Increasing financing to Venezuelan NGOs. Blockchain and cryptocurrencies: A real solution?
According to the Global Humanitarian Assistance Report 2022, in the last three years, global funding for humanitarian responses has stagnated across the globe.
Different initiatives are being promoted to find innovative mechanisms that expand financial support to local organizations that serve communities with higher levels of need.
This is why in our previous article, we asked ourselves if we could reduce the financing gap for local NGOs that execute humanitarian projects in Venezuela with the support of Venezuelan migrants.
We had identified a need to create a channel for receiving, managing, and delivering donations to local actors through a platform that would take advantage of blockchain and cryptocurrencies and promote trust and transparency among the different stakeholders.
In this Sprint, we focused on: creating the prototype, simulating and evaluating different possibilities, and sharing back our results.
Creating the prototype
To validate our premises, we built a proof of concept for our smart contract and deployed it on Polygon’s test net and then on a local Loom chain.
Polygon is an ethereum layer 2 platform that allows developers to create apps that interact with smart contracts deployed on the ethereum blockchain.
Loom Network is a blockchain platform that allows developers to build decentralized apps running on their own chain that is able to interact with other chains, like ethereum.
This contract was written in solidity -a language used to write smart contracts on ethereum virtual machines- and the main difference between deployment on Polygon and Loom was the ethereum development environment used, as Hardhat and then Truffle were the choice for each of the previously mentioned platforms respectively.
If you’d like to check the code, details, and results for these proofs of concept, you can visit these public reports here: https://github.com/FundacionS4V/polygon-proof-of-concept and https://github.com/FundacionS4V/loom-proof-of-concept.
After testing different scenarios with the contracts, both through specific actions and credits transfers, we consider these the most important findings:
Polygon proof of concept
- Deployment on an ethereum blockchain, a cost that FS4V as platform owner would assume, is around $20 for a donation pool contract like the one we built
- To make a donation on this ethereum blockchain in order to add funds to the contract, users had to assume a fee on the range of $2-$6 that depends more on transfer miners current availability at the moment of the transaction, than on its amount
- A simple contract interaction, in this case voting to choose a winning project, is easy to build for a fairly low fee. In our case, the mean voting fee was around $0.15
- Hence, the solution seems viable for donors that are willing to donate at least $200. For contracts with a $2500 goal, the fee would be around 2.5%. In this case, the deployment and final transfer fee would represent around 1%
Loom Network proof of concept
- Deployment on Loom was validated to have $0 related fees; service on production blockchain is allowed based on S4V paying a recurrent fee.
- Because transferring ethers or bitcoins into the Loom production chain is basically transferring them on their chains and then building a linked transaction on Loom, transfer fees can be assumed to be the same as those found in previous experience.
- Simple and complex contract interaction also require no fees on the Loom chain.
- It seems that deploying on Loom Network would make sense in a similar scenario than the one recently described; however, in this case, there is also an opportunity to build a more complex ecosystem of related initiatives, such as $0 fee contract interactions and the possibility to build on custom sidechains bonded to Loom base chain would make it easier to implement governance dynamics and customize transaction validation.
In general terms, we have validated that a close to autonomous donation pool contract can be built and deployed as a tool for donors to fund an NGO’s project amongst a group of candidates. This would make sense for a population of cryptocurrency-enabled NGOs and a relatively wider population of cryptocurrency-enabled donors.
If we were working within an environment where cryptocurrencies are widely spread and used, then it would make sense to build an ecosystem of humanitarian financing that incorporates official stakeholders to comply with relevant regulations, like validating fund’s legitimacy, as well as non-official ones, like certified products and services suppliers, to build efficient governance and cooperation dynamics.
The crypto world: Venezuelans abroad and local NGOs.
In the survey we conducted with Venezuelan migrants in the previous sprint, we found that only 20% carried out transactions in cryptocurrencies, and only 40% of them would be willing to make monetary donations to projects that are being carried out in the country, although we do not know if they would do so through cryptocurrencies.
Additionally, through virtual interviews and face-to-face meetings with local NGOs in Bolívar, Táchira, Zulia, Falcón, and Caracas, we confirmed that none of these organizations receive donations through cryptocurrencies . Furthermore, they do not have the technical capabilities or crypto-literacy to use them.
Exchanges between fiat currencies and cryptocurrencies.
To reach as many people as possible to add them to our platform, we must consider what financial mechanisms they already have and how we could use them in our favor.
We identified two groups that could make donations: the specialized public that manages cryptocurrencies (a small market) and the public that uses financial instruments such as credit cards or bank accounts (a wider market).
To analyze the feasibility of using a blockchain system for the wider market (from the time the money leaves the donor until it reaches Venezuela), we needed to calculate the amount of money that could “fall by the wayside” due to commissions associated with the use of blockchain through t platforms and bank fees.
We had several principles to consider: compliance with all regulations, transparency, and cost-effectiveness. Taking into consideration the particularities of Venezuela, in an environment of international sanctions, we had to guarantee that the Venezuelan financial system could be used.
We found that the average percentage of money left in commissions ranged from 16–22%. This represents a very high amount, which would make this mechanisms not cost-effective or feasible in this environment.
What’s Next?
According to the results we found in this sprint, creating a platform with the characteristics that we had proposed at the beginning of the project makes sense as long as a large population uses cryptocurrencies as a commonly used transaction channel. Still, it was not what we found when we applied it to Venezuelans living abroad and to local NGOs.
Taking this into consideration, in our next experiment, we would seek to build our pilot solution as a web platform -not based on cryptocurrencies or a blockchain- that manages resources exclusively in fiat currency and attempts to maintain governance and transparency dynamics previously conceived as part of our design principles, addressing potential donors greatest concern: trust and reliability.
