This is an awesome post, and it’s a strong update in the direction of EV & CEA being much more transparent under your leadership. Very keen on hearing more from you in the future!
One other risk vector to EV stood out to me as concerning, but went somewhat unaddressed in this post. Consider:
EV was in a financial crisis; it had banked on receiving millions from FTX over the coming years
If a fraudulent or otherwise problematic individual hasn’t been caught by the legal system, EV’s donor due diligence tools may not catch them either.
I worry that the focus on legal risks is potentially missing a counterfactual here where a funding source is systematically upset. EV was not just banking on FTX to stay solvent / unfraudulent, but was also implicitly depending on cryptocurrency to remain frothy (the same can be said for EA, especially long-term risk cause areas, more broadly). Counterfactually, had FTX not been fraudulent, I still think that’s it’s likely that cryptocurrency would have collapsed over the following years. Assuming that the LTFF was receiving a proportion of FTX’s funds, this still could’ve meant more than a 50% drop in funding from FTX (for example, Ethereum lost ~3/5ths of its market cap between November 2021 to November 2022).
You note:
Guardrails to prevent projects from running out of funding in a disorderly way and runway requirements to maintain resilience to possible future crises.
I would love to understand more about these financial controls. I can imagine that EV could probably withstand a sudden halving in funding from a major donor, by reallocating funding between projects, which is probably what’s alluded to here.
(It’s outside the scope of this post, but I’m not so sure that the broader long-term risk cause areas could have withstood this, and indeed, in the present scenario many organisations did not. I sort of worry about this kind of systematic risk with Anthropic, who could be hit quite hard if the current AI bubble starts winding down, even if they aren’t directly responsible for it; I’m sure there are others.)
FTX as a funding source also had plenty of non-fraudulent failure modes. Having “banked on receiving millions from FTX over the coming years” to the extent that not receiving those funds created a crisis seems like a serious misjudgment. That being said, it isn’t clear to me the extent to which FTX’s donation amounts would have tied into short-term fluctuations in crypto values.
I can imagine that EV could probably withstand a sudden halving in funding from a major donor, by reallocating funding between projects, which is probably what’s alluded to here.
The extent to which donations could be reallocated is unclear to me; it is possible for a donor to restrict donations to a specific purpose in a legally binding way. At least in some jurisdictions, those restrictions can often be binding even against the charity’s creditors if the charity manages its finances correctly.
I read Zach to mean that projects need to have enough funding on hand to shut down in an orderly enough way—which includes a way that does not create problems for sister projects—in a near-worst case scenario. This could be a problem, for instance, if a project had financial commitments that bound EV but could not be satisfied out of resources allocated to the project.
There are, however, limits on what good financial controls can do for you if there’s a massive funding shortfall and/or a massive unplanned liability. If (e.g.) a 50% revenue loss (not of a short-term nature) wouldn’t seriously disrupt a charity’s work, then that charity is probably too conservative on its spending or is raising excessive amounts of money that should go elsewhere.
This is an awesome post, and it’s a strong update in the direction of EV & CEA being much more transparent under your leadership. Very keen on hearing more from you in the future!
One other risk vector to EV stood out to me as concerning, but went somewhat unaddressed in this post. Consider:
I worry that the focus on legal risks is potentially missing a counterfactual here where a funding source is systematically upset. EV was not just banking on FTX to stay solvent / unfraudulent, but was also implicitly depending on cryptocurrency to remain frothy (the same can be said for EA, especially long-term risk cause areas, more broadly). Counterfactually, had FTX not been fraudulent, I still think that’s it’s likely that cryptocurrency would have collapsed over the following years. Assuming that the LTFF was receiving a proportion of FTX’s funds, this still could’ve meant more than a 50% drop in funding from FTX (for example, Ethereum lost ~3/5ths of its market cap between November 2021 to November 2022).
You note:
I would love to understand more about these financial controls. I can imagine that EV could probably withstand a sudden halving in funding from a major donor, by reallocating funding between projects, which is probably what’s alluded to here.
(It’s outside the scope of this post, but I’m not so sure that the broader long-term risk cause areas could have withstood this, and indeed, in the present scenario many organisations did not. I sort of worry about this kind of systematic risk with Anthropic, who could be hit quite hard if the current AI bubble starts winding down, even if they aren’t directly responsible for it; I’m sure there are others.)
FTX as a funding source also had plenty of non-fraudulent failure modes. Having “banked on receiving millions from FTX over the coming years” to the extent that not receiving those funds created a crisis seems like a serious misjudgment. That being said, it isn’t clear to me the extent to which FTX’s donation amounts would have tied into short-term fluctuations in crypto values.
The extent to which donations could be reallocated is unclear to me; it is possible for a donor to restrict donations to a specific purpose in a legally binding way. At least in some jurisdictions, those restrictions can often be binding even against the charity’s creditors if the charity manages its finances correctly.
I read Zach to mean that projects need to have enough funding on hand to shut down in an orderly enough way—which includes a way that does not create problems for sister projects—in a near-worst case scenario. This could be a problem, for instance, if a project had financial commitments that bound EV but could not be satisfied out of resources allocated to the project.
There are, however, limits on what good financial controls can do for you if there’s a massive funding shortfall and/or a massive unplanned liability. If (e.g.) a 50% revenue loss (not of a short-term nature) wouldn’t seriously disrupt a charity’s work, then that charity is probably too conservative on its spending or is raising excessive amounts of money that should go elsewhere.