Why web3’s wealthy are donating crypto instead of cash
As the Russia-Ukraine war rages on, crypto has become an integral tool for donors abroad to support Ukraine. The success of crypto-native fundraising campaigns in this context is reflective of a broader trend that’s taken off in a big way this year of crypto holders giving away their coins to support charitable causes.
The Ukrainian government itself has already raised over $54 million in Bitcoin, Ethereum, Tether, Polkadot, and other cryptocurrencies primarily to fund its military,The Ukrainian government’s Ministry of Digital Transformation has spearheaded the effort to bring in donations through crypto, and the new partner companies will help convert these donations to fiat currency and send them to Ukraine’s central bank,
While the Ukraine invasion has certainly acted as a catalyst for donors to give away crypto, the mechanism surged in popularity last year across all types of charitable causes.
All of this begs the question – why are donors choosing to give away crypto instead of cash?
Tax incentives are a key motivating factor
“If you are someone who wants to do something charitable, and you have crypto that has appreciated, that appreciated crypto is your most tax-incentivized way to give,”
For U.S.-based donors, there’s a key difference between giving crypto to an established 501(c)3 organization versus donating to any other cause, such as a foreign government in the case of Ukraine. The former often results in a lucrative tax benefit to the donor, while the latter does not.
Donating cash to a legally recognized nonprofit qualifies as a tax write-off for donors, allowing them to reduce the amount of taxes they owe by the amount they give away to charity. Donating assets, like crypto or stock, can be even more beneficial than giving away cash because it provides another important tax incentive on top of the write-off.
Normally, if cryptocurrency holders sold their coins after they have appreciated in value to lock in a profit, they would have to pay up to 37% of that profit in capital gains taxes. If they donate the coins instead, they usually don’t have to pay capital gains tax at all. The dual tax incentive helps explain why crypto holders, who usually want to hold onto as much of their digital currency as possible – in hopes that it’ll continue to rise in value – are actually willing to give it away to charities instead of just donating cash.
“If you’re in crypto, especially early into crypto, you’re probably interested in just being at the cutting edge and wanting to be a part of something that’s going to change the world,”
Crypto giving wasn’t just limited to coins, though – charitable NFT projects also gained traction among donors. Popular NFT artist Pplpleasr, for example, used the Endaoment platform to donate the proceeds from her art to the Stand with Asians Community Fund.
NFTs in particular have the potential to unlock long-term donation streams for nonprofits. Solana-based NFT marketplace Metaplex allows creators on its platform to support charities with recurring royalty payments through their NFT sales through an integration with donation API startup Change.
Web3 creators see NFT donations as an opportunity to “leave a legacy through their work.