Avoiding DAOsaster
Hi Ajna Community
First of all, let me say that I am very excited about this project, especially due to its key properties of immutability, decentralization, and governance minimization.
However, I have some concerns about the scope of the recent grant applications, which I believe do not align with the goal of governance minimization. In my opinion, these grant applications resemble workforce funding, similar to Core Units in MakerDAO, as they in some cases are open-ended, involve workforce expenses, and require ongoing evaluation and management by Ajna token holders to hold the recipients accountable for deliverables.
While I have no doubt that these grant applications are made in good faith by qualified individuals, my concern lies in the structure of these proposals. I believe they may lay the foundation for a complexity spiral and politics that we have seen in other DAOs. My hope is that the Ajna grants program does not turn into a DAO, but rather remains a minimized governance mechanism that rewards initiatives proven to provide value to the Ajna ecosystem.
Below are some of my thoughts. Please keep in mind that these are ideals, and there are always exceptions to the rules.
Reward delivered value, not promised value
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Generally, the Ajna community should prioritize rewarding results over promises. This means favoring retroactive rewards for completed projects, rather than upfront grants. This approach ensures that the best projects, not just the best proposals, are rewarded. It promotes healthy competition and discourages politicking to determine which hypothetical project is better. It also addresses the issue where upfront funding may diminish the incentive to deliver, as contributors have already been paid. In other DAOs, this has led to a focus on securing continuous funding rather than delivering results, which hampers collaboration and fosters drama.
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Instead, let’s flip the process and allow anyone to contribute and provide value to the Ajna ecosystem. These contributors should be generously rewarded retroactively once their projects have been proven. We already see community members building dashboards and helper interfaces for auctions, and they should be rewarded to show appreciation for their efforts, which will hopefully attract even more builders.
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This principle applies not only to builders but also to marketers, business developers, content creators, and anyone who brings value to the ecosystem. Bring new potential integrators, create content, prove that you can bring value. Let’s create a culture that rewards such efforts and encourages new potential integrators and content creators.
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This also eliminates the need to build complicated and involved DAO processes that keep grant recipients accountable. In my opinion, the promise of Ajna is to not be another DAO. Instead, it is much easier to reward actual results and deliverables retroactively.
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One way to kickstart this process could be to create a competition with a significant allocation of funds. This approach instills confidence that contributors will be compensated and allows the community to determine which projects should be awarded.
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Some may argue that payment after delivery poses a risk for contributors. However, it is in the Ajna community’s interest to reward these contributions as failure to do so will erode trust and discourage future contributions. Conversely, for upfront grants Ajna holders carry the risk of funds not being turned into value. In more mature DAOs (if such even exist in DeFi), it has largely been a failure to hold recipients of upfront funding accountable.
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There may be instances where exceptions to this rule are acceptable, such as with more exploratory projects or those requiring upfront funding to establish contracts with external service providers. In such cases, a smaller initial grant can be provided to deliver an MVP or a smaller scope of a larger project as proof of concept. Larger projects or continuous engagements with external service providers can be split into a series of grants, each delivering a subset of the overall project.
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Upfront grants should be prioritized only for reputable actors with a track record of delivery, with a comprehensive implementation plan. A good example is the Summer.fi and Yearn.fi integrations. Ideally payment is staggered over time as results are delivered.
Avoid open-ended projects or large scopes
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Grants should generally be awarded for projects with a defined scope and deliverables. Otherwise, they become a means of funding a workforce. While such a mechanism may be necessary for running core infrastructure, it should not fall under the grants program.
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Furthermore, projects should have a single goal and not offer a wide variety of projects or services under one grant. If multiple projects or services are involved, they should be split into separate grant requests. This way, the Ajna community is not forced to fund unrelated subprojects simply because one of them is deemed critical.
Avoid seed funding
- The Ajna community should generally avoid providing seed funding for completely new teams, projects or products that have yet to be proven or has limited users. Instead, the community should reward existing valuable projects with established user bases that integrate Ajna. Examples of this approach are the Summer.fi and Yearn.fi integrations.
Grants for products should primarily incentivize usage, not fund development costs
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Products seeking Ajna grants should ideally use the tokens to reward end users, rather than relying primarily on grants to sustain their operations. The product should have a sustainable business model on its own.
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However, there are supporting tools and infrastructure that may not generate revenue but can be considered public goods. In these cases, a grant can still be considered.
Grant sizing
- Providing grants that are much larger than the current liquidity in secondary markets poses a risk to Ajna holders, as individuals can significantly impact the markets. If grants exceed available liquidity by a large margin, they should follow a lockup schedule similar to early contributors and investors, using a vesting smart contract. Currently, we are seeing grant requests approaching half a million USD, which, in my opinion, does not align with the current state of the token value, burn rate, or liquidity. Ideally, expenses should be in line with the expected burn rate of Ajna tokens and available liquidity in the market. Otherwise, Ajna token holders end up subsidizing the majority of the costs through their investments, potentially devaluing the token before it has even gained momentum.
Avoid funding core infrastructure through grants
- The community should avoid funding the maintenance of core infrastructure, such as forums, Discord, Github, security tooling, etc., through grants. Instead, a separate process should be established to select a service provider to manage these assets and provide the necessary long term funding and confidence for their operation. The workforce or engagements in these areas should be kept to a minimum. The goal is to avoid a situation where critical assets are “held hostage” as part of the grant application process.
To conclude, I believe Ajna has the potential to become the Uniswap of lending. Let’s ensure we establish healthy processes that create a self-enforcing positive flywheel effect for the Ajna ecosystem, rather than providing an avenue for opportunists and create yet another DAOsaster.
