Grants Funding Framework Discussion - How To Excel at Being a DAO

Congrats to the DAO and the Foundation for (almost) getting to the next steps! Now the real work begins.

We have the opportunity to lead the industry, to have Vitalik writing about how cool what we are doing is, and to prove the dream that DAOs can be a better way of organizing network governance. This can be a lot of fun.

The Problem with DAOs

We are about to see a flood of proposals. The problem is that without the DAO creating some frameworks for giving out the funding, there are certain dynamics that play out naturally unless there is some level of mindful intervention.

The pattern we’ve seen from other DAOs looks something like this:

  1. Crazy spending spree with no concerns about outcomes
  2. 3-12 months in (and a ton of wasted funds later) people start asking for accountability
  3. DAO centralizes control to show stewards it is accountable
  4. Voter apathy starts and no innovation (or fun) is happening

(I’d be happy to go into why each of these stages happens and why I’m sure this network dynamic will play out here, but for brevity’s sake will avoid details here. Please ask if you’d like a separate post on this.)

The problem with this cascading pattern of reactivity is that at each stage, the individual actors are “doing the right thing” at the moment - at the cost of the future. Now let’s explore how we could intervene in a way that changes our future.

What We Can Do About It

This potential proposal has a few goals and corresponding signals to know we’ve achieved them

  • Help us avoid the above pattern (Signal: People are buying $ARB to use in governance)
  • Establish the most innovative grant program in existence (Signal: Vitalik writes an article saying “They set out to create the most innovative and high performing grants program in existence and I believe they have done just that!” before 12/31/24.
  • Create a pluralistic funding framework (Signal: We establish concurrent frameworks for funding by 12/31/23)
  • Consider the potential for mechanisms to ensure the longevity of the DAO (Signal: Treasury is diversified to 10% stablecoins & on-chain guarantees of at least 10 years of budget availability for the DAO by the end of 2023)

Now that I have visited you with the Ghost of the Arbitrum DAO future and presented some easily executable ways to alleviate the problems, let’s dive a little deeper into each solution.

Help us avoid the above pattern

Signal: People are buying $ARB to use in governance

Doing this requires a pluralistic funding framework and some principles to establish the collective desires of the DAO. A great tool for finding the interest groups in the DAO is Polis, a software using advanced statistics to find non-polarizing agreements for passing proposals.

Perhaps a principle would be that we split the proposal stage from the voting/decision-making stage in a way that creates the best possible version of a proposal prior to voting???

Here is a Polis I created just for this exercise.

Create a pluralistic funding framework

Signal: We establish concurrent frameworks for funding by 12/31/23

Most DAOs have made the mistake of trying to find the single best way to fund work. This is difficult because some work is high context and requires low turnover and the DAO should expect efficiency from the executing team.

Other work, such as research and development, is designed to innovate. This means that setting an accountability metric might be counterproductive. For this work, an agreement to spend x% of the total budget over y months with an output of the expert council rating their work as high quality might be a better method.

Another consideration is the funding mechanism and timing. A direct grants program takes a lot of work from a few people. Its centralization is what makes it good at giving out large amounts to contributors with proven track records. Quadratic Funding is great for the community to find new projects to add to the landscape. Quadratic Voting is good at taking a fixed budget and allocating it between vetted projects. Retroactive funding is great because you already know what impact was made.

We could use other DAO tools like JokeDAO contests, HATS protocol, and Govrn. We can experiment with projects using DAOhaus MolochV3s with Proposal Inverter. We could partner with Otterspace for badging and Token Engineering Academy for designing economic games they use with small portions of the total budget.

The point is that it isn’t about using one mechanism, curator, or authority. It is about using many different ones for what they are best at.

Establish the most innovative grant program in existence

Signal: Vitalik writes an article saying “They set out to create the most innovative and high-performing grants program in existence and I believe they have done just that!” before 12/31/24.

We can do this. Gitcoin just launched its grants protocol. This provides a liquidity network of supporters and projects/grantees sharing open data in a standardized format. Metadata on-chain, data on IPFS, Graph subgraphs… the timing is perfect.

They currently only have Quadratic Funding available, but they have a product development goal to have quadratic voting AND direct grants programs available on the Allo protocol & GrantStack in the next 5 months!

Open data is a game changer. It allows us to crowdsource analysis about how well each funding round does, how we can defend from fraud, and anything else that data science can answer.

For a small amount, we could have the biggest grants program on Gitcoin. For a little more we could own a significant amount of Gitcoin governance tokens and help guide development to include us as a design partner in building the most innovative grants program in existence.

Consider ideas to ensure the longevity of the DAO

Signal: Treasury is diversified to 10% stablecoins & onchain guarantees of at least 10 years of budget availability for the DAO by the end of 2023

This would likely be a separate proposal, but it is worth considering together here before this becomes a proposal (or three). Here are three ways we could establish a DAO longevity strategy.

  • Put out an RFP to find a treasury manager
  • Set up a balancer pool to sell $ARB for stables at a slight discount over time
  • Create contributor agreements to clarify the legal contracting status
  • Put 50% of DAO funds in an issuance curve to ensure longevity if the price is stable
    • Have the issuance curve go directly into our grants program pool - end-to-end issuance to work being executed!

Why Do I Care

I’ve been full-time in crypto since 2017 when my Chicago Blockchain Project meetup grew to almost 4,000 members. I joined Gitcoin in 2020 where I ran the grants program operations rounds 8, 9, and 10. From there, I was the first person to voluntarily leave the company into the uncertainty of the DAO when it launched in May of 2021.

For the last 2 years, I’ve been leading the Fraud Detection & Defense workstream for Gitcoin. With the launch of our protocols, it is a good time for me to step down from leadership and wind down the FDD workstream. The open-source tools and the techniques we learned to prevent fraud are something I can provide ecosystems in the future.

What I’m saying is that I’m heavily biased that I can help us to execute this plan and I’d love to have Arbitrum as an early partner for my endeavor.

However, I’m a purist. I want to do it through and with the DAO. I want to prove that DAOs can be what we all think they could be. I usually put my blinders on and work on the one project in front of me (while shitposting). Leaving Gitcoin is a great opportunity to learn to be a good steward of another ecosystem - and I chose Arbitrum.

The Ask - Next Steps

As AIP 1.1 & 1.2 pass and you see a bunch of proposals start to pop up, some good like @0x_Buidler hackathon rewards here… (and some less good), I would like you to ask yourself,

“Is the pattern Joe brought to light going to happen here?”

If you think that even maybe, yes it will - If you think we should start with some discovery work on principles and laying out goals before approving huge swaths of tokens, then please engage with this post:

  1. Give your opinion on the Polis - It only takes a couple minutes!
  2. Highlight a paragraph that stuck out to you and comment on how you feel
  3. Directly claim your support or approval for this general direction in the replies
  4. If you’re so inclined - reach out to co-author an actual proposal(s)

I’d be especially grateful for input from @Lemma @Cornell_Blockchain @BlockworksResearch @TreasureDAO @olimpio @PlutusDAO @ChainLinkGod and it only lets me tag 10!

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I appreciate your input and concur with your suggestions. To enhance the grants program, it is imperative to delineate distinct and quantifiable objectives, institute an open and distributed approach for decision-making, employ various financing mechanisms, underscore the responsibility and influence of grants, create a comprehensive funding scheme, ascertain judicious and proficient allocation of resources, and alleviate some of the conceivable limitations of the framework. Thank you.

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This happens for sure. I think you are 100% correct that the time to take advantage of the advantages we have with crypto and smart contracts is now! It becomes much harder to change as a DAO matures.

I really like the approach of using different tools, depending on the situation or at least to keep things interesting. I certainly have my favorites of the tools you have listed but have always kept an open door to trying everything.

As sub communities start forming around different ideas or work streams, hopefully an environment is in place to support the teams and community first and let the tools used be whatever works best.

I think where a lot of DAOs struggle is the balance between long term thinking and being agile enough to accomplish tasks. I think this post (future proposal) takes a good experienced stab at getting ahead of the things that lead to many DAOs demise. There is both a focus on sustainability for the DAO and funding projects that are accomplishing goals. (insert flywheel diagram).

P.S. Quadratic Voting is one of the most elegant things that has come out of crypto ever. Absolutely “made” for a chain like Arbitrum

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We only need a few more people to complete the Polis before we will begin to see visual representations of the principles that people are vibing with the most.

It only takes 2 minutes. All you do is say if you agree or don’t agree with a bunch of statements. It looks like this:

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Hey @DisruptionJoe,

Thanks for kicking this off! I’m Traver from the Messari Governor team.

You bring up valid points, especially the traps of careless spending and ineffective distribution. While experimentation is admirable, the goal of ARB distribution for grants should be to effectively attract talented builders to Arbitrum, identify them, and reward them for delivering mission-aligned results. This is not mutually exclusive to innovative funding, but it is an important distinction that can be distracted by chasing innovative governance.

While the DAO shouldn’t write off new approaches, it is worth noting that adopting a maverick approach can over-complicate an otherwise straightforward process resulting in headaches for grantees and administrators. Optimism recently reverted its experimental Governance Fund to a committee framework due to delegate burnout and mixed results. Many DAOs operate with grant structures using subDAOs or committees and achieve desirable outcomes (dYdX, Aave, Balancer, etc.).

Further, building an effective allocation strategy for the DAO will be difficult without understanding the Foundation’s strategy and initiatives. Regardless of how the Arbitrum Foundation proceeds - there will be holes to fill, some of which might benefit from the experimental solutions you outline above. To this point, the DAO should work with the Foundation to deliver better communications that inform how the DAO proceeds with its programs.

The long-term financial stability of the DAO is a valid concern. The Arbitrum DAO is in a relatively unique position with a revenue-generating sequencer that (presumably) provides a steady stream of income to the DAO treasury and a soon-to-be-approved Foundation with a significant war chest designed to operate, support, and fund further Arbitrum protocol research. These dynamics should be accounted for as they likely affect budgeting, though diversification is always encouraged.

I would love to see impactful governance conducted by the Arbitrum DAO, but I think an emphasis should be placed on grantee usability and accountability. To this point, It’d be useful to hear from Arbitrum ecosystem builders on their experience with grant programs and what a best-in-class grantee experience might comprise.

Please don’t hesitate to contact my colleague @raho and I. We’d love collaborate with you, the Foundation and other members of the DAO to build out impactful programs!

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Thank you for the thoughtful post @DisruptionJoe I agree with the challenges you have pointed out here and i like some of the proposed solution.

This goal makes sense, the challange usually comes when folks want to propose a lot of changes in one giant proposal. I wish there were a tool like github for DAO proposal where folks who disagree on particular points in a proposal could fork that specific part , have a separate consensus mechanism around it and merge back to the main proposal once consensus has been gathered.

On pluralistic funding and innovation, I personally like the retroactive aspect of funding more than proactive. Maybe a small portion of the ask can be funded upfront while the majority can be added to a matching pool for seasonal QF rounds. This way we can focus on funding outcomes than ‘labor’, specificaly outcomes which generate signals on community-product fit.

The best meta-treasury management I have seen in DAOs usually comes from a specialised group either in the form of a service provider or a ‘home grown’ team which requires a focus on curation.

Happy to co-author proposals with you or others here on many of these topics

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Here are some early insights from the Polis survey.

There is one majority opinion agreed on by almost everyone (77%)

ArbitrumDAO should set itself a spending limit

Group A had three statements which they agree upon that distinguish them from Group B

ArbitrumDAO should set itself a spending limit - Both the 1 voter against and one who passed were in group B

ArbitrumDAO should aim to have people buy $ARB to use for governance as a north star goal - Has 100% agreement in group A, but no one in group B agrees. Two in group B disagree while 2 passed.

ArbitrumDAO should aim to have people buy $ARB to use for governance as a north star goal - 100% of group A agreed while only 1 person from group B did.

ArbitrumDAO should pride itself in leading in DAO innovation and experimentation - 100% group A agree, only 1 person from Group B

ArbitrumDAO should spend less than 10% of it’s budget per year - 80% of group A agree, whereas only 1 person from group B agreed.

What group B felt strongly about

ArbitrumDAO should spend more than 10% of its budget per year - 100% agreement from group B

Next steps - Launching a JokeDAO contest

I’d like to launch a JokeDAO contest next Monday to procure submissions to community-source the best grants program framework possible.

The point is not that the winning submission will be chosen. There have to be another step asking potential framework operators to propose execution plans along with the budget requests for voting on Tally.

We would do this to separate the proposal creation stage from the proposal execution decision. Let’s source divergent ideas from the community, then have operators take the best ideas from the JokeDAO contest and remix them into something they feel is feasible to execute. They would also take responsibility for the results.

Framework for the JokeDAO contest

JokeDAO contests have a submission stage and a voting stage. Those familiar with design thinking principles will recognize this as a divergence and convergence process. First, we source all the potential ideas, then we converge on which of these ideas we like best.

Part 1 - Contest parameters

Here are some starting points for a debate we can have until the contest is launched on Monday, April 24th.

Who can submit - Anyone, literally anyone
Who can vote on submissions - Top 100 delegates
How will votes work? - Each voter will receive 100 jkARB

I will personally fund 1,000 $ARB to the winner of the contest. This is my skin in the game. If we create a fair and forward-thinking grants program, I’d likely be able to recover this in the future.

Why have only top delegates vote

It is difficult to do more than 230 addresses on JokeDAO as of now. This is why I would send VOTING tokens to the TOP 100 Delegates.

Why not use $ARB holdings to determine how many jkARB VOTING tokens they get. Because that would be more difficult and we don’t know if it would give better results. Also, since this is an information sourcing contest and not a vote, it doesn’t matter.

Feel free to reply with suggested updates in this thread

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For anyone following along - the contest is now live on JokeDAO.

Here are all the details and link to participate:

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Easy to agree with all the problem statements without needing examples.

I’m bearish any metric fitting everyone as well. The structure of the recently set up Uniswap committee sounds aligned with what you are suggesting. RFC — Accountability Committee Proposal - Proposal Discussion - Uniswap Governance

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I believe the Arbitrum DAO can address its challenges by implementing the following solutions: prioritize responsible spending, foster active participation, embrace diverse funding approaches, ensure long-term sustainability, and collaborate with external experts. These measures will promote accountability, member engagement, innovation in funding, and overall effective governance within the DAO.

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Strongly agree with this statement:

On pluralistic funding and innovation, I personally like the retroactive aspect of funding more than proactive. Maybe a small portion of the ask can be funded upfront while the majority can be added to a matching pool for seasonal QF rounds. This way we can focus on funding outcomes than ‘labor’, specificaly outcomes which generate signals on community-product fit.

What signals do you think would be most powerful AND difficult to game?

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In web3, the best signal imo is that of community-product fit! The gitcoin grants stack allows measuring this signal very well with passport gating (for sybil resistance) and ‘vote with your wallet’ mechanism, which signals skin in the game from value-aligned community members. This is the highest value signal that can be generated imo. Ofcourse this method has a bias towards ‘decentralisation first’ as opposed to a gated citizens’ house like optimism.

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100% and most of the issues DAOs have faced are also closely related. There were not a few DAOs which basically build the same products and at the end realized they are not that used by their communities or even needed.

I think that the magic of Arbitrum grants program is the fact that it’s plural nature will allow allow to have both kinds of approaches. :boom:

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For those keeping up, here are some updates…

The JokeDAO contest is finished.

PROS

  • It got some great submissions from great teams
  • It sourced from the community
  • It was a novel experiment at this level
  • The community seems to understand that we are using it to help move to the next steps

CONS

  • Lower Top 100 delegate voting participation than hoped
  • Somewhat confusing
  • We were only able to include the top 100 delegates due to JokeDAO limitations which they have since updates. Next time we can give all holders a vote.

Here is a post where some late submissions have been entered. Grants Framework VOTING is live for the top 100 delegates!

Lastly, I’m working on a post from a workshop I hosted at MetaCamp on understanding Grants Frameworks. I’ll be sharing some discovery soon.

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Getting people engaged is always a problem. A little game play helps with that, sometimes it’s good old fashioned knocking on doors. I’ve had to do that, it’s not ideal but it works.

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