In Part I, I gave an overview of DeSci and blockchain. I also discussed the funding issues that science is currently facing. Part II will cover how DeSci addresses the “Valley of Death”, provide an example of current DeSci funded projects, and briefly discuss the risks associated with DeSci.
How DeSci addresses the “Valley of Death Problem”
DeSci’s long-term funding plan leverages the inherent benefits of blockchain such as transparency, accessibility and immutability to solve the funding issues relating to Valley of Death, non-conventional funding and funding shortages. DeSci is a system that decentralizes access to funding for scientific research. It connects researchers with stakeholders and funders around the world. Decentralized Autonomous Organizations (DAOs) are a way for a collective of researchers, investors, and patients to collaborate on funding and governing research at the various stages: basic research, translational research, and clinical trials. By purchasing tokens, anyone interested in funding research for a particular field can join a DAO.
DAO token holders include patients who are interested in the outcome, private biotech companies and pharmaceuticals and venture capital funds looking to invest in a specific research. DeSci creates a platform for researchers and funders to collaborate on a particular research project. It also bridges the gap between clinical and basic research by funding translational research. The funding of research by more stakeholders allows for a better understanding of where research is headed from the stage of basic research to the stage of translational research.
The DAO may also have an interest in ensuring that the research is taken to the next stage of clinical research to allow it to be commercialized. Some DAO members could be patients who are hoping for a new treatment, or the DAO might have an interest in the intellectual property of the research. This gives them a greater incentive to assist the researcher in navigating the Valley of Death. The DAOs of the DeSci ecosystem provide a seamless end-to-end research approach, from basic to clinical, by enhancing efficiency, collaboration and resource sharing across all research phases. [2]
DeSci, a crowdfunding platform for research, uses blockchain technology, such as DAOs and smart contracts to reduce the risks of traditional crowdfunding. DAOs enable funding decisions to made in a transparent way online. The smart contract underlying an agreement is executed automatically once certain conditions are met. This reduces the administrative and financial burdens associated with traditional crowdfund. The DAOs are transparent in the way they provide funding and their voting process is immutable. This makes it harder for fraud to occur and increases the certainty of the funding process.
DeSci’s decentralized funding model opens up more funding opportunities for non-conventional sciences that are often unable to find funding from conventional funding agencies. DeSci is currently funding research on non-conventional sciences such as hair loss, longevity, psychedelics and cryopreservation. [4]
Ex: Molecule & VitaDAO
Molecule is a Swiss Web3 company that was founded with the goal of organizing communities of life science researchers, patients, funding sources, and other stakeholders to form DAOs. This would democratize research and make it more accessible to society. [5] The company hopes that it can create a market to fund research in areas of emerging life sciences which are not currently funded by conventional funding sources. However, the company has shown commercial promise.
VitaDAO is the first DAO to be formed from Molecule. VitaDAO received funding for their first round in 2022, which was USD 12.7 million, from investors such as biotech companies like NorthPond Ventures. In 2023, they obtained additional funding from Pfizer Ventures. Pfizer became the first pharmaceutical company to vote on a DAO proposal. [6] The DAO then allocated funding to a variety of research projects. The first was a longevity project at The University of Copenhagen, Denmark.
A two-step procedure is followed to obtain funding from VitaDAO. The DAO working group, consisting of experts on the topic, in VitaDAO’s case, longevity research is responsible for evaluating the research project and recommending funding. If the DAO working group recommends funding for the research project, the next step is to show the project to the DAO token holders who will vote whether or not the project should receive funding. The DAO treasury will then allocate funding to the project based on the votes and the proposal. The DAO will decide whether to continue funding the project or not based on each phase (discovery) of the research project. The DAO helps the scientist to navigate the phases of basic research, translational research, and clinical research by voting on those phases based on the results from the previous phase.
Researchers who work with a DAO such as VitaDAO have the advantage of being able to see how research grants are voted upon and can understand the review process which is usually done behind closed doors. Funders have the opportunity to influence the direction of research funding, as opposed to government grants where taxpayers may not be aware that their money is being used for specific research.
Researchers who have a greater comfort level with technology and cryptocurrency may find this model appealing. This was the case when researchers involved in longevity research were interested.
Molecule realised that blockchain and longevity research are similar in that both places a great deal of emphasis on “futurism”. This made VitaDAO a perfect fit. Molecule, in a similar way to longevity research is leveraging the overlap of tech-savvy billionaires’ interests and the growing field psychedelics through their new project PsyDAO.
DeSci, which is still in its early stages, has only a handful of scientific projects and DAOs on the blockchain. This makes this a very exciting and developing area. As with any new technology that has never been used before, it’s important to identify risks as quickly as possible in the DeSci area to protect funders and researchers from abuse and misuse.
DeSci : Risks and benefits
The uncertainty around the regulatory framework for DAOs is one of the greatest risks that currently exists in relation to DAOs. This is because there is no understanding of a legal status of a US DAO. Only four states have passed laws that recognize the legal status of DAOs. These are Vermont, Wyoming Tennessee and Utah. In states without federal law, token holders and contributors to a DAO may not be protected by limited liability laws, as there is no legal recognition of a DAO. [9] To reduce the risk of liability, many DAOs have incorporated an LLC or foundation, and are known as “wrapped DAOs”.
Unwrapped DAOs are DAOs without any other legal existence than the DAO itself. They are viewed as a partnership. Under the Uniform Partnership Act (UPA), a general partnership is “when two or three persons associate to engage in business for profit, and they choose no other business organization”. [11]
In a recent court case in the Northern District of California the court determined that Ooki DAO had the legal capacity to sue because it was an “unincorporated association”, or “general partnership”. The court also found that the service provided through the DAO’s online community forum sufficed. The court also determined that token holders who took part in the DAO’s governance are “general partners”, and as such, liable for its activities. This reasoning will be used in the future to qualify a DAO without a legal wrapper as a general partner or unincorporated association. Any token holder who voted with the DAO’s Governance token would be a member of that entity and could be jointly and manyly liable for its debts and obligations. Voting in a DAO can make you liable. This could be a major risk for DAOs and discourage potential funders to join a DAO.
A second concern, given the openness and transparency of DeSci with blockchain technology, is the quality of participants in the DeSci Community. You want to make sure that funding is allocated to high-quality research by experts in the science field. Molecule implemented a system that requires a panel consisting of experts to review a research proposal before it is presented to funders. This prevents them from being misled. After the proposal has been approved, it is presented to DAO members for a vote. This mechanism helps to build trust within the DeSci Community and prevents bad actors from misappropriating system.
DeSci can help solve some of the problems that science is currently facing, like funding, by taking advantage of the benefits that blockchain technology offers. Researchers and funders who are interested in becoming involved in the DeSci ecosystem should be aware of this risk to avoid harming themselves or others. DeSci may not be the best solution for the problems facing science today, but it could provide an alternative viable solution. DeSci has the ability to create novel products and innovative ideas that would not have been possible otherwise. DeSci could be the source of the next breakthrough scientific product or innovation.
[1] John Cumbers, The DeSci Movement: Will Crypto Really Solve Science’s Biggest Problems?, Forbes, https://www.forbes.com/sites/johncumbers/2023/04/28/the-desci-movement-will-crypto-really-solve-sciences-biggest-problems/.
[2] BioDAOs are Community-Owned Research Translation Engines, Not Investment DAOs, https://www.molecule.to/blog/biodaos-are-community-owned-research-translation-engines-not-investment-daos.
[4] Bio.xyz, https://www.bio.xyz/.
[5] Laura DeFrancesco and Ariel Klevecz. Decentralized investor community gain traction in Biotech. 40 Nature Biotechnology 1302 (2022).
[6] John Cumbers, Longevity Startup VitaDAO Raises $4.1m, Backed By Pfizer, Balaji Srinivasan, Forbes, https://www.forbes.com/sites/johncumbers/2023/01/30/longevity-startup-vitadao-raises-41m-backed-by-pfizer-balaji-srinivasan/.
[7] Molecule, What are risks of IP-NFTs?, https://docs.molecule.to/documentation/ip-nft-protocol/what-are-risks-of-ip-nfts.
[8] DAO Legislation at the State-Level: A Brief Overview, DeFi Education Fund (2023), https://www.defieducationfund.org/post/dao-legislation-at-the-state-level-a-brief-overview; Utah DAO Act: How the law was made and what it means for decentralized business, Cointelegraph (2023), https://cointelegraph.com/news/utah-dao-act-how-the-law-was-made-and-what-it-means-for-decentralized-business.
[9] Laila Methjahic, The Need for Legal Recognition and the Application Securities Laws to the Notes of Decentralized Organizations, 39 Cardozo Law Review i (2017).
[10] Id.
[11] Partnership Act (1997) (Last Amended 2013) – Uniform Law Commission, https://www.uniformlaws.org/committees/community-home/librarydocuments/viewdocument?DocumentKey=a8345b8f-9b20-4498-b50f-f3a6d59841f4.
[12] Commodity Futures Trading Comm’n v. Ooki Dao, 3:22-cv-05416-WHO | Casetext Search + Citator, https://casetext.com/case/commodity-futures-trading-commn-v-ooki-dao-1.