At the Polkadot Decoded event, we had the chance to participate in a governance roundtable discussion with folks like @joepetrowski, @jonas, @giotto, @ChrawnnaCorp, @Overkillus, @alice_und_bob, and more!
A video will hopefully be live soon.
One idea we collectively brainstormed before the cameras were ready was a price discovery treasury proposal system.
Background
This idea began when @giotto started talking about the wisdom of the crowd. Specifically, he discussed how engaging large groups of people can lead to better outcomes.
We agreed that groups of people (like the Polkadot DAO) are often bad at making decisions. Issues such as groupthink or herd behavior can lead to suboptimal decisions when large groups lack centralized direction.
However, it was pointed out that large groups of people are quite good at price discovery.
For example, there is a common game where a large crowd guesses how many jellybeans are in a jar. The individual guesses are usually quite bad, but the average guess is surprisingly accurate.
This same behavior is essentially the basis of price discovery of goods in free markets.
The Treasury Today
Today, teams come to the treasury with a proposal of work they want to do AND the price they want to do it for. If you have been following the treasury at all, these prices are often controversial as there is a disconnect between what the Polkadot DAO wants to spend and what the team wants.
It also makes it hard for teams to be âprofitableâ from the treasury. Some teams come to the treasury super humble and take on projects that have high value at an undervalued price. Others try to squeeze as much profit as they can from their proposal, and some projects do not get approved due to inflated costs.
We are also unable to signal to teams âyes we want this⌠but not at the price you wantâ or âyes we want this⌠but at a smaller/larger scale.â
There can also be issues today with retroactive funding using the current treasury proposal mechanics. Letâs take a look at the Retroactive Funding for ORML, Chopsticks, and Subway.
@xlc: I expect people to use this to help them to come up their own number of the fair value of this proposal, and then compare with the request amount, vote aye if request amount is lower, nay if request amount is higher. It will be helpful if people can post their independently accessed value as additional data point for collective value assessment. Note: this methodology should apply to all treasury spending proposals.
So, letâs show how we can do better.
Using the Wisdom of the Crowd
What if we reinvented the treasury proposal process to take advantage of the wisdom of the crowd to get better outcomes from our treasury system?
Teams can come to the treasury with a proposal for work to be done, just as before, but instead of making a direct request to the treasury for funds, they will commit a ZK price (which is never revealed) for the minimum amount of funds they need to complete the work.
Then, voters will submit what value/price they believe the proposal is worth to the community and should be spent from the treasury. If we believe in the wisdom of the crowd, we should be able to find the ârightâ price by looking at the median value across voters.
After a voting period, the final price the treasury is willing to pay is locked in, and the team can submit a ZK proof showing their minimum price is less than the approved price (without revealing their minimum price), which will then execute the proposal and transfer the amount to the team.
The team is able to execute their project at an âidealâ price for the treasury, and the Polkadot DAO is able to influence the scale and cost of projects being executed.
Example
Letâs say there was a marketing proposal to put the Polkadot logo on the side of private jet planes.
A dealer would know the exact cost of this project, letâs say $100,000. They submit the proposal on-chain with details on what they want to execute, and with the hidden value of $100,000 as their actual cost of business.
The community might say this is super valuable and important, and worth a median $150,000 for the execution of the project. In this case, the team submits the proof, gets the payout, and makes a healthy $50,000 profit for their work and identifying an issue important to the community.
Example Votes:
---------------------------------- Median ------------------------------------
[10_000, 140_000, 142_000, 148_000, 150_000, 165_000, 190_000, 260_000, 330_000]
However, the majority of the community might not think this is a very valuable proposal. Some individuals may say that we should give them more than $300,000, but most people in this scenario would say a project like this is only worth $30,000. Or they may even submit $0 as a signal that they would not like this project to execute at all. In either case, the median value calculated will be below the minimum price, and the proposal will not be executed as there is no agreement between the cost of the project and the value it brings to Polkadot.
Example Votes:
----------- Median ----------------------------------
[0, 0, 0, 0, 30_000, 35_000, 365_000, 460_000, 550_000]
Expected Behaviors
If the proposing team went to the treasury and asked for exactly $100,000, they would be making no margin or profit. This would obviously be their highest chance of success (besides taking a loss on the project), but this does not lead to a healthy business relationship.
If they want to make a profit, they may go and ask for $200,000. But then it is easy for nay voters to point out that their prices are inflated, and that things can be done for cheaper. This can often lead to net negative outcomes because we shut down a team that wants to do some work for Polkadot simply because there is no agreement on price. Also, while it is common to say âsomeone can do it cheaper,â often those people are not actually offering someone else who will actually do it cheaper.
With this system, teams are able to keep their cost of business private (which is pretty normal), and instead let the Polkadot DAO evaluate the value.
In this case, teams are actually incentivized to research the kinds of projects that Polkadot wants most. Teams will be most profitable when they can arbitrage the cost of doing something with the value it brings to the community. For example, we have been in desperate need of certain kinds of UI/UX in Polkadot. For teams that will actually execute these projects, they could get paid much more than the underlying cost of building that product. On the flip side, yet another of the same project (letâs say a DEX pallet) will be seen as less valuable to the ecosystem, even though the cost of executing this project well will truthfully be high.
I believe this system will work exceptionally well for retroactive funding (which I also think should happen more often than it does). In this case, the community can really evaluate the value of a completed project and the impact it had on the ecosystem. In this scenario, a team could set their minimum price at $0, and then it is really letting the Polkadot DAO determine how much they should receive. If the amount they receive is lower than they expect, perhaps that is a signal from the DAO that the project is not that valuable or was not executed well.
Direct Use Cases
Here are some direct use cases where I think this system will benefit Polkadot and lead to better alignment with price and results of treasury spending:
- Funding / Top Ups of Bounties
- Polkadot Events
- Polkadot Marketing
- Creation of âredundantâ products (balancing the value of resilience with redundancy)
- Evaluating âexperimentalâ ideas