Grants in web 3.0: Analysis, Reach & Impact
In this report we cover how these (DAOs) new catalysts for human to work together implements the various programs such us funding of goods by delving into Lido DAO and its grant program - LEGO.
Summary
DAOs are self-governing organizations that are not beholden to any central authority. They are often involved in providing services that are typically the responsibility of sovereigns, such as setting monetary policy, defence of the network etc. Top 10 DAOs/entities holds more than $17 bn in their respective treasuries and have dedicated grant programs funding causes & projects that benefits them & the whole ecosystem. Lido which is a leading staking provider with more than $280 mn in treasury reserves has distributed approx $7 mn in grants directly & through its grant program LEGO. Most of the funded projects are supervised largely by the council members & the community. Close to 200 unique projects/initiatives are funded by the LEGO program across 9 quarters starting from Q2-2021. Unlike a sovereign state which funds its grant programs in their national currency, LIDO has funded almost 33% of grants in their reserve currency i.e. LDO and rest in DAI & other tokens at the request of grantees.
Public Goods
A public good is which all enjoy in common in the sense that each individual’s consumption of such a good leads to no subtractions from any other individual’s consumption of that good. - Paul Samuelson (Economist)
Public goods are non-excludable & non-rivalrous, however there are some distinctions when it comes to in-depth categorization of public goods.
Labelling a good public is a challenge, Mancur Olson gives the example of a parade. A parade which can be overlooked by the people without having to buy a ticket* for the stands is a public good but otherwise the parade becomes private good
* free access to parade sight from the building
Funding of goods (public/private) by DAOs
Earlier (circa 1800) the grants were outright donations: and the government did not reserve the right to supervise their expenditure but steadily the system changed and adopting to new social behaviour governments started supervising most of the grants.
But here we are looking at DAOs and before further delving in I want to point your attentions towards the idea of ‘The Network State’.
A network state is a highly aligned online community with a capacity for collective action that crowdfunds territory around the world and eventually gains diplomatic recognition from pre-existing states. - Balaji Srinivasan
Below is the list of top 10 DAOs/entities by treasury size as on July 3, 2023.
The total treasury value of these 10 DAOs amounts to ~$17 billions having native & other tokens as reserves. While 5 out 10 DAOs/Entities reportedly have a separate funds to grant various initiatives and 1 out of 10 (Arbitrum) is under process of launching a grant program.
Lido DAO
Lido is a community liquid staking service with sharp focus on ether & other blockchain networks. Lido allows users to earn staking rewards without locking assets or maintaining staking infrastructure.
Lido’s product is dual-faceted: it provides liquid staking tokens to users and it provides operator sets which enable the liquid staking tokens to the protocols. The better the underlying operator sets are, the more robust, resilient, and performant the underlying protocol.
At the time of publishing this post Lido has 54 unique operators.
In the case of Ethereum staking via Lido, your ETH is staked with an operator within this set. This is chosen through a round-robin allocation based on the remaining availability within each validator’s slot.
Note:
Anyblock & Blockdaemon merged a while ago, though they are two separate entities on-chain and the process of consolidating their keys is on. [ref]
Certus One was acquired by Jump Crypto in 2021.
Lido always seeks further validator set improvements, wave-5 will onboard more NOs more details here.
Lido-v2 introduces the possibility of adding other modules such as permission-less participation, allowing anonymous NOs to be added.
How does Lido earn?
The protocol applies a 10% fee on staking rewards split between node operators and the Lido DAO in the ratio of 1:1. Lido’s gross margin at current (ETH staked) levels is ~$3M per month as per this dune dashboard prepared for public by Steakhouse Finance and Lido Analytics Contributors.
Disclaimer : We do not endorse any form of investment in LDO token, DYOR before making any investment choices.
Treasury
With respect to volatility in crypto markets, the size of treasury for a crypto based DAO is not a very good indicator of the operational runaway but Lido seems to be in good health. Treasury value of Lido at the time of publishing this report is exceeding $280 mn.
The purposes of the Lido DAO treasury fund are not fixed and are dependent on the direction suggested by the DAO community itself.
A blog by Lido details about use-cases of the treasury : grants and compensation are some of the potential use-cases. I will cover compensation in the next post but it is important to note here that monetary grants are one of the mediums for a DAO to network with the talent market of skilled individuals, groups etc.
🔖 Decentralization as credible fairness: applications where DAOs are taking on nation-state-like functions like basic infrastructure provision, and so traits like predictability, robustness and neutrality are valued above efficiency-Vitalik
Work Streams
As per this report, Lido has 25 workstreams with over 90 contributors working full time in daily activities of Lido DAO at an annual budget of approx ~$30M.
LEGO (Lido Ecosystem Grants Organisation)
The mission of the Lido Ecosystem Grants Organization (LEGO) is to provide valuable resources to contributors who help to improve Lido.
We strive to fund individuals, projects and initiatives which benefit both Lido and/or the surrounding space while maintaining efficiency and accountability for big developments.
LEGO has four categories of grants which are Sandgrain, Pebble, Boulder & Mountain.
Out of 58 sandgrains and total 189 unique grants, the smallest value awarded till date is 2.46 LDO (approx 14 USD at the time of disbursement).
And out of 4 unique mountain grants the largest value is 200000 DAI (1 DAI = 1 USD) which is awarded to Nethermind for designing mechanism for good validator set maintenance phase II.
Note:
Alex Lykov (Lido Ops WS & LEGO Council Member) brought in our attention that there are few grants that were sent directly from the Lido Treasury (1 & 2)
Grants that are not covered under Lido’s Financial Transaction Page are available here.
📢 No other DAO reportedly have this level of transparency on grants.
Boulder category proposals (10000-100000 USD) gets the most allocation of LEGO funds.
Lido has contributed over $6.55 M in grants, that’s more than 2% of current treasury reserves.
Reviewing historical data, we noticed 60% of grantees requested to be paid in stablecoins. In order to meet this demand efficiently, we will switch to requesting 40% of the budget in LDO and 60% in DAI from the DAO.
9 out of 12 thank-you grants are disbursed in LDO (currency of the network).
DAOs do not have a sovereign above them, and are often explicitly in the business of providing services (like currency and arbitration) that are typically reserved for sovereigns - Vitalik
In the figure below minor categories such as donations, memberships, integrations, Legal Services, NFTs etc. whose share is less than 5% of the total grants allocation is labelled under OTHER grants and can be accessed here.
We read about Paul’s theory of excludable & rivalrous nature of public goods (Fig-1), here is an attempt to apply the same theory on funding of projects by LEGO.
a good is excludable if and only if it is possible to prevent individuals from consuming it, to “draw a fence around it”
A good is rivalrous if and only if an individual’s consumption of it diminishes others.
DeFi Dev roadmap half-a-year maintenance grant :* Non-excludable & non-rivalrous : Public Good
(*As long as the access is not gated and open to public)
Design a Sybil and white-labeling resistance mechanism : Non-excludable & non-rivalrous : Public Good
(This research is Lido Specific so it can be argued that the funding is not public as it limits the scope but think of it as funding to prepare National Defence Strategy by a nation state. Rest characteristics of the report remains non-excludable & non-rivalrous)
European Blockchain Association : Excludable & non-rivalrous : Semi -Public Good
(The association do not invite all participants of the DAO to become member of the Association but does not limit the Lido DAO contributors to re-share the outcomes to its community)
How to get funded from LEGO?
Well there is no right or wrong approach for this question but broadly there are two ways:
Submit a proposal & initiate the process : Common Practice
Request for Proposals (bid for open RFPs by the DAO) : Uncommon Practice
Receive grant of gratitude (thank you grants) : DAO notices your good work for the ecosystem and it will retrospectively grant your efforts.
Impact Assessment of the grants
The most important metric for any grant is the measurement of impact, how does a DAO measure the impact of a grant?
In 2018, the EF provided some of the first external funding (grant of $50K and 120 ETH) to a self-taught Ethereum developer working on a new decentralised exchange called Uniswap.
If you were to measure the impact of this grant to Hayden Adams (founder - Uniswap) on a scale of 0 to 10 then what will your assessment be?
Most of the grants are not like this one due to lack of frameworks in force but DAOs can also help each other by signalling the good or bad grants applications.
Better provenance tracking for retro funding, so the entire tree leading up to some chosen work can be identified and rewarded. Starting to see work in that space, would be really cool to see more. - Vitalik
I will delve more on this topic using quantitative & qualitative data for both sides (granter & grantee) in my upcoming posts.
Disclosures:
I have received a grant of 50 LDO for finding a link that shouldn’t have been there.
The research for this report was originally initiated to find the statistical data to validate an idea that we are working on.
Two grants (Lex & Guild) are not logged at txs page, Alex from (workstream) provided this input.
Financial data in this report is just for illustration purposes, DYOR before making any financial decisions which are significant for your capital. We do not endorse any token associated with any network/protocol/dao/others here!
I thank Alex for providing me the required data and valuable feedback. My friend Junaid who guided me with his great product architecture insights.
References
https://www3.weforum.org/docs/WEF_Decentralized_Autonomous_Organization_Toolkit_2023.pdf
https://plato.stanford.edu/entries/public-goods/#DefiPublGoodDistBetwDiffKindPublGood
https://operatorportal.lido.fi/node-operator-onboarding-history
https://research.lido.fi/t/announcement-onboarding-for-ethereum-wave-5/4809
https://docs.lido.fi/
https://research.lido.fi/t/project-lido-ecosystem-grants-organization/406
https://research.lido.fi/t/lido-dao-core-contributors-provisional-budget/2556