Avoiding a DAOsaster: Thoughts on How to Improve the Grants Process

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

  • 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.

  • 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.

  • 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.

  • 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.

  • 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.

  • 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.

  • 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.

  • 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

  • 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.

  • 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

  • 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.

  • 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.


From my understanding, all the grants by the current set up are actually paid after the delivery or at the end of the term. So even if applicants wanted, there are no “Upfront grants”.

However, if you meant as in the community should consider grants to those who have been contributing even before they applied for grants, I think there can be arguments to be made for both sides as you mentioned.


Fully agree on it or at least for those , maybe smaller scale tests are more sensible.


I agree with much of this post, especially in spirit, and have some nuanced views I’ll express below;

1. Retroactive vs Upfront/seed funding

Why not both? In some cases, I think we should retroactively fund valuable work, but in other cases, I think we should seed it. With the caveat of seeding teams/individuals with track records of delivery.

While retroactive funding sounds good in principle and can work in some instances, it does require the risk of time, effort, and money. Not only that, the contributor is in limbo for three months or more post-delivery. With the limit of 10 funded proposals per cycle, there is a risk that retroactive funding requests could get pushed to 180 days or more.

Where it makes sense

  • Contributor side projects, small-medium size
  • User rewards for Ajna Integrated products and services.

Where it doesn’t make sense

  • Larger projects
  • Services (BD & Marketing)
  • Infrastructure

I believe seed funding is fundamental to getting valuable projects off the ground in some cases. I agree that new teams without track records shouldn’t be funded. My preference is to grant seed funding to proposals that commit to paying it back in some way. One example of this is the Shorty proposal which commits to:

reinvest revenues in providing liquidity on AJNA, and market making the AJNA token on DEXes

This or buy and burn, or buy and return to the treasury with product revenues are welcome terms I encourage teams to consider.

2. Grant Sizing & Market Context

I am so glad you brought up grant sizing and the current market context, I’ve been pretty worried about this, especially for the first grant cycle. For this reason, I’ve been advocating behind the scenes for prioritizing a Market-Making proposal.

Unfortunately, any lockup commitment in a grant will have to be self-enforced. I don’t know if the Ajna Foundation will enforce the breach of terms on funded grant proposals. What do you think @Doo_StableLab?

Reducing the amount of AJNA disbursed this first cycle isn’t a terrible idea but will have limited effect. For context, a maximum of
7,308,186 AJNA will be distributed and likely sold (at least in part), while 25% of all investor tokens, ~60-70,000.000 AJNA voting will become unlocked (unclear how much will get sold, if any). One way or another April 7th will be a significant day in the AJNA market.

What I was thinking of recommending is an LP & withdraw strategy or a collateralize and borrow strategy if liquidity remains so thin. Curious what others think about this and the recommendation by OP to try to self-limit grant rewards.

3. Accountability, DAO Processes, Grantee and Voter Support Functions

On functioning well;

The reason we want teams with track records is so that we don’t have to rely on secondary accountability functions. Getting paid to do something in public and not delivering serves as a good enough accountability function. Pair that with a good track record and you get execution.

At MakerDAO it was not as simple as an upfront cash problem. It was 21 teams, 10 directions, and no strong leadership; ie, an inefficiency problem. I think only one team really failed to deliver and ran away with some money. It was a group with an unproven track record who failed and decided to leave disgracefully without returning their remaining funds. 90% of the time getting paid up-front did not result in lack of results.

A part of the recipe for a successful grants program is general communication quality and the grantee and voter support functions. Grantees benefit from having their hands held, getting adequate feedback, and being supported during their execution and post-execution phases. Voters benefit from communicating and aligning on funding desires and decision-making criteria. I think the Supportive LLC and Stablelab proposals cover the two areas well (though I still have to give stablelab some more in depth feedback, and I also hope to receive more feedback on my own.) I think these support functions are worth funding, but should be nailed down so they can be executed efficiently.

Getting back to my main point; I agree with you that we should avoid complicated, involved DAO processes and keep complexity low. But we shouldn’t throw away the grantee and voter support functions altogether. There’s a healthy balance we must strike here.

4. Open-ended projects and scopes

Agree that grants should be awarded to proposals with well-defined deliverables and scopes.

Single vs multi-goal, I am torn about. On one hand single goal makes a lot of sense, it allows voters to be more specific with their decisionmaking. We like modularity. On the other hand, there’s a 10-proposal limit per cycle. I was (and still am) considering splitting the Supportive grant into two, one for infra/community, and another for Grants and BD. I decided to merge them because of the 10 proposal limit and the relative cost of each side of the scope. @delegates, please leave a comment on my proposal what you think I should do!

5. Funding Core infrastructure through grants

What separate process did you have in mind? If not grants, where would that funding come from?

As of January 1st, I currently fund much of this infrastructure (not security tooling). I will never hold these assets hostage or use them as leverage for my own gain. In fact, I commit to transferring them to the relevant party if my grant is not approved or renewed.

6. Not being a DAO, keeping complexity low

Whether you like it or not, the Ajna Grants program is managed by a decentralized group of entities and individuals. The level of complexity is drastically lower than for example, MakerDAO, thanks to the immutability of the protocol and the limited scope of the Grants Program. Our job, as delegates and token holders, is to make the program perform well by making good funding decisions. The complexity of our activity here is capped.

Politics will happen naturally. It’s a dirty word but the truth is that all participants have their interests and perspectives. The engagement we do around this program should be rooted in one guiding principle–Make Ajna More Successful. If we depart from that then there may be some bad outcomes. But if we stick to it I think we have a real shot at converting the treasury into tangible benefits for the protocol and its users.

Thanks for the thoughtful post!
Happy Monday :smile:


I wonder how low liquidity of ajna token will impact success of Ajna grants program.

If everyone sells on day of funding (and it is kind of a race), price impact will be significant.

I wonder your opinion about following idea.

AJNA as a protocol allow creation of

pools where AJNA (from grants funding) can be put as collateral and debt can be drawn in stable coins.

This allows to fund project without selling tokens (by borrowing DAI/USDC)

it has also advantage that if grants (collectiely) will prove useful then Ajna token should increase in value and allow to draw debt further (continue to fund proposal without new expenditure from grant fund)

activates community members that may not have need to participate in ajna protocol, but think overall idea makes sens and they are willing to bet on success of grands program, while earning some APY for DAI/USDC they contribute to the pool.

it of course has his own set of disadantages too:

Requires funding both pools extensiely,

Exposes project to ajna volatility risks (liquidation of their positions before they draw actual value in tokens)

It is more of a free floating thought than well ironed out plan, but I wander your opinion if that is a good way of solving some of the problems with AJNA liquidity ?


This is certainly an option for grantees. I would love to see more Quote Token liquidity on AJNA Collateral pools to make this a viable option though.

It’s a bit of a chicken and egg problem.

I wonder how high the interest rate and yield have to be to be to get a significant amount of quote token liquidity into those pools. Right now the lend rate on the AJNA/DAI pool is 4.9%, which is less than the rate on a 4 week treasury bill, 5.3%.

Which leads me to the next consideration–does it make sense for grantees to pay high interest rates on the AJNA to avoid selling into the market? Perhaps at this early, low liquidity, stage of the token’s life, yes.

Overall, it’s not a bad idea but the market has to adjust to support this.


This is the reason why we decided to not sell it for 1 year, which is also to keep the interest align.

It’s interesting but as David mentioned, it’s chicken and egg problem, for certain DAOs, DAO treasury itself would for example put their token as collateral and borrow stablecoin to pay for operations and grants. But usually for them, whether it’s Maker or AAVE, the tokens themselves would need to be liquid to be accepted in the first place.

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