The scene: Sotheby’s auction house in Manhattan. Auctioneer Quig Bruning is poised at the lectern before a packed house. Bidding is set to commence at $20 million.
The object in question: A rare, first printing of the U.S. Constitution, one of 13 surviving copies, made for delegates to the Constitutional Convention and Continental Congress.
After a brief introduction the bearded auctioneer commences, and what happens next is straight out of Hollywood: Escalating million-dollar bids phoned in from unseen buyers (on old school landlines presumably to guard against dropped calls), last second raises and high anxiety.
The bidding immediately soars $10 million to $30 million and is pared to two buyers. After that the action slows a bit, though the tension mounts as Bruning congenially elicits $1 million increments. “Quite the drama,” he remarks at one point. (No kidding.) The gavel finally comes down at $43.2 million, a record sale for a historical document according to Sotheby's, with the winner being billionaire financier Ken Griffin, founder of the Chicago hedge fund and financial services firm Citadel.
(You can watch it all unfold here.)
What Bruning, (or even the participants themselves) may not have realized, is that there was even more here than meets the eye.
What this auction reflected was a smackdown between elite, status-quo finance versus the encroaching world of populist crypto. Because bidding against Griffin and ultimately losing was a crypto-backed entity, ConstitutionDAO, which represents that very new world of non-money, money.
What the heck is ConstitutionDAO? A group of crypto investors who banded together specifically to buy the Constitution using a digitally based organizational structure called a decentralized autonomous organization (or DAO). (Pronounced “Dow.”) Sort of like a decentralized Kickstarter, GoFundMe, or Indiegogo campaign done on crypto. Or maybe even better “a group chat with a bank account,” as one participant describes it.
Ken Griffin may not be J.P. Morgan, and has done some disrupting of his own, but relative to these cats, he’s 100% legacy. That Griffin — who’s been a crypto skeptic, though he’s come around a bit recently —intends to exhibit his copy of the Constitution at Crystal Bridges Museum in Bentonville, Arkansas, which is funded by Alice Walton, daughter of Walmart founder, Sam Walton, is perhaps icing on the old economy cake.
I’ll get back to Grif and the auction in a bit, but first some more on DAOs, which for starters have an ill-defined legal status as of now. So far only Wyoming has legally recognized DAOs. (Hey, here’s an FAQ sheet on how to form a DAO from the Wyoming Secretary of State for ya!) The SEC has taken note and seems not to be amused. To wit: “SEC Stops Wyoming-Based DAO From Registering 2 Digital Tokens."
“The reality of DAOs is they’re not currently legal structures at all,” says Alex Taub, co-founder of Upstream, a platform that streamlines and simplifies the process of creating a DAO, who says he invested a few hundred dollars in ConstitutionDAO. “I don’t care what Wyoming says, that’s flimsy. They’re potential legal structures. The concept of the LLC has only been around since the 1970s, who’s to say DAO is not the LLC of the future?”
On the other hand the federal government hasn’t completely dismissed DAOs. For instance, in a recent bizarro, rabbit hole of a story (even by crypto standards), the Feds sold (through intermediaries) Wu-Tang Clan’s one-of-a-kind album “Once Upon a Time in Shaolin,” which it had confiscated from “Martin Shkreli, (the price-gouging young pharmaceutical speculator who was later convicted of securities fraud)” to PleasrDAO for $4 million, according to The New York Times. Believe me when I tell you this stuff is wild.
Even wilder perhaps (it's difficult to imagine using the superlative adjective in crypto) is Olympus DAO, “a "staking" scheme with an annual percentage yield of 7,000% via new OHM token mints,” according to CoinDesk. (What could possibly go wrong?) In the mood for a tamer, warmer DAO? Check out Kimbal Musk’s (yes, Elon’s bro) Big Green DAO, the first nonprofit-led philanthropic DAO, which focuses on food justice.
For all their revolutionary potential, it’s early days yet for DAOs, with the concept only going back to 2015 or so. One infamous project, “The DAO” launched in 2016 using Ethereum (ETH-USD) and was hacked shortly thereafter. (That hack resulted in what’s known as “hard fork” of Ethereum from Ethereum Classic for those of you versed in this kind of thing.)
Some say DAOs are having their moment — or maybe getting ready for prime time is more like it. “We believe that this past month with the ConstitutionDAO will be the NBA Top Shot moment for DAOs,” says Taub, referring to the basketball NFT (a non fungible token, I wrote about them here) which jump-started that realm.
I should also note that DAOs are connected to the broader trend of what’s known as DeFi (or decentralized finance), a blockchain-based financial parallel universe that uses no (or little) traditional intermediaries like banks, exchanges or broker dealers. It remains to be seen how viable DeFi and DAOs, as well as NFTs and indeed the whole world of crypto is. Suffice it to say that activity in this new world is ramping up, and to a degree at the expense of the legacy world. Will the new world come crashing down? Who knows.
But let’s return to that auction of the Constitution, because there’s a slew of fascinating detail. The Verge, fyi, just did a nice longform interview with Jonah Erlich, a software engineer, who was one of 30 ConstitutionDAO’s core contributors (don’t say organizer).
Turns out the project had 17,437 donors with a median donation size of $206.26, who ponied up Ethereum through a platform called Juicebox.money. According to the Verge interview, the whole thing started as a joke on Twitter and came together in a week. (If that seems capricious, note that Griffin just revealed that buying the Constitution was whimsy for him too. From Bloomberg: “I was sitting at home in New York and my son calls me to say, ‘Dad, you have to buy the Constitution'” (Insists the billionaire’s son.)
As for Erlich, he ended up actually going to Sotheby's for the auction. This from The Verge: “It was exhilarating. … During the auction, when the number was creeping up, I felt like I was going to puke. If we won, I might have cried. It was a very intense experience, especially after this crazy week.”
And what if in fact his group had won? What were their intentions?
“...At that point, the DAO would have voted on what to do with it. For example, we had museums lined up that were going to give proposals on how their museum should be the one to store and display this document. The DAO would also be able to vote on what text should be displayed alongside this copy of the Constitution. What message do we want to share with the world? We probably would have funds left over to give to a community that is really excited about doing things. The token holders would set the future direction.”
Sounds reasonable enough. On the other hand, when Kevin Roose of The New York Times in this comprehensive piece took “a spin through” this community he also found that someone raised this slightly more disturbing line of questioning: “Is there a safeguard to make sure the DAO doesn’t vote to eat the constitution? Or other method of destruction?” Yikes!
In any event it’s all moot because ConstitutionDAO lost — at least in part perhaps because Griffin could see the DAO’s bid was capped at $42 million (Sotheby’s required the DAO to keep millions in reserve) and simply exceeded it by $200,000. “They should’ve obfuscated how much they had,” says Taub. "You’re playing poker with the richest people in the world. They’re no dummies.”
Cullen Roche, the founder and chief investment officer at financial advisory firm Discipline Funds and a former advisor at Merrill Lynch, has a similar take. “I think the lesson with the Constitution DAO is building an entity that publicly reports its bidding value is obviously pretty naive,” he says. “Everybody knows Griffin has bottomless pockets, he wouldn't go to bid and say I’m worth $40 billion and here’s all $40 billion —come play ball. He would never put up a bid like that. In this case transparency was counterproductive and a weakness.”
And there was Griffin’s state of mind. “I told myself, ‘I am going to own this. I don’t do that very often,” he said at an interview on Thursday after a luncheon hosted by the Palm Beach Civic Association at the Florida city’s Four Seasons hotel, according to Bloomberg.
Bloomberg also reported that Griffin said he was in touch with the DAO the night of the auction, and after he won looking to “arrange a joint governance for the document.” A Citadel spokesman said that Griffin “also proposed allowing each of the roughly 17,000 participants in the ConstitutionDAO group the right to generate a non-fungible token tied to the copy.” None of this came to fruition however.
The group is now in the process of endeavoring refunds (which will be net of expenses, called "gas fees"), which some have suggested could be onerous, especially relatively speaking for those who put in small amounts.
Meanwhile, and just to give you another reminder (as if you need one) of how wild and wooly this world is, ConstitutionDAO tokens (named People — like “we the People”) have become a "meme coin" a la Shiba Inu and dogecoin and were still trading as of yesterday morning. As CoinDesk reports: “PEOPLE has no utility and offers no governance rights to holders. But this hasn’t stopped crypto natives from trading up the token to a fully diluted market cap of $839 million as per CoinMarketCap. And the trading frenzy is leading to losses.” (Gee.)
Still, the people of ConstitutionDAO have proudly declared on Twitter (59,700 followers) this to be a victory of sorts and they’re right about that.
In other words, you best believe that Sotheby’s and the rest of the art world knows all about DAOs now. And that this won’t be the last DAO formed to try to buy a document or a piece of art.
And what about beyond that? What about buying a building, a company or even an NFL team (see below)? Why not? If this merry band could pull together $47 million in a few days on whim, imagine what one of these babies could do with say a Greta Thunberg or Amanda Gorman super-charging it?
At some point a DAO will likely make an even bigger splash. KrauseHouseDAO — an homage of sorts to the late Chicago Bulls’ general manager Jerry Krause — recently tried to raise money to buy the Chicago Bulls. Or maybe, as Yahoo Finance’s Zack Guzman tweeted, a DAO might buy the Broncos. (Legendary Bronco quarterback John Elway, who missed out on a chance to buy a stake in 1998 and is reportedly interested in buying in today, may want to bone up on DAOs.)
DAOs may end up doing a million small things too. “The future of the concept of the DAO ends up becoming a group-chat of a few people who pull money together to do stuff,” says Taub. “[It’s] Web3 with an iMessage wallet attached to it. iMessage meets Venmo.”
For now at least, reverberations from the great Constitution auction of 2021 are still being felt. Bloomberg reports that “Michael Novogratz, billionaire founder of Galaxy Digital Holdings, said Thursday during the Goldman Sachs U.S. Financial Services Conference that Griffin’s bid spoiled the party."
“ConstitutionDAO might have been the coolest thing that happened all year long in crypto, because it’s the pure essence of, ‘Here we are, we are doing it for the people, buying one of the founding documents, one of 13 Constitutions, and we’re gonna give it back to the people.’ Unfortunately, Ken Griffin played the Grinch — rich billionaire coming in to kind of spoil the party, in what I would call a tone-deaf move.”
Note that Novogratz playing the Everyman may strike some as ironic, given that one could argue the Princeton wrestling champ, cum National Guard helicopter pilot, cum Goldman Sachs’ partner, cum hedge fund honcho, cum Federal Reserve advisor is of the old elite world. But note too that Novo has been whole-hog into crypto for more than half a decade now.
So what about this idea generally that DAOs and crypto are disrupting Wall Street?
“It’s weird for me to see things like bitcoin and crypto being touted as an inequality breaker,” says Cullen Roche. "When you look at ownership of bitcoin it’s way more massively unequal even than stocks and bonds are at present. There’s also a lot of hype and narrative of some of these things that exaggerate the benefits of the existing system. Is this really going to overthrow the financial system? Do you think Ken Griffin will go away without a fight?”
There are problems aplenty to be worked out with DAOs. For example, here’s what Alexis Goldstein, the director of financial policy for the Open Markets Institute, says when asked if DAOs can serve as an alternative financial structure that decentralizes control: “In theory, but what I’ve seen in practice it more closely resembles what is seen in shareholder votes: The biggest shareholders have the biggest say.”
Then there are the risks that accompany DAOs as Roche notes: “You could have DAOs being run by Russian bots that are buying, who knows, public companies, doing weird things that could have a big impact on U.S. economic outcomes.”
Roche, Goldstein and others agree that what DAOs desperately need is regulation and governmental oversight. Problem is the politicians never seem to agree on anything — which disruptors love. Caveat Emptor.
This article was featured in a Saturday edition of the Morning Brief on December 11, 2021. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe
Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter: @serwer