The second episode of our treasury management mini-series co-hosted with the Royal Melbourne Institute of Technology (RMIT) features a conversation between distinguished professor Jason Potts and Gitcoin founder Scott Moore. Associate Professor and RMIT Blockchain Innovation Hub co-founder Chris Berg moderated the event.
- How should a treasury be spent? When should grants be offered as opposed to prizes, tenders or building internally?
- What are some of the ways that voting can work in relation to treasury spending? How should a project minimize Sybill attacks and freeloaders?
- How does treasury management for a web3 organization differ from a traditional corporate treasury?
- Treasury management is more about mission than management. Funding public goods can create a virtuous cycle, bringing in more users and funds.
- Exit is easy in the digital world. Treasuries can help raise exit costs and keep communities together and allow the opportunity to invest in idiosyncratic goods.
- Funding innovation is a search problem. Grants are about soliciting a solution. Prizes are about finding a solution from an unknown source.
Gitcoin, a community of “internet citizens who build and fund digital public goods” has assembled one of the largest treasuries in the web3 ecosystem. “[This] allows us to take a broader view of what counts as relevant spending and lets us be experimental,” says founder Scott Moore. “For us, treasury management is less about management and more about mission.”
Communities need to pool resources for public goods. To do so they need governance; a way to hold one another accountable for spending, maintenance and contributions. Big solutions for managing resources and holding a community accountable have existed for millennia, but DAOs and web3 organizations present new challenges and opportunities.
“We have lots of solutions to that big problem [of managing public goods] but we don’t yet have well developed solutions to what this looks like in the digital world,” says RMIT Professor Jason Potts.
Gitcoin relies on representative democracy (stewards and representatives standing in for larger numbers of voters) and algorithmically assisted methods for distributing funding on top of that model.
“We have checks and balances to ensure representatives are paying attention and that anyone can quickly swap delegates when they need to,” says Moore. “The other side is figuring out ways of signalling preferences. Quadratic funding works by taking the number of people supporting a given set of projects and distributing funds proportionally to the number of contributions that a project gets.”
Quadratic funding helps identify projects that people are the most invested in and distribute funds to those projects. Carefully considering the form that funding takes and when funds are spent can also radically change outcomes.
The standard model for generating research is to spend as much as possible as soon as possible. That may not be the case with web3 communities. “In the digital world, exit is easy,” says Potts. “By building up a treasury as much as possible you raise the cost of exit, that makes it safer to invest in idiosyncratic resources because we can’t exploit one another.”
Research–where much of DAO spending is currently focused–is about funding under uncertainty. Increasing administration can reduce fraud but risks strangling innovation. Grants are about maximizing the utility of a fixed sum of money. “Grants are amazing when they have good grants committees,” says Potts.
Prizes tend to have a solution in mind but don’t know where that solution will be coming from.
“Monitoring and assessment is a huge issue,” says Moore. “If a community is consistently losing money on a certain type of grant then they need to learn why these mistakes keep happening.”
An excellent way of protecting a community’s grants programs from stagnation and potential applicants intent on gaming the system is to introduce a certain amount of randomness, suggests Potts. One approach that many DAOs have been using is to think of DAOs almost like a startup and to begin “shipping” small grants and iterating on the results as soon as possible.