When constructing social networks, a principle known as Dunbar’s number states that humans within a group reach a limit of 150 people at which they can comfortably maintain stable relationships. Exceed that number, and the potential for meaningful relationships decreases. In a web3 context, that means decentralized but collective organizations, known as DAOs, have a hard cap on the number of people who can effectively support an online network spread across the world.

David Ehrlichman, the author of Impact Networks and co-founder of Hats Protocol – a web3 roles and permissions protocol that helps create decentralized structure online – first encountered barriers to collaboration among different groups when working in the nonprofit world. He discovered Giving people power and permissions to do their work while holding them accountable is a big part of his work as he believes social good isn’t just a nice backpage headline, it’s about giving people power and permissions to do their work while holding them accountable.

“I realized pretty early that it was important to me that my work had some kind of impact that wasn’t just creating more value for shareholders,” Ehrlichman said to me during a recent interview. “I was working at a nonprofit which helped people without shelter in the Seattle region, and while I recognized they were doing amazing work providing services that change peoples lives, the work was really just addressing the symptoms of this massive broken system of affordable housing.”

Ehrlichman began thinking how to best address the root cause of issues, and in doing so, recognized how the nonprofit he was working for was operating independently.

“That’s often a function of where funding dollars come from, what they’re tied to and what the requirements are,” he said. “Funders want to see that their dollars have direct impacts and want to show a direct causality between their dollars and the impact they’re creating. What that often means is organizations are disincentivized to collaborate because when you’re collaborating with others, it becomes a lot harder to draw a direct causation between the work being done and the direct impacts coming out of it.”

He realized systemic problems require systemic solutions, taking the different silos addressing social problems, fitting the pieces together and shifting the system in a positive direction as a whole, rather than focusing on many individual efforts that are disconnected.

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“And yet that’s the norm in the vast majority of our cities, social systems, and the social issues people are working on,” Ehrlichman said. “It’s a bunch of different organizations, each with their own funding requirements, working on different pieces of the puzzle. But they’re not actually connected together.”

What he wanted was for society to create more connective tissue that enables organizations to collaborate and share resources and address the core issues of systemic problems. After working in several other sectors of social good, Ehrlichman started Converge—a network he co-founded with David Sawyer that helped people convene and realize the value in systemic coordination. They deployed this work globally and built and supported over 60 different impact networks—stories and experiences Ehrlichman details in his book Impact Networks.

“One of my colleagues at Converge was getting more into web3 and DAOs, first working with Yearn and later co-founding Coordinape,” Ehrlichman said. “I started to see cutting edge experimentation around governance in the web3 space, including how to have collective ownership of resources in a way that is capture resistant—in a way that doesn’t allow for someone to come in and disproportionately capture the resources or decision making.”

Ehrlichman saw web3 focusing on so-called trustware—the technology that enables people to not have to trust each other in order to share resources, power and coordinate well amongst themselves.

“One of the first things I did in the web3 space was build a DAO learning network, Groundw3rk, consisting of leaders and operators to help them learn from one another’s experiments and have a place to talk about failures,” Ehrlichman said. “I coordinated that for about a year without pay, but I got a lot of value out of it in terms of meeting people in the space and learning what was going on.”

Through Groundw3rk, Ehrlichman became a lead organizer of DAO Camp—a 60-person conference that brought together DAO leaders and operators from around the globe. He later met his co-founders at Hats Protocol—Spencer Graham and Nick Naraghi—who presented their early conception of Hats at the first DAO Camp.

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Hats had “been in the space a long time doing the hard work and recognized that one of the things DAOs were missing were roles, and clarity and permissions around those roles,” he said.

After seeing the Graham/Naraghi presentation at DAO Camp, Ehrlichman recognized Hats could solve a lot of the issues he’d seen within the social impact networks he’d helped build.

“Especially when those networks go beyond Dunbar’s number of 150 people, or the number at which you can meaningfully build social cohesion and trust,” Ehrlichman said. “As these networks proliferate around the world and are mostly online, there are not as many opportunities to have synchronous conversations and build trust.”

So Ehrlichman got involved with Hats to help people better coordinate and share resources on the Internet in decentralized, capture-resistant ways.

“Spencer [Graham] describes in his ‘Full-Spectrum Rule Enforcement’ talk how blockchain with smart contracts enables us to have a different kind of accountability than what we’ve been able to have before,” Ehrlichman said. “In our organizations and social systems now, the types of accountability mechanisms we’ve depended on are social accountability or pressure to adhere to norms, and legal accountability, which is what organizations really rely on.”

But according to Graham, legal accountability is expensive and often retroactive—where if an organization does something “bad,” accountability will be enforced by legal means. It’s not well-automated and in many ways is backward looking.

Transformational smart contracts

“As Spencer describes, what smart contracts allow for are creating constraints that are pre-programmed and encoded into the rules of the system,” Ehrlichman said. “They can also be dynamic and change based on other conditions or data that might be available on-chain. That means you can create contracts with one another that stipulate exactly how you can work together and what powers and permissions individuals and groups have under different conditions. You can have proactive accountability and dynamic accountability and it opens the spectrum to what Spencer calls ‘full spectrum rule enforcement.’”

But while blockchain and smart contracts have the power to transform social-good organizations, problems still persist, particularly those rooted in the web2 world.

“Blockchain platforms for social good often grapple with fundraising issues, regulatory uncertainties, and the difficulty of aligning [incentives] among diverse stakeholders,” Kevin Owocki, co-founder of Gitcoin, said to me over email. “Additionally, ensuring data privacy, achieving interoperability with legacy systems, and proving long-term sustainability remain significant obstacles.”

But Ehrlichman remains optimistic that on-chain smart contracts might be able to advance systemic change at the organizational level at a faster clip than through traditional means.

“Smart contracts could be a huge unlock for organizations and how they work together,” Ehrlichman said. “With smart contracts, the rules are encoded and don’t need to be determined through legal means and all the legalese that people have depended on. Instead, they can specify how resources are shared and under what conditions, which enables them to share accounts together using multisignature (multisig) wallets, stipulating exactly how and where people can spend those resources.”

One of the things Hats facilitates is enabling groups to delegate signing authority on accounts and multisigs to individuals, with the ability to also revoke that accountability as well. It is accountability that can also be assigned to things like social media access, access to important files or access that’s dependent on the fulfillment of specific conditions like receiving a certain amount of votes or holding a certain number of tokens.

“This is how DAOs are working well and can become even more efficient in the future,” Ehrlichman said. “We’re not just talking about two organizations working together, but tens of thousands of individuals who all have their own interests but are actually able to pool resources together and have influence over how those resources are directed.”

In this way, blockchain can help social good organizations move away from social and retroactive legal constraints toward a future that’s more proactive and encoded with rule sets.

“The future of blockchain in philanthropic initiatives looks promising as the technology continues to enhance transparency, accountability, and donor engagement,” Owocki said. “As these platforms overcome current hurdles and mature, they are likely to play an increasingly integral role in streamlining charitable efforts and measuring social impact.”

Ehrlichman sees the future of contributing to that social impact as not just contributing to a fund, but that blockchain will help enable influence over how those resources are spent or can influence where they are delineated.

“You’ll also have the ability to ‘rage quit’ as it’s called, or take your funds out and have custody over funds if you dislike the direction a project is going,” Ehrlichman said. “Blockchain presents an amazing way for people to pool resources from all across the world for specific social issues or social movements. It’s sort of the next evolution of Donor Advised Funds (DAF) or funding circles, and I would love to see more of it. There’s a great opportunity there.”

lead image: David Ehrlichman