When designing the rules and processes of a web3 funding program, there are different aspects that often seem mutually exclusive, or at least incompatible to a degree. Roughly speaking, there are 3 main dimensions a program can optimize for:
- Quality. This refers to the quality of the proposals, the teams behind the proposals, and, if taking a wider view, the quality of the project and the final outcomes of the project.
- Ease & speed. This refers to the process and rules, viewed from the perspective of the proposer: “If I have a brilliant idea today, how much time will it take to get a funding decision? And how much paperwork, Q&A’s, presentations, and other hurdles are there for me to cross?” It is likely that (all other things equal), an easier and speedier process will attract more and potentially better participants and proposals.
- Decentralization: In a web3 environment we care about transparency and democratic, principles. Decentralization can be measured in the ‘openness’ of the decision process both in terms of information access and participation:
- Can the community ask for information and give feedback?
- What conditions are in place to participate in the voting process?
- How many individuals actively participate and are they truly independent?
Let’s have a look and see what a program will look like if it is optimized for only one of these perspectives. The outcome is not necessarily ‘bad’, but it’s important to be aware of downsides and limitations in other areas.
Centralized decision-making.
Some programs simply ask participants to submit their proposal (the format is not that important) and a small, internal team of ‘experts’ will make a decision.
The advantages of this system are clear: The process can be very quick, there is no specific start date, and the internal team of decision-makers has all the expertise needed. But it falls short of transparency and democracy.
This system is easy to set up and may seem to work well for the inner circle, but the decision-makers may be knowingly or unknowingly biased, have blind spots, or just lack specific expertise. It relies heavily on the wisdom of the few selected experts. But even if these experts are indeed supremely excellent, the perception of the community, specifically proponents of projects that are not elected, may raise doubt and mistrust in the process and the outcomes. Therefore the process is not ideal from a community-building perspective.
Maximizing for High quality.
In any community, there are voices of those who want to put up more hurdles in the process to ensure maximum quality. There could be background checks on the team members, and extensive requirements on the details of a proposal. The teams can be asked to present their proposal live, and a team of reviewers may ask critical questions on the occasion. This process can extend after being awarded, by means of strict requirements on milestone deliveries, timelines, and visibility. All these steps can take the form of a multi-gated process, that not only takes a lot of time and effort from the proposing teams but will also spread over a long time, without any guarantee of success for the individual proposer.
This kind of process will indeed be able to weed out lower-quality proposals or less committed teams but will be less attractive to proposers, especially those with alternative funding options.
A pitfall in this process is that it may seem great based on the given input and output. But the question is: how many great proposals is the program missing in the first place because high-quality teams are simply avoiding the hassle of the program, and turning to other programs or resources?
Maximizing for decentralization.
In an ideal world, we can rely on the ‘wisdom of the crowd’ to give just and insightful assessments of a given proposal. While this does work on occasion, it requires a large community with sufficient expertise, and no affiliation to any of the proposals, which is making their judgment biased. With large numbers of proposals, this approach can easily break down due to a lack of enthusiastic and independent reviewers willing to sacrifice their time and effort in the process. A risk in this approach is that the ‘community vote’ becomes a popularity contest. Which team is able to activate the largest group of voters on their behalf? Of course, the most popular project is not necessarily the ‘best’ project in terms of quality.
How to address this dilemma?
All these scenarios can be mitigated by numerous measures. But each measure will often come with its own downside. Outlining the main variations and options is beyond the scope of this blog. The right mix of measures is also very context-sensitive, depending on the purpose of a program, the organization’s culture, etc.
However, the 3 approaches in the Trilemma can be used in any program as a framework and a means to become conscious of the downsides of any particular approach.
When defining new rules and processes in a program, it is worthwhile to look at the impact of the new measures on all 3 perspectives. Each program manager should ask these questions when changes are proposed:
- Which of the three core requirements are most important for the program?
- In what direction should the program evolve? What weak points should be addressed with priority?
- If one of the three requirements is strengthened, but this goes to the expense of the other two, is it still an improvement?
- Is there a minimum threshold that the program should always stay above, on any of the requirements?
In the end, when it comes to designing a Web3 funding program, there are choices to make.
- Are you aiming for the best possible teams and projects to participate? In that case, the project should be attractive to teams that have other options and therefore be easy and convenient for the participants. A small number of highly capable teams is sufficient and even preferred over a large number of teams with mixed qualifications.
- Is the main goal to activate a large community and go for quantity over quality? In this case, you should aim for low entrance barriers but couple them with stringent conditions and multiple filtering methods.
Only if the program is very popular and attractive, e.d. Due to high funding amounts, or access to technology or business support, the downsides of high hurdles can be overcome and both scenarios above could be combined.
Diversification
There is however another way approach to this dilemma: Instead of optimizing the program for all three core requirements; The program could diversify and offer multiple routes to cater to different types of teams and projects.
- There could be a route that is very centralized but will give quick results. This could be very useful in case the program is approached by an outstanding team with a brilliant idea that needs quick action, and possibly privacy.
- There could be a route that optimizes for decentralization and democracy. In this route the immediate outcomes and quality of proposals may be less important than the experience gained and the process of building a community through funding.
- There could be a route that focuses on high quality by a multi-gated process. This may be the right approach for projects that are less time-sensitive or unique but require high funding amounts, which would offset the efforts of the team to the ultimate possibility of a significant funding amount.
Deep Funding
Deep funding is continuously improving the process of its open rounds with new adaptations. Currently, we are doing well (perhaps above expectation) in terms of the number of proposals per round. There is however also the perception that the quality could be higher on average, and -in the context of current process- we would like to have more voters, to mitigate the risk of undesired bias (due to affiliation) in the votes.
Besides the ‘regular’ Deep Funding rounds we are also creating new funding options by means of RFPs. There is some flexibility in how the proposals are assessed and selected, leading to multiple routes;
- A ‘Short track’ that is governed by the internal SNET team, and thereby inherently more centralized.
- A medium track that allows for a larger group of ‘Community Experts’ to make the final decision, catering for more (but not ultimate) decentralization.
- A full, community-driven process, where the community is involved from ideation and definition of the RFP itself, leading to a higher level of decentralization, as well as higher ‘quality’ and relevance of the projects.
This way, Deep Funding is diversifying its approach to funding with different mechanisms that will cater to different audiences.
With the ‘Funding Trilemma’ framework in mind, we can define and improve the different processes, AND better communicate to potential proposers which of the options will best serve their needs, and what they can expect when onboarding on any of the initiatives. Let’s have a look at the different Deep Funding routes through the lens of the Funding Trilemma:
Deep Funding ‘Rounds’ have the potential to excel in ‘Decentralization’. The main inherent weakness is probably the ease and speed of the process. They are great for teams that benefit from community exposure and feedback and don’t mind a process that covers multiple months, and the (sometimes implicit) requirement to engage with the community before, and after being awarded.
The DF Rounds invite community members to be active and engaged and the program and will help build a community. The learning process and road to maturity of the Deep Funding Rounds may sometimes affect the quality of the outcomes, but the program has the potential to deliver unexpected ideas and projects driven by passionate teams.
SingularityNET or partner RFPs Focus on ‘Quality’ but are limited in terms of decentralization. ‘Quality’ in this context, does not only refer to technical standards but also to relevance and usefulness.
This Funding route is great for professional teams that have enough experience and capability to meet the, sometimes stringent and specific, criteria. The ‘closed’ submission phase ensures that the efforts taken cannot be copied by a competitor and (potentially) the process of selection and awarding can be fast and efficient.
For SingularityNET the RFP process will ensure high-quality and relevant outcomes, safeguarded by the expertise (and allocated time) of the selection team. If all proposals are below the desired quality, the team can abort or extend the RFP and target specific audiences to apply.
Community-driven RFPs aim for more decentralization through higher community involvement and high quality by decoupling different parts of the process.
They can be considered weak in terms of ‘Ease and speed’, especially when taking the complete end-to-end process into account. However, different audiences can be involved at different stages of the process. This makes the process great for:
- Teams and individuals that have great ideas, but no development skills.
- Teams and individuals that specialize in requirement definition and research,
- Teams that focus on development rather than ideation, marketing, and specification.
The multistep, gated process from a first idea to an RFP and finally a winning proposal, works like a funnel that filters the best, most relevant Ideas, the best RFP proposals, and finally the best development project. And while the process is lengthy, this does not impact teams that specialize in just one of the aspects above.
The options above are roughly visualized in this diagram:
(Note that the numbers are very subjective and can be debated. The merit of the framework is in having this debate, rather than a perfect scoring mechanism.)
We hope that these examples show that being conscious of the ‘Funding trilemma’ will not only lead to better decisions, and improved programs but also to a better understanding of certain limitations or downsides, from the perspective of proposing teams.
This way the framework is not only a tool for optimization but also an instrument for better communication.
Addendum
This overview shows different Funding Routes in Deep Funding with differentiated strengths and weaknesses. A bit hidden in the diagram is that the RFPs are more prescriptive than the Deep Funding Rounds. This means there is still a gap for brilliant and urgent project proposals that can’t wait for the next round to finish and/or may not be suitable for public discussion. If and how we want to fill this gap is an interesting topic for further debate…