Paying for impact, finally
In the second part of this post, I suggest Web3 can take us from outcomes payments to full paying for impact. This could change the nature of capitalism.
In my previous post I made the point that social impact bonds were promising but didn’t live up to the hype, because of operational and philosophical challenges. Web3 won’t address the philosophical issues with SIBs, but will look at some operational issues and explore promising directions. There are a few organisations starting to do this and could represent a whole new way of working.
This post will focus on four things:
How Web3 could address operational challenges of social impact bonds
Half way there: Outcomes payments
The whole hog: Impact payments
Questions and open issues am exploring
How Web3 can address operational challenges of social impact bonds
Set up and legal costs. Blockchain and smart contracts are designed to increase transparency and reduce uncertainty.
Monitoring costs. Rather than an expensive overhead overseer (such as an academic group), this is the perfect use case for blockchain.
Lack of metrics & common standards. Blockchain doesn’t create new common standards or APIs but makes them more useful when they do exist. Groups such as ChainLink enable on-chain smart contracts to connect to off-chain data in the form of APIs.
Long cycle times. While Web3 won’t change the time at which results are seen, they will be able to more cheaply track the intermediate steps and stages and the key indicators (see below).
Lack of contextual data. This one is about digital divide and something that Web3 needs to pay close attention to.
Half way there: Outcomes payments
Impact vs outcomes vs inputs. Paying for an outcome (such as a child’s good test scores) is better than paying for an input (time spent teaching the child that may not do any good at all), but it would be even better if we could pay for an impact (that child has a positive impact on the world by being kind, paying taxes or inventing a cure for cancer…). Impact is where we want to get to, outcomes are a useful step along the way.
Incentives to make this happen are the tricky bit. How do you get people to collaborate on a shared goal when you don’t have a hierarchical structure? Modern corporations have evolved in distinct stages, with the modern corporate machine (an ‘amber’ organisation) closely related to a dictatorial army structure. As we shift towards self-managed ‘teal’ organisations, we need new mechanisms for collaboration, goal setting and organisation. Bounties have emerged as the way to align a loose, liquid network of stakeholders around the needs of a decentralised organisation; bounties, it seems makes the DAOs go around.
Bounties make the DAOs go around
Startupy is a good example. This is a new kind of media company focused on Web3 startups, built and managed as a DAO. It funds contributors by issuing bounties with a specific set of curated tasks, such as listening to and summarising the works of certain influential VCs.
Impact payments: Where we need to go
Outcomes are good, impact is better. This is a new field and I’ll be tracking new solutions as they emerge. Feel free to share your ideas. Here are some examples of this thinking starting to shape the agenda:
Proof of Impact. South Africa and Bay Area-based organisation that has built a business developing and managing ESG and impact data for investors
and corporations, moving into the outcomes management space.
Decentralised Impact Organisations (DIOs). The idea of a DIO is an organisation that is designed to deliver specific outcomes. It was developed by a Finnish social entrepreneur in response to a call on Gitcoin for a new kind of public good.
Impact Tokens. A concept by the International Institute for Sustainable Development on ways that blockchain could address challenges of impact investing, in particular a lack of capital, lack definitions, lack of exits, lack of sophisticated practice and lack of high quality investment opportunities.
Bounties Network. A network (no longer active) designed to incentivise and reward community members for delivering on specific outcomes. It was designed to let you “create projects, collaborate, and get paid for doing great work in any domain”.
Blockchain for Social Impact. A group that is not necessarily delivering a pay-for-outcomes solution but working closely with many groups with this ambition. (Note: the org URL is not currently working)
Other projects in the Web3 space that reward outcomes - in this case active participation in DAOs:
Coordinape - tools for DAOs. “Scale your community with tools to reward contributors, incentivise participation and manage resources”
Narcissa - this is a new protocol that’s designed to reward DAO contributors for their efforts, “the Narcissa protocol automatically airdrops tokens to community members when they contribute.”
There are many more - would welcome readers to add some names in the comments.
Questions and open issues
The team at Proof of Impact is very thoughtful about outcomes and impact, and I’m grateful to Chief Impact Officer Evan Vahouny for his review of a draft of this post, and his input on the following open issues that need addressing:
Delayed payments & securitisation. The trouble with impact payments is that you need to wait for it to happen before the funding is realised. But the benefits of tokenising outcomes is that you could create a secondary market for impact. As Evan put it, “The one challenge in the outcomes/impact incentive payments approach that still needs to be solved for is how to keep people engaged in paying for -- or receiving payment for -- an outcome that might not happen until six months, or a year, or five years later.” One approach to this could be to securitise the bond commitments - turning them into a fungible commodity with an active secondary market. Here these bonds are traded on a market by those confident - or otherwise - in the teams ability to reach the desired impact to trigger the payouts.
Stakeholder engagement. A diverse set of stakeholders needs to collaborate to deliver impact, but how well does communication happen between them all? New tools such as 60 decibels have made listening a term of art, empowered by ubiquitous mobile technology. Digital tools could be used to more effectively and efficiently collect outcomes data.
Verification. Making sure that people have done what they say they’ve done is key. It will give payers confidence their money is well spent. Proof of Impact is targeting this space, building an ‘impact oracle’ that can connect real world impact data to on-chain smart contracts.
Unintended consequences. As Evan says, “Metrics should not just focus on the positive, but also measure to ensure no unintended negative consequences or perverse incentives are created from the outcomes payments.”
This is still a new and emerging topic, but one of the most exciting implications of all this is the ability to start to design an economic system in a way that delivers most impact for the citizens and stakeholders alike. For too long externalities - both positive and negative - have been ignored; now we have the tools to do something about it.
One practical suggestion for next steps: now that Australia seems to be tacking to the left, and the new government is looking to make a splash, maybe a bold experiment with impact-driven societies at scale is just the thing to make a profound break from the past. Either way, I predict that one government will do it well - and right - in the coming months.