations, the ConstitutionDAO experience offers a wealth of insights for DAO creators, participants, and observers.
Moreover, the ongoing story of the PEOPLE token serves as a fascinating case study in crypto-economics. It challenges our understanding of value, liquidity, and community engagement, forcing us to reconsider traditional economic models in light of the unique dynamics of the digital age.
Ultimately, the ConstitutionDAO story reminds us of the innovative and unpredictable nature of crypto. In this rapidly evolving landscape, failure can lead to unexpected success, and a week-long project can spawn a community that persists long after its original goal is abandoned. As we continue to explore the potential of DAOs and decentralized communities, the ConstitutionDAO experience will undoubtedly remain a touchstone, a reminder of the power of collective action and the enduring appeal of memes.
