RFC: Incentive Pools

Hey all,

Last week I wrote this document called: Incentive Pools - A model for results-based treasury funding to unlock growth for the Polkadot network and I’m posting here to solicit community feedback.

My goal in writing this was to outline a flexible approach to treasury funding that shifts the incentives for incumbent ecosystem teams who want to maximise revenues from the treasury away from expanding their billable hours to doing work that really matters and has a positive impact for token holders.

The document includes a few different components that I would really feedback and comment on:

  1. My argument for why results-based funding matters and my framing of the current incentives issues in funding teams to become “treasury services firms”.
  2. The idea of an Incentive Pool in the abstract: Providing credible teams cash-flow and rewarding their attributable on-chain results with an appropriate commission structure
  3. The Genesis Incentive Pool I am proposing is created for Talisman, its goals, the commission structure, etc
  4. The prototype implementation of the Genesis Pool, which uses a multisig and staking to create a proof of concept that can quickly demonstrate the potential of results-based funding.

I think something like incentive pools (which are essentially commission-based salary packages for teams) could be a great path forward for making better use of treasury funds. If true, it would be great to look at how it can be implemented as a fit-for-purpose runtime pallet.


hey maybe worth either posting whole thing here for comments in context or unlocking the main google doc to achieve same - discussion is already fragmented over forum / google docs / PA.

Thanks for the advice Rich! I have updated the post to point straight to the google doc and I’ve opened up comments on the google doc for everyone too.

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Hi @agyle thanks for the thoughtful writeup, it’s clearly taken a lot of time and effort.

Here are my thoughts, take or leave as you see fit - hopefully we can improve on this kind of thinking collectively.



This feels directionally correct, the primary concern is the metrics you are optimising for and whether this will result in a success for Talisman, but within rather narrow bounds that do not shift more meaningful metrics when we come to understanding the core incentives of the underlying system of relay, parachain and collective - demand for coretime and fee revenues from actual utility.

Ultimately we could reduce to this to a question of whether it is in its current form generalisable.

Longer response

I believe that right now we should be much more concerned by the prospect of declining growth and traction in Polkadot.


I posit that without new ideas that give us the the means to leverage the treasury to generate growth and drive value for Tokenholders, our resources are likely to be squandered anyway, just slowly and painfully, and in doing so fuel a viciously cynical zero-sum mindset that will cast a shadow over decentralised governance as a whole.

Yes, this should be apparent now for anyone following the process. This is also not a problem facing Parity/W3F, this is not a criticism, but if you are employed by a large team, and therefore not reliant / interested in requesting community funds, the problems are somewhat less existential.

Given initial distributions, it is also a simple fact, that getting funding approval and indeed the amounts you might get approved are indirectly and directly connected to stake controlled privately and anonymously.

In the short term, everyone can and will optimise for their own self-interest, but at the expense of the collective in the long run.

If we don’t accept the way the incentives work, then we cannot possibly improve conditions.

This is a difficult process, but a necessary and cathartic one that will ultimately allow people some clarity rather than operating under the illusion we are working within a functional democracy.

we feel it’s our moral imperative to explore alternative methods of Treasury funding that can unlock growth and generate tangible results, even if it is painful, and even if triumph and failure are both possible outcomes.

Although admirable, I would steer clear of moral imperatives and see Polkadot / Kusama more objectively as a coordination game. In the end, there is naturally a wide range of standards and motivations holders will be operating under, so anything that will work, will need to take that into account.

we could just as easily adhere to the status-quo and solicit substantial funding from the treasury without rocking the boat.

Rock. The. Boat.
This is literally the reason Kusama exists (it makes most sense to start here)
You cannot learn how this (social) system works without abusing it.

in order to acquire the necessary cash flow to survive, or even grow their income from the Treasury they are naturally going to focus their attention on doing what is popular, rather than what really matters.

Yes. Though its also worth noting that there is surface populism and also backroom populism. Until there are meaningful challenges to the authority of the incumbent developers, we are not operating in anything remoting apolitical or credibly neutral - which is ultimately the primary proposition of public networks.

W3F/Parity ‘win’ when they are not the dominant forces sustaining the development of the project.

Ensuring Polkadot the idea / infra succeeds, may in the end prove to be inversely correlated to DOT price.

I’m not sure people are prepared for this eventuality. Mission vs Marketcap. There is an inescapable tension.

if we want to make bets on teams to grow the Polkadot economy then we need to create a set of incentives that reward results, instead of rewarding the creation of an ever expanding range of products and features that are competing for a share of the same pie.

The big question here is what a “team” looks like. It’s natural to see this as bets on individual groups such as Talisman, but this approach reinforces domain expertise, and silo’s talent and knowledge.

It is worth thinking about how a multidisciplinary collective, whose membership contains all the relevant talent to contribute to the core tech, develop parachains, present media and ultimately create end user experiences can work. If we are able to dissolve boundaries, rather than continue to separate expertise, we are more likely to build a ‘team’ optimised for the game we are aiming to play.

Instead of providing a framework for funding Apillon that enabled them to take risk and receive no upside or even potentially fail and disappear if they were unsuccessful, the message they received was essentially: “You asked for too much money”. As a result, a lose-lose scenario emerges wherein Apillon and Polkadot’s incentives are still misaligned.

It looks like Apillon’s proposal may now pass. Ultimately were Apillon also developing their own parachains and novel emergent use-cases I would think they have a chance, however this infrastructural work addresses higher order issues, without cutting deeper to the underlying economic incentives that do not currently marry well - namely the alignment between relay / parachains and collectives.

This is generally a problem of seeing Polkadots core components as separate entities, rather than as something that can be aligned more closely at the start… this was the thrust of The State of Dotsama and The evolution of Polkadot’s political economy.

There is an irreconcilable tension between the economic incentives of independent, VC funded, liquid parachain economies (good for hype) and system chains (good for tech).

This is where the real issue lies.

Incentive pools

While the idea itself is incredibly simple in the abstract: “Let’s pay people for results, instead of tasks”, it will get quite complicated in practice to implement different pools depending on what kind of results we want to incentivise.

This is key. If an approach like this is to work, it needs to be generalisable, therefore we are into the very important question of what is the metric that really matters.

Sure Talisman might add to the nomination pools, but if everyone is off optimising for their own ‘on-chain’ goals, it’s really going to turn into a race to vanity metrics with unintended outcomes.

For this to work, there needs to be one metric that all approaches optimise for.

Success in say driving coretime demand, would require a multidisciplinary collective and we should value contributions more generally, rather than rewarding some specific group who will optimise in their own narrow band.

There are 3 main components to an incentive pool…

  1. Cashflow - Participants in Incentive Pools receive funding to cover basic OpEx. Teams should provide a cogent explanation for the intended use of funds, but once the pool is established they should generally have the autonomy to pivot / change the approach of their work as new information emerges.
  2. Commission - Participants in Incentive Pools should receive a commission for attributable on-chain actions (or off-chain metrics in some cases) that the network deems to be valuable and worth paying for. The commission price should be based on the perceived value of each on-chain action to DOT Tokenholders or the network as a whole. It should also price in the potential for low quality or inauthentic on-chain actions.
  3. Cancellation / Clawback - The incentives pool should be cancelable. Any early-stage start-up should only receive the appropriate amount of capital necessary to prove their concept, and investors should be hesitant to keep funding it if they do not demonstrate any traction. Similarly there needs to be a means of ceasing to fund teams that are not creating any impact and don’t appear to have any new ideas to try either. This is also important in the event that any team is found to be actively defrauding the community.

Makes sense.

The core challenge is that yes staking rewards can give you some guarantees as to income, the price of DOT will not be stable.

To turn this around, if your income is $30k one month then $45k the next and then $15k its going to mean you end up spending a lot of time in treasury management.

The follow on issue, is if this is to be generalisable, everyone will have different cashflow experiences.

Yes it could well average out over the year, but really it would be better to separate out the incentives and allow teams to have a stablecoin to deliver their vision etc.

If we take each element and optimise it for one specific purpose, let’s always try and pick the best tool for the job, rather than compromising up front.

How incentive pools could be used

Your three examples are great, but per my above point, we should move towards aggregating this under a single metric, rather than encouraging people to optimise for their own narrow on-chain success.

There are many ways to game events attendance, business development is too general, and even with your nomination pools, you will have the incentive to make this number go up, even if there may be downstream issues that impact the collective through externalities.

Software development suffers from a lack of useful metrics, but if we end up back at Github commits, then again, we end up in vanity territory / godhardt’s law etc.

Ultimately a collective should move the metrics that really matter and share in the rewards together.

The urgent market need for results-based funding

Talisman also has some concern that Polkadot’s shift away from the Parachain Slot Auction model to a more flexible pay as you go model for coretime will also lead to reduced demand for DOT in the short term, and has the potential to negatively impact the price.

I agree with you on some of your more pessimistic views around token price especially when everyone holding DOT/KSM has an economic incentive to only see upside.

Irrespective of which area you point to, this skepticism should be encouraged, rather than subdued - it will make everyone better critical thinkers rather than just hoping for divine intervention from ‘the market’.

Your focus on coretime here is valuable - concentrating on shifting that metric aka demand, will lead us in a good direction.

Pool Duration: 6 Months

Make it 12 months minimum, better 18-24 months. Everything takes longer than you think and there is great value in spending time not building, but in talking deeply about issues. This is a long term game.

Assuming a consistent 15% APR from staking and a total of 1 Million DOTs the Incentive Pool Talisman would receive 12,500 DOTs per month during the Incentive Pool’s six month lifespan in order to fund the aforementioned activities. At the time of writing, the DOT price is $5.17 USD per DOT, meaning this monthly staking return is equivalent to $64,625 USD per month. While this may seem like a lot, it’s actually pretty typical of a top tier team being funded in the current model. The amount of funding Nova Wallet has received for software development between Dec 2022 and Sept 2023 in DOT is an equivalent of $88,955 USD per month. (This assumes a DOT price of 5.17 as well and does not include any of the funding received for their experimental desktop wallet Omni / Spectre.)

Again, cutting deep into this stuff, you’re identifying a ‘comparable’ with Nova, who have done an admirable job building a wallet that attempts to be everything, to everyone.

Moving forward, we should think less about what new features we can add and more on how we can reduce complexity to the absolute minimum.

This won’t make me any friends (though i think i’m well past that) but I don’t think the current wallets will be the interfaces we are using in a few years - we will likely have something very different that is the product of condensing cross-disciplinary expertise into an on-chain collective.

If we were Apple, what novel product or service would be the engine room for driving fundamental demand for coretime?

We are still stuck in a copy/paste culture - (sorry) but I include signers such as Talisman in that category.

Polkadot is a fundamentally different design pattern to Bitcoin and Ethereum - the bravest thing we can do is to start to think truly out of the box… and to imagine it as completely different beast, shaping its own narrative, rather than piggy backing on those of the incumbents.

We have brilliant talent here, capital and an inspiring mission. Ideas come and go. Products can change.

The hardest thing in the world is letting go of ideas that aren’t working and really letting go - this is the only way to be able to see clearly.

Hopefully some of this might be useful.

Thanks again for the effort you’ve put in - I enjoyed reading it.

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