The Ukrainian government posted pleas for crypto donations on February 26th, 2022. SMU Cox Professor Jane Tan was inspired by the Ukrainian government’s innovative use of cryptocurrency for a fundraising campaign amid a critical event—when Russia attacked. The event’s novelty stems from being one of the first instances in using blockchain technology for fundraising in a real-world cause. Tan’s new research delves into cryptocurrency rewards in this unique fundraising setting. Interestingly, significant differences in fundraising trends were noticed between Bitcoin and Ethereum, with their underlying causes investigated.

The Giving Block, a crypto fundraising platform, notes working with 1,500-plus nonprofits. Crypto fundraising allows them to tap into a unique demographic that traditional fundraising channels do not reach. Tan notes, “Crypto donors are typically younger, wealthier, and more passionate about causes aligning with blockchain community values such as freedom and decentralization.” The study’s findings are of great relevance because there were 420 million crypto users as of 2023 and 1 billion crypto users expected by the year 2030.

Tan’s research combines a field study, based on the fundraising plea, and a laboratory experiment, complementing the field study to understand how crypto rewards can influence donor behavior. Crypto rewards are “thank-you” gifts in response to donors’ generosity.

Bitcoin or Ethereum?

As the fundraising event unfolded, Tan was observing online, noting people ‘pulling data’ from Bitcoin and Ethereum to see how funding trends were evolving. “I realized that there was a huge discrepancy,” she recalled. Tan performed a difference-in-differences analysis and scoured articles to piece it together. She observed that donation counts increased over 700% more for Ethereum than for Bitcoin in response to the announcement of crypto rewards. The dramatic rise in Ethereum donations coincided with the announcement of an “airdrop” by the Ukrainian government.

Airdrops, traditionally used in initial coin offerings (ICOs), involve distributing tokens to promote blockchain-based projects. This airdrop promised rewards for donating within a specified timeframe, primarily influencing donations via Ethereum. Influential YouTubers further fueled this trend by advising their followers to donate using Ethereum for a better chance of receiving the reward. “Before the airdrop (crypto reward), funds from Ethereum and Bitcoin were rising in a parallel way,” Tan says. After the airdrop was announced, funds from Ethereum seemed to rise rapidly. Bitcoin was rising also, but in a much slower rate. She adds, “The difference is due to the higher likelihood for the airdrop to be issued on Ethereum rather than Bitcoin.” While Ethereum more effectively enticed giving than Bitcoin, it did so with a lower average gift amount.

In the case of the Ukrainian government, the airdrop was unique as it was employed to support a social cause rather than a blockchain project. This marked a significant innovation—the potential of blockchain technology to support real-world initiatives. Incidentally, the airdrop was revoked, but offered a study window for Tan.

A Dictator Game

Following the field study, Tan performed another laboratory experiment to further understand crypto rewards. The lab experiment involved a “dictator game” design where participants were given money to allocate between themselves and the nonprofit Doctors Without Borders. Various conditions were tested. The findings revealed that while traditional matching grants were the most effective in encouraging donations, NFT rewards increased the donation amount among those who chose to donate. This underscores the importance of the design and perceived value of NFT rewards. Tan says, “Crypto rewards, like NFTs, present a cost-effective incentive for donors, as their value can appreciate over time, enhancing the appeal of the fundraiser.”

Crypto rewards differ in two main ways versus traditional thank-you gifts. First, crypto rewards may carry an investment value. Though valueless when they are initially minted, their value can increase when exchanged. The NFT reward (the Ukrainian flag) for Ukraine’s fundraising plea was sold for 2,258 ETH, about $6.75 million at the time, and donors could profit from the sales. Second, crypto rewards come with a permanent record as they are immutable. They can be used as symbolic recognition to “signal the pro-sociality of the donor,” says Tan.

Crypto fundraising recommendations

Based on the research findings, Tan offers several recommendations for designing successful crypto fundraising campaigns:

1) Alignment with blockchain values: Fundraisers should assess whether their cause aligns with the values of the blockchain community. Causes promoting freedom and decentralization are likely to resonate more with crypto donors.

2) Highlighting investment value: Crypto donors are often motivated by the potential investment value of rewards. Fundraisers should communicate the potential for the value (e.g., exclusivity) of crypto rewards to increase over time.

3) Crypto rewards vs. matching grants. While the Ukrainian government’s fundraising plea highlights the potential for crypto rewards, the authors stress that a matching grant may continue to be an effective way to stimulate giving. This is especially true when the crypto rewards offer low monetary returns or symbolic recognition.

4) Showcasing NFT rewards: The visual design of NFT rewards can significantly influence donor behavior. Fundraisers should display the NFT rewards upfront to motivate potential donors. A well-designed NFT, featuring donor and recipient identities, can enhance the perceived value of the reward.

The study highlights the importance of understanding the unique characteristics of crypto donors, the role of rewards, and the use of blockchain technology to support real-world causes. Given the unique case study of the Ukraine war event, careful consideration must be given to the design and execution of campaigns.

The paper “The Effect of Crypto Rewards in Fundraising: From a Quasi-Experiment to a Dictator Game,” by Jane Tan, Cox School of Business, Southern Methodist University, and Yong Tan, University of Washington, is under review at Information Systems Research.

Written by Jennifer Warren.