Rethinking funding for grassroots teams

Ecosystem
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There have been internal discussions across various platforms on the future of Polkadot and perhaps more specifically Kusama. Coming out from Sub0 it’s become abundantly clear that VCs are lacking appetite to invest in the ecosystem due to a lack of “active” users.

We at Imbue are feeling this issue keenly but it is clear multiple teams are feeling similar issues around runway. We are lucky enough that the team are volunteers and will continue to build regardless due to their strong belief and passion in what we are building but other teams understandably do not have that luxury.

I recently shared a post on the assembly about potential funding for Imbue but this post is a generalised one to understand what routes are there for teams who wish to build on Polkadot from the ground up if any?

There is an understanding that the treasuries - both Polkadot and Kusama - should not fund parachain teams and for the record, I understand and agree on that for teams that raised millions during the bull run when access to funding was abundant.

But in this bear market, how will new teams want to build on Kusama start? The web3 foundation does offer grants but it rightly focuses on the tech rather than parachains

Should the treasury be funding teams that are starting from scratch but are not targeting a common good slot? These are the same teams we will be dependant on to bring in users and adoption

Is there a “fair” middle ground between funding privately funded teams who raised 30x while others that raised 1/2x or even 0x?

Is there a real risk to the ecosystem when teams realise they are not able to get the support within our ecosystem to survive and then other ecosystems come in to tempt them with the same support? For example, Sol/Cosmos/Cardano/Aptos/Sui. How many of those teams will risk survival to stick with Polkadot because of how firmly they believe in the tech?

The aim of this post is to open discussion and any and all feedback is welcome

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I think treasury funds should be really be considered as a fall back plan for any parachain team.

But also as we know any chain that changes its model either tech or business should clearly communicate to their community. Because changing in direction maybe it wasnt what the community signed for.

And also parachains add value to polkadot but also parachain teams can actually decided to be a standalone chain. So this will be kinda bad for teams to ask for treasury funds.

But in general I do recognise that we have less support to our communities and that might actually reduce the development speed. Parachains raising money from VCs shouldnt prevent them to get other type of funding

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I like the spirit of this discussion - funding during a market downturn is vital to any business that relies on retail. I think everyone is keenly aware that the user base for Kusama/ Polkadot and their parachains has been deeply affected by the bear market.

As for using Treasury funds to subsidize parachain projects, I have to maintain the belief that Treasury funds should only ever be used for projects and innovations related directly to the respective relay chain. In other words, unless it’s a common good parachain or funding a liquidity pool, we shouldn’t be funding parachain projects. In my opinion, the main reason for this is that it would set a precedent for parachain projects to seek funding from the treasury. If 40 parachain projects sought for 6 months of runway each there wouldn’t be much left in the Treasury (at least on Kusama).

There are other, more appropriate, funding sources for parachain projects though. For example, the W3F grant program. A lot of parachain projects have been funded through this program multiple times, so as long as teams can come up with good initiatives then they can apply for W3F grants to cover overhead until VC interest returns.

To be clear, I don’t think it would be appropriate for parachains to apply for a W3F grant solely for the purpose of covering general operating expenses. Teams should come up with exciting innovations to work toward and lay out clear milestones for their grant-funded initiatives.

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Thanks for bringing this up and starting the discussion, Sam. Even though we didn’t have a chance to talk in Lisbon, I can relate to your points above. We also were guided by a conscious decision only to raise external funds once our MVP is well underway and we are ready to launch. It seemed only a fair and logical choice back then (before the ‘winter’ started showing its true colors).

The core issue - “not enough active users in the ecosystem,” is being repeatedly brought up. So I believe the main question for both Parity and the builders should be how can we all change that?

I see the answer in supporting the teams that build “non-conventional” use cases with the potential of onboarding whole new user groups. The projects that build something beyond DeFi, and NFTs scope. It’s already very crowded in both; why queue in there when we can lead in a whole new category?

Broadly speaking, the issue of low active user numbers is not unique to the Dotsama ecosystem. What is the all Web3 applications audience compared to the overall number of web users? Just a tiny fraction…

Now when talking about support, I’m not mainly referring to the treasury but a coordinated effort to get VC funding into the ecosystem. With the resources of Parity and/or well-established experienced teams, and a sound idea (or better, an MVP, like in our case), securing interest should not be an issue. Ultimately - the more unique use cases developed, the more users join, the ^^ VC attention. A win-win scenario for everyone.

Perhaps, in theory, it already should be like this, yet it’s not something that we at Anagolay have experienced so far. For now, we have to mainly rely on “cold outreach” in our VC communication which is hardly effective even in a booming bull market, let alone the current state of it…
At the same time, the fact that this issue has been actively discussed during a few BarCamp sessions gives me hope that we can turn it into an actionable plan.

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Thanks @asteeber. I appreciate the kind words.

Just to touch on some of your points.

The W3F grants while extremly useful for building out new ideas, wont go far beyond already having an MVP

Why is that a bad thing for grass root chains? Surely it is a good thing and we want to encourage innovators to go down this route.

Would the goals of grassroot teams align more with the treasury whose goal is to build products and encourage adoption and onboarding of users or with VCs who some might argue are net value extractors rather than value adders?

Also I did not mean fund all parachains, rather to define what is fair? Is there a baseline we can agree on that is fair? Is it really fairer to treat teams that raised 30x the same as 1/2x or 0x? I would argue that it is clearly not

Additionally, I do not mean to fund any parachain purely for runway, but rather ones that have a clear goal on what they want to achieve and there is demonstrable consensus that it adds value to the ecosystem

Hypothetically - the numbers are here to explain only, not a proposed solution but to give the reader an idea of what a solution could look like - what if we say that given the below conditions are met:

  1. The team have a clear goal or plan of what the value add is and how the funds will be used?
  2. The team have demonstrable and proven track record of delivery in the ecosystem
  3. The team built a functioning MVP to demonstrate that value

Then we have a route of the treasury that will fund you a max of $300k (assuming you are a parachain team) provided you did not raise anything over that amount previously? the amounts could be reflective of your costs. E.g a parachain team will most likely have far more costs than a dapp team.

Do we really have more than 10 parachain teams in the polkadot ecosystem that can meet those very reasonable requirements? 5 even?

And to put numbers and perhaps more context to it, assuming the most expensive amount 300k is approx 10k $KSM. According to bright treasury The treasury currently has 513k $KSM, so even if we funded 10 teams that amount during this bear market thats 100k i.e 20% of the the kusama treasury spent to fund real teams building real utility and adoption for the entire polkadot ecosystem, we havent even discussed the dot treasury which is multiple orders of mangnitude more than the kusama one

Finally, The numbers are actually going to be far less since not everyone is asking for that amount but you get the overall idea. You can also set a max cap on it that gets slowly replenished by replacing some of the burn mechanisms we have as proposed on this post

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Hi @sam - curious to hear your sources on this:
“Coming out from Sub0 it’s become abundantly clear that VCs are lacking appetite to invest in the ecosystem due to a lack of “active” users.”

This is a serious statement; would love more context.

Was it VCs who said this? (didn’t know they attended Sub0) Or projects that had spoken directly with VCs and were relaying this feedback?

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Hi Christine

This is feedback from VCs that various teams - including ours - received.

The barcamp was run under Chatham House rules but those that attended can attest to the above points

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I, and probably most others who went through fundraising, can confirm that being a Polkadot parachain does not make things “easier” when talking to (most) VCs. More often than not it is necessary to pitch to investors why Polkadot was chosen and to try to address concerns about adoption.

It is, however, worth noting that there are funds that actively invest in the Polkadot ecosystem and have a big stake in the success of the eco. Parachains.info has a nice list (not sure how complete it is but still useful as a starting point): Investors of Polkadot & Kusama ecosystem projects | Parachains.info

Re. treasury funding: imho it could be a fall back, but I can see a lot of political conflict if treasury is used to save teams. Rather, I can see teams that struggle with runway dedicating resources to build tooling / things that are useful for everyone in return for grant funding. If you have something that you need (e.g. data analytics, etc.) that you need anyway - but that can be built more generalized and you have the tech capability/capacity to build it - this could be a good avenue to get funding without venturing into political debates.

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