Decentralized autonomous funding of blockchain projects

This post considers the funding of blockchain projects through treasuries owned and operated by stakeholders. Specifically, it re-visits the Dash Treasury DAO and its support services, and considers what Decred can learn from this example ahead of the upcoming launch of Politeia. It also sets out some broad differences between the approaches of Dash and Decred, and considers how autonomous funding fits with commons based peer production.

Table of Contents

How are cryptocurrency projects funded?

Projects with autonomous funding are in the minority, before diving into those it is worth considering how funding works in the cryptocurrency space more generally, and the challenges of its effective allocation.

  • B — Centralized Organization holds funds and has a mission which includes developing software for the blockchain, and probably some other research or promotion. This could be a not-for-profit organization (e.g. Ethereum Foundation), but often the organization holding or receiving funds is a for-profit company (e.g. Zcash Electric Coin Company and EOS with Block.one). Most projects that fund(ed) development through an ICO have some sort of centralized organization in charge of those funds.
  • C — Decentralized Autonomous Organization (DAO) controls funds directly, there is some mechanism for making transactions that send these funds to people in exchange for their work. Funding for this approach tends to come from a portion of the block reward, so it is a steady stream rather than initial lump sum.
  • How can the budget be most effectively deployed to these ends? Who receives payments and when/how/why? How does the treasury get good value for money and avoid being ripped off.
  • Although changing consensus rules is a separate issue, it is closely related to funding of the work required to implement a change to the consensus rules.
  • Besides questions of treasury spending, what else should the project’s decentralized autonomous decision-making apparatus be used for? Conventional organizations consist of much more than a series of financial transactions, how much of that does a decentralized organization need to replicate or emulate? Should it be setting policies, hiring and firing staff, approving name changes?
  • Who should have voting rights? How should votes be tallied or weighted?
  • How can the expertise and time of decision-makers be best utilized? Different participants will have different backgrounds and expertise, more or less able to make informed judgments in different domains. Participants will have varying amounts of time to spend voting, too many proposals to review and vote on may result in voter fatigue and apathy. This is a general problem with any form of direct democracy.
  • The system also needs to be robust against attempts to abuse it by bad actors.

Dash

For the purposes of this post it is sufficient to state that Dash’s treasury governance happens on-chain, it is proposal-based and every month the MasterNode Operators (MNOs) vote to decide how that month’s superblock Dash will be distributed. Each proposal has a wallet address, the protocol makes transactions sending the requested Dash to the addresses of winning proposals in the superblock. Any Dash not sent to winning proposal wallets is burned.

  • MNOs should have a place to discuss the proposals, and ideally gather/share information about them and perform some due diligence.
  • MNOs should be able to engage in dialogue and negotiation with proposers about the details of their proposal.
  • MNOs should be able to decide on and state what they’re looking to fund. The system is structured to accept or reject whatever is submitted, improving the relevance or quality of incoming submissions would make a big difference.
  • MNOs should have a way of tracking funded proposals and evaluating their outcomes, to facilitate learning about the types of proposal and proposer which deliver the most value.
  • Mechanisms that make it more likely the recipients of funding will deliver what they proposed would be good. Payment up front is vulnerable to exploitation, alternatives are difficult to achieve in a decentralized fashion.

Dash Treasury support services

The social spaces occupied by the Dash community are part of its treasury governance. The Dash Discord has a number of channels for discussing proposals, and some running proposals have their own channels. The Dash forum also has boards for discussion of pre-proposals and funded proposals. The pre-proposals board seems well used, it is common for people to submit a post there before the official proposal. With a proposal fee of 5 Dash, it makes sense to run a proposal past the community before submitting.

  • Dash Vote Tracker — Lists proposals and votes, links to Dash Central proposals
  • Dash Nexus — Not completed yet, but has been funded to develop a new primary platform for the treasury
  • Dash Ninja — Monitors MasterNodes, also has proposal and voting information
  • Dash Intel — Treasury monitoring data and analytics
  • Dash Watch — Tracking progress and outcomes of funded proposals
  • Dash Boost — Micro proposal system for low budget proposals

Dash Watch

As someone who’s interested in how the treasury performs, a service that follows up on funded proposals to see how they did sounds great. Between Dashvotetracker and Dash Central one can get a pretty good picture of what proposals were submitted/approved, and probably a good chunk of the discussion for each — but once proposals are funded they don’t see a lot of action there and many have tended to drop off the radar.

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Dash Watch proposal view
  • USD$ figures for funding requested and funding received, based on the Dash to USD exchange rate at proposal submission and at payout(s) time. Putting these together shows whether the proposal received more or less USD equivalent than they asked for
  • categorizations related to progress and scope/budget changes, probably useful for filtering proposals
  • information about the responsiveness of proposal contacts
  • A field for whether the proposal uses Escrow — i.e. were they given the Dash directly or is someone holding it in escrow until they meet targets
  • some numbers for “Confidence” and “Completeness”
  • payout schedule, whether payouts are complete
  • a set of events and milestones — these don’t render very well on the proposal page but there are calendars and timelines where they work well
  • what role DW plays, or could play, in giving proposals a thumbs up or down to receive more funding

Dash Boost

Dash Boost (DB) is a solution to another manifestation of this problem of MNO attention. The Dash Treasury is not equipped to handle a large number of proposals, because MNOs do not have the capacity to review a large number of proposals. The 5 Dash proposal fee limits the total number of proposals and effectively excludes small budget proposals.

Dash Nexus

Dash Nexus is still in development, it aims to provide a new platform for coordinating proposal submission, discussion and voting information.

Dash Intel

Dash Intel and Dash Ninja are like block explorers but dedicated to data on the Treasury and MasterNode voting. Dash Intel also adds some categorizations for proposals, similar to the coding I used for my last post on Dash.

Proposal assessment or due diligence

When reviewing the history of Dash Treasury proposals it quickly became apparent that the MNOs have quite a hard task there. There are often 20 or more proposals in a month, scattered across a variety of domains, and there can be several asking for large sums or presenting detailed plans.

Decred

As this is written with Decred and Politeia in mind, it is worth briefly describing how Decred’s approach contrasts with Dash’s.

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Taken from latest iteration of test-proposals.decred.org, “Read More” page — September 4th 2018
  • Say what you’d like to work on, do people seem enthusiastic? If they are enthusiastic they’ll probably give you some advice on what to do next.
  • Do a small amount of work, ask for it to be reviewed.
  • If established contributors in that domain think your work is good, you’ll be invited to bill for it at an hourly rate.
  • Work on stuff the community values, bill by the hour. It will be reviewed and if it is approved you will be paid.
  • Snap votes are used to approve or reject proposals, when voting opens for a proposal every ticket that was live in that block can signal a Yes or No vote for that proposal within the voting window (default 1 week). Voting happens from within a wallet that holds live tickets.
  • The platform is highly transparent, non-members can see all proposals and comments, and also which accounts the up/down votes on comments came from.
  • Proposals can be edited by the proposer in response to community feedback until voting begins. This is to give the community greater scope to shape a proposal or negotiate terms with the proposer.
  • The version history of proposals is retained, and comments are indexed against proposal versions.

Treasury Problems and Solutions

Payment up front or in arrears

Project treasury type funds are interesting in that they don’t belong to anyone in particular but are instead created to serve some purpose — it can look a bit like “free money”, and attract scammers who try to obtain it.

  • Escrow providers are quite common, they are trusted parties that hold the Dash until milestones are met. Dash Core group acts as an escrow provider sometimes.

Setting a strategy

One weakness of Dash’s Treasury is that it struggles to allow the MNOs to tell the world of potential proposers what they want to fund. It is structured around accepting or rejecting whatever proposals are presented as complete packages.

Spam resistance

A fee of 5 Dash sets quite a high barrier for all potential proposal submitters, for six months out of the last year it has been worth USD $2,000 or more. This excludes many potential proposal submitters, and biases the system towards a smaller number of bigger-budget proposals.

Proposals and/or people

Dash Treasury proposals bundle the work and the people who will complete it together tightly, but this may not always be the best approach. It is possible to address the following questions separately:

  • who should be paid to complete that work?
  • the collective decides what constitutes valuable work directly, and appoints/hires managers to get it done, either by hiring other people to do that work or contracting it out
  • the collective decides what constitutes valuable work directly and also hires or contracts for the completion of that work directly
  • the collective decides what constitutes valuable work directly by funding projects that bundle the work and the workers together

Funding fit for commons-based peer production

In Coase’s Penguin, or Linux and the Nature of the Firm, Yochai Benkler describes commons based peer production as a kind of third way of organizing the production of information goods — one which doesn’t have to rely on a centralized authority to direct the endeavor and intellectual property law to control it and make it profitable, but instead invites anyone to make use of the information good, see how it works, add to it, and build livelihoods on top of it.

Decred’s consensus

When I started following Decred almost one year ago, I was waiting for Politeia to launch so that the real governance could start. It took me some time to realize that it was already happening, mostly on Slack and the other bridged communication platforms.

What does this mean for Politeia?

It means that Politeia is about much more than making payments from the treasury wallet, that is just one of the functions of the DAE and it can only be accomplished to good effect with a solid and agreed upon strategy in place.

Models for funding work

Here’s an outline of some different types of proposal and approval I can see being useful on Politeia:

  • Peer review (not ticket voting) and approval of contributors to receive payment — for new contributors this is more granular (i.e. do a small amount of work before asking for review).
  • Approved contributors could bill for time spent working on any approved projects, other contributors in the relevant domain check whether the bill is reasonable or conforms to relevant policy.
  • “External” projects, where some external party takes on a specific task, probably also make sense — these could work similarly to the Dash proposals in that a proposal includes a plan, budget, and nominates the party that is to complete the project. Differences would be payment in arrears as the default, and more open communication between the funded party and the community, which enables broad peer/community review. There may also be a place for contributors with domain expertise to work more closely with funded external parties and liaise between them and the community.

Writing about cryptocurrency/blockchain projects that are doing something interesting with regard to governance. Decred contributor.

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