Unlocking Scientific Innovation Through Decentralized Science – Part II

In Part I of this blog post I provided an overview of blockchain, DeSci, and the current funding problems that science as an institution is experiencing. In Part II I will discuss how DeSci can address the “Valley of Death” problem, provide an example of a current DeSci funding project and briefly discuss some of the risks associated with DeSci. 

How DeSci Addresses the “Valley of Death” Problem

By leveraging the inherent advantages of blockchain, such as accessibility, transparency, and immutability, DeSci aims to overcome the current funding problems relating to the Valley of Death and the lack of funding for non-conventional research by providing a long-term funding model.[1]  DeSci creates a funding system for scientific research by decentralizing access to funding by connecting researchers with various stakeholders and funders globally. By creating Decentralized Autonomous Organizations (“DAOs”) aimed at funding research, a research collective that comprises patients, researchers, and investor communities is collaborating to fund and govern research across the basic research stage, the translational research stage, and the clinical trial stage. Anyone interested in funding a specific field of research can become a member of a DAO by buying tokens from the DAO. 

DAO token holders can range from patients with an interest in the outcome of the research to private biotech and pharmaceutical companies and venture capital funds that want to invest in specific research. DeSci provides a landscape for more collaboration between researchers and funders toward a specific research project and closes the gap between basic research and clinical research by providing funding for translational research. Because more stakeholders are involved in the funding of the research, there is a better overview of where the research is heading from the basic research stage towards the translational research stage. 

Further, since the DAO has an interest in seeing the research entering the clinical research stage for it to be commercialized, given that some of the DAO members might be patients hoping to get a new treatment or because the DAO has an interest in the IP of the research, they have a bigger incentive to help the researcher through the translational stage, across the Valley of Death. DAOs in the DeSci landscape, therefore, provide an integrated end-to-end approach from basic research to clinical research by increasing efficiency, collaboration, and resource-sharing across all the research phases.[2] 

DeSci is a form of crowdfunding for research, however by using blockchain technologies such as smart contracts, and DAOs the risks associated with traditional crowdfunding are being addressed. DAOs allow funding decisions to be made online in a transparent manner, and the smart contract underlying the agreement executes automatically when certain conditions have been met, lowering the administrative and accounting burden associated with traditional crowdfunding. Also, given the transparency of how funding is provided and the immutability once members of the DAO have voted on a funding proposal, there is less room for fraud, and more certainty is built into the funding process. 

Given the decentralized nature of access to funding through the DeSci landscape, more funding options are also available for non-conventional science which usually struggles to obtain funding through conventional funding agencies.[3] Non-conventional science such as longevity, psychedelics, cryopreservation, and hair loss treatment are all research projects which are currently being funded by the DeSci community.[4] 

Example: Molecule and VitaDAO

Molecule, a Swiss Web3 power company, was launched with the aim to organize communities of life-science researchers, patients, funders, and other stakeholders into DAOs to democratize and advance research that will translate into benefits for society.[5] The company hopes to create a market for research in emerging areas of life sciences that are currently underfunded by conventional funding avenues, however, it shows to have commercial promise.

VitaDAO was the first DAO that was formed out of Molecule. VitaDAO received funds in their first round of funding in 2022 (USD 12.7 million) from investors, including biotech firms like NorthPond Ventures, and in 2023 obtained further funding from Pfizer Ventures, making Pizer the first pharma to vote on DAO proposal.[6] In turn, the DAO allocated funding to various research projects, with the first being a longevity research project by The University of Copenhagen in Denmark. 

To obtain funding from VitaDAO, a two-step process follows. Firstly, a research project is carefully and critically examined by the DAO’s working group, which consists of experts in the subject area, in the case of VitaDAO, longevity research, to determine if the research project should be recommended for funding or not. Suppose the working group decides that the research project should be recommended for funding, the second step is to present the research project to the DAO community of token holders, who vote on whether the project should be funded. In accordance with the proposal and votes, funding is then allocated to the research project from the DAO’s treasury. Each phase of the research project (discovery, animal trials, clinical trials) is presented to the DAO based on the findings of the previous stage, who will then make further decisions on if funding for the project should continue or not. The DAO, therefore, assists the scientist through the basic research phase, the translational research phase, and the clinical research phase, by voting on each of those phases depending on the results of the previous phase. 

One of the advantages of working with a DAO like VitaDAO from a researcher’s perspective is that researchers get insight into how the research grants are voted on, and they can see and understand the review process, which usually happens behind closed doors. From a funder’s perspective, the advantage is that they have a say in where the funding for research is going, unlike government grants, where most taxpayers are not even aware that some of their tax money is going to specific research. 

Not all researchers will be interested in using this funding model, but researchers who are more comfortable with technology and cryptocurrency will find this model attractive, which was certainly the case for researchers working on longevity research. 

Molecule realized that the ideology behind blockchain and longevity research is similar in the sense that a lot of emphasis is placed on “futurism” by both communities and therefore created a good fit for the creation of VitaDAO. Similarly to longevity research, Molecule is taking advantage of the overlap between tech-savvy billionaires’ interests and the growing field of psychedelics for their new project of PsyDAO and cryopreservation through CryoDAO. 

DeSci is still in its infancy and only a few scientific projects and scientific DAOs have been launched on the blockchain, making this space a new exciting developing space. However, as with the application of any new technology in a field that has not yet been applied before, it is important to identify the risks in the DeSci space as soon as possible to protect researchers and funders from misuse and abuse. 

Risks associated with DeSci 

One of the biggest risks currently relating to DAOs, which translates to the DeSci context, is the uncertainty surrounding the regulatory framework around DAOs given that there is no general understanding of a DAO’s legal status in the US.[7] Only 4 states, Vermont, Wyoming, Tennessee, and most recently Utah have now enacted specific laws to recognize DAO’s legal status.[8] In the absence of federal law, in the remaining states, it is assumed that, since there is no recognized legal status for a DAO, the token holders or contributors of a DAO are not protected under limited liability laws.[9] Due to the risks of liability, some DAOs have taken steps to take on a legal from outside the DAO by incorporating an LLC or foundation company, and these DAOs are known as wrapped DAOs. 

DAOs that do not have any legal existence outside the existence of the DAO are known as unwrapped DAOs and are viewed as a general partnership.[10] A general partnership is defined under the Uniform Partnership Act (“UPA”) as “when two or more persons associate for the purpose of engaging in a business for profit and no other form of business organization is chosen by the associates”.[11]  

In a recent case in the Northern District of California, the court concluded that Ooki DAO has the legal capacity to be sued because it was a “general partnership” or “unincorporated association” and service made through the DAO’s online community forum was sufficient.[12] It also found that the token holders who participated in the governance of the DAO are considered to be “general partners” and therefore liable for the activities of the DAO. If this line of reasoning is used in future cases a DAO that does not have a legal wrapper will be qualified as a general partnership or an unincorporated association, and any token holder of the DAO who voted using the DAO’s governance token is a member of the entity who could be jointly and severally liable for the entity’s debt and obligations. Therefore voting in a DAO could make you liable. This is a big risk for DAO members and might prevent potential funders from joining a DAO, which will have a chilling effect on the DeSci landscape.  

Given the openness of DeSci and blockchain, another concern is surrounding the quality of the participants in the DeSci community. Ideally, you want funding for research to be governed by people who have some expertise or knowledge in the field of science to ensure that the funding gets allocated to good-quality research projects. To prevent funders from being misled by research proposals, Molecule has implemented a system where a research proposal is first examined by a panel of experts in the field of the research. Once it has been approved by the panel of experts, the proposal is made to the DAO members to vote on whether they want to fund the project. This mechanism builds trust in the DeSci community to prevent bad actors from misappropriating the system. 

DeSci has the potential to address some of the current problems, such as funding, that science as an institution is experiencing, by leveraging the advantages that blockchain as a technology provides. Researchers and funders that are interested in getting involved in the DeSci landscape should be aware of these risks to avoid possible harm to themselves and others. DeSci might not be the only solution to the current problems that science is experiencing, however, it might provide a possible viable solution. DeSci possesses the capacity to generate novel products and innovations that may have remained unrealized otherwise. The emergence of the next groundbreaking scientific product or invention could very well originate within the realm of DeSci. 

[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.

[3] Decentralized science (DeSci), ethereum.org, https://ethereum.org (last visited Apr 17, 2023).

[4] Bio.xyz, https://www.bio.xyz/.

[5] Laura DeFrancesco & Ariel Klevecz, Decentralized investor communities gain traction in biotech, 40 Nature Biotechnology 1310 (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 Metjahic, Deconstructing the DAO: The Need for Legal Recognition and the Application of Securities Laws to Decentralized Organizations Notes, 39 Cardozo L. Rev. 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.