Can crypto help in times of war? Ukraine holds the answer.
Ukraine has received an outpouring of global support – from weapons to volunteer soldiers – as it bravely fights the Russian war machine. But there’s a less obvious way he sought and got help: over a hundred million dollars in cryptocurrency donations for humanitarian aid and defense.
A few days after the Ukrainian government tweeted that he accepted crypto donations and shared its wallet addresses, the Ministry of Digital Transformation began accepting Bitcoin, Ether, SOL, DOGE, DOT and other currencies. Local nonprofits and individuals also received cryptocurrency funding, and some of the money was used for the military, including new uniforms, gear, and meals.
While not the first country to receive crypto assistance in this hour of need, the volume of aid via crypto Ukraine has received is unprecedented.
The country’s ability to tap into this form of aid is unsurprising, given that it is a global leader in crypto adoption. Ukraine is also quite advanced in developing its central bank digital currency (CBDC), e-hryvnia, which means it could soon have a range of options for transmitting more money. quickly to citizens – and prove that it has the financial infrastructure for digital money to thrive. .
Ukraine’s current experience highlights future opportunities and challenges for the industry, and could transform the way aid is delivered around the world. It could also help the industry demonstrate a side of crypto that policymakers and regulators often miss in their focus on these currencies as an illicit finance mechanism.
Crypto channels to Ukraine
On February 28, the Ukrainian government authorized “Aid for Ukraine”, a Decentralized Autonomous Organization (DAO) in collaboration with blockchain service Everstake and crypto trading firm FTX Trading Limited, to collect the cryptocurrency. Solana was one of the first blockchain platforms to join the community, which now includes Bitcoin, Ethereum, Doge, Tether and others. A Ukrainian crypto exchange platform, Kuna.io, helps the government manage donations.
More than 60% of all donations (about sixty million dollars) went through Kuna.io to the government, which mainly used them to purchase non-lethal military supplies. The government uses vendors willing to accept crypto and converts some of the money into dollars and euros. So far, fifteen million dollars have been spent on military supplies.
But the government-approved path to crypto aid is not the only path. UkraineDAO, a collective effort of private platforms PleasrDAO, Trippy Labs, and Pussy Riot, is raising crypto funds for the Ukrainian military. In an effort, he raised $6.75 million, mostly in ETH, for a non-fungible token (NFT) depicting the Ukrainian flag. Crypto donations also support NGOs: Unchain Fund, for example, offers wallets that require multiple signature-based approvals to provide greater security in spending raised funds.
Donors come from all over the blockchain world, from small crypto holders and institutions to whales, those who hold large amounts of a particular cryptocurrency. For example, Polkadot founder Gavin Wood donated $5 million DOT to the Ukrainian government, while Binance pledged to donate $10 million to nonprofits providing humanitarian aid to refugees and children, and FTX donated $25 to every Ukrainian registered on its platform.
Yet most of the help comes from small donors, demonstrating the larger power of the global crypto community. The average donation size of Bitcoin and Ether to the Ukrainian government is around $650 and $250 respectively.
The challenges of crypto-aid
Despite the short-term benefits, the increase in crypto donations to Ukraine has also highlighted some key challenges.
On the one hand, the ability to convert crypto to fiat currency remains a critical hurdle. Aid often has to be channeled through centralized institutions, such as the Ukrainian government or groups like UNICEF, which partner with crypto exchanges like FTX to accept and convert crypto donations into fiat. Direct assistance to Ukrainian citizens, on the other hand, relies on peer-to-peer support or local opt-out options. This is difficult in the midst of the invasion, when retail banks are closed and cash distribution networks are not functioning normally. In some cases, scammers have taken advantage of this by soliciting donations from unsuspecting users and falsely promising to ship the product to Ukraine.
Another challenge has been the use of aid for profit-maximizing purposes. The humanitarian crisis highlights the worst aspects of the crypto industry, especially the temptation to make a quick buck. Early adopters of crypto projects are often rewarded with tokens that incentivize them to take risks and try new crypto initiatives. This reward, called an airdrop, can represent significant returns. Unfortunately, this mentality permeated the humanitarian crisis in Ukraine: after the government in Kyiv announced a airdrop to reward donors with Ukrainian crypto tokens, a large influx of microdonations was sent simply to meet airdrop requirements and make a financial return.
For example, Justin Sun, the controversial founder of the blockchain platform TRON, complained that his users were excluded from the airdrop: he wanted them to earn financial return for donating to Ukraine, while pushing for wider acceptance of the TRON token, thereby bolstering its perceived value.
Finally, while stablecoins are a viable donation option, much of the crypto help has been in the form of tokens with fluctuating values. This can make it difficult for individuals and organizations in Ukraine to budget and spend crypto assets properly. In March, the crypto market saw major price movements for major tokens donated to Ukraine: between February 24 and March 29, the price of Bitcoin increased by 26%, that of Ether 29% and the DOT nearly 40%.
The lessons progress
Amid these challenges, four best practices could help make crypto donations more accessible and minimize potential risks.
First, donors should primarily consider the needs of Ukrainians for liquidity and financial stability. Stablecoins like USDC, USDT, UST, Dai, and cUSD are less volatile than native tokens like Bitcoin and Ether, or NFTs. Donors should use these stablecoins to ensure that their donations effectively meet immediate needs.
Second, there is an immediate need to support and cultivate more means for seamless transitions between fiat currencies and cryptocurrencies, so that Ukrainians can effectively exchange crypto for goods and services.
Third, as in traditional humanitarian aid, there needs to be greater transparency in the flow of donations. Blockchain-based tokens are well positioned to improve transparency and traceability in record keeping. More reporting on the source of donations (and how they are spent) can counter claims that crypto is being used to evade sanctions. This can be done with the help of blockchain risk analysis groups, such as Chainalysis and Elliptic.
Finally, crypto donors should look for aid projects themselves. Donors should focus on partners who provide transparency, have clear objectives and demonstrate experience in delivering humanitarian aid. They should not turn to enticing fundraising opportunities, token projects with dubious motives, or unhelpful technology.
The unfolding of crypto aid in Ukraine could set a pattern for its use in future crises around the world. These best practices can help donors, policy makers and regulators respond to the needs and realities of the situation. Crypto can be a force for good in the midst of conflict, but only if handled with care.
Ananya Kumar is Deputy Director of Digital Currencies at the Atlantic Council’s GeoEconomics Center.
Nikhil Raghuvera is a joint non-resident researcher at the Council’s GeoTech and GeoEconomics centres.