Towards a Treasury Budget

Governance
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tl;dr - This post advocates for setting up proper spending budgets

Good morning everyone!

I hope you had a good transition to Polkadot OpenGov because that’s what we are going with. I see that we had one or two emotional discussions already about funding certain projects. Polkadot is coming of age and is now essentially in the phase of a teenager who suddenly has access to some cash but still has no clear conception of how to responsibly use it.

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On the one hand, we think that spending is good because it is an investment in our future. On the other hand, we think spending is bad because it is a waste of money. On who thinks what in which situation is completely different. In simple words: We have many interests competing for the same pot of money. What’s the responsible thing to do in such a situation?

Setting up a Polkadot Treasury Budget

Fighting over every individual project until the end of time is nothing anyone here wants to do and even more importantly, it is not very efficient, since we don’t even have decided on how much money we want to spend. So let’s compartmentalize the problem.

I propose we find a process to decide on a budget that defines:

  • spending categories
  • for a defined time frame
  • and how much we intend to spend in each category

The idea is that we define those categories and allocate budgets that define our expectation of how much impact we meaningfully ascribe to each category. Over several spending cycles, we will get better at understanding the needs, pains, and effectiveness of each category and will get better at efficiently and effectively spending money.

Coming to a meaningful mode of operation and common ground here will be a tough battle, I know, but then again it’s basically the absolute minimum to be considered a grown-up person in the real world. So we better get it done!

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First Milestone: Establishing planning process & first budget draft

Having a budget is the grown-up thing to do and every company, organization and most households have it. I consider the idea validated by default. It’s just a question of actually making it happen. In those cases, the basic strategy should be to establish facts by establishing a process that is open for everyone to participate.

We need to get a minimal number of motivated, influential people to participate in bootstrapping this process. This basically means that you just need to participate in the discussion and drive it forward with forum posts, proposals, calculations, etc.

Once we can show sufficient progress on the matter, we will gain the critical mass/buy-in into the process. So the first milestone is to come up with a budget proposal + process that people can either agree on or dispute, with the goal of reaching a broader and broader consensus.

If we can get a good process working, we will arrive at an actual budget eventually.

Open Question: Ensure spending by the budget

What I think might be harder to implement is the actual implementation of the spending process. How do we ensure that money will be spent by the commonly agreed budget? Is it a soft influence by reminding everyone in spending discussions? Is it enforced by putting the money in bounties? This largely depends on the actual buy-in of the stakeholders, but I think a hard commitment to sub-treasuries is the best way forward.

Some initial inputs

I want to provide some initial inputs to get the discussion going.

  • Spending cycle: I think a good timeframe is to have yearly budgets. My short-term concern is that this is way too long for the attention span/turnover cycle in current Governance discussions and shorter timeframes might be a better fit. The problem is that budget discussions take time, implementation takes time, controlling takes time and if we have short cycles and fail on execution, it will create negative sentiment. I think we should have at least 4 months, better 6 months for a try-out, and then decide on future spending cycles.
  • Spending categories: some initial things that I have in my mind are
    • infra/ops
    • events/outreach
    • education
    • marketing/advertising
    • innovation, research & development

I won’t give opinions on the actual budgeting just yet. I think we should discuss the overall idea (and start by agreeing on categories first) before we talk numbers.

DOT vs. USD

One thing to point out is that we might have issues when denominating in DOT or USD. Maybe the Treasury should buy the appropriate amount of USD from AssetHub as it decides on a budget so that an actual commitment is grounded in the more common unit of account.

Share this discussion on Twitter: https://twitter.com/alice_und_bob/status/1702299262816579768

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Nice Anb. 1 year sounds right but maybe we could experiment with shorter periods on Kusama? Would also tack “internal info services” to education - the cost of keeping down information asymmetry.

kudos!

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I presented this proposal at AAG yesterday and we discussed it 14-minutes: Watch

I will summarize and expand on some of the discussed points:

Do we even need a budget?

Polkadot is not an established business model with fixed in- and outflows. Polkadot is still incubating, researching a lot.

Yes, we need a budget. It’s rather a question of: what can we achieve together?

I argue that there is a spectrum between having no committed budget at all and a hard-committed budget. Both extremes are bad. A hard-committed budget doesn’t work for an ecosystem that is as agile and new as Polkadot. But no-commitment, the status that Polkadot currently is in, is equally bad, as it leads us to go forward without a bigger plan of how to collectively develop the ecosystem. We are exposed without direction to whoever proposes a spend and have to discuss the same eternal issues over and over again. It’s a waste of our valuable time.

Having at least a process that mediates discussion around what our spending priorities are, and ideally allocating soft-committed budgets is the proper way to confront the future.

The fact that Polkadot is an incubating organism doesn’t preclude the necessity of a budget. It just changes the nature of categories and allocations. Startups have a big challenge around reducing uncertainty and finding product-market fit, which puts more emphasis on Research & Development as opposed to regular production and operations. (e.g. the chain incurs operating costs of 6-7 figures on validation infrastructure, and 8 figures on research & development)

This is a journey. We are at the point of no-commitment, little knowledge and ambiguous consensus about our spending policy. We don’t know where we will land, but we can approach the issue by gathering information and sorting out where we can achieve consensus.

Sub-Treasuries

Are we going to have committees of bounty curators? Multisigs?

There are different notions of what will happen with the allocated budgets.

My input here is that we don’t need permissioned solutions for those sub-budgets. In theory we could have budget tracks that are independently voted on and just have a limited amount of tokens allocated to it. This would allow you to fight for your favorite budget tracks once a year and spend the rest of the year just looking at the budget tracks where you have the best expertise/most interest in.

But even more importantly, I wouldn’t want to engage this discussion too early. There are different ways to implement this and we shouldn’t get hung up on this. Let’s focus on the big picture first. (at least until we got some rough insight into the amount of consensus we can achieve on budgets)

We need historical data

I agree. I started a thread here that collects some historical data about Polkadot Treasaury spending.

Polkadot Treasury Total Spend by Category

This is the first productive field of conflict that we can aim for: What are the proper categories we should set up? I have manually put projects into categories that I have chosen. But I am sure there are competing ideas about how to properly categorize and sub-categorize spending. Let’s discuss it!

We need on-chain signalling

We have on-chain voting, but we lack on-chain signalling. On-chain signalling is a method of achieving consensus without hard votes. It is a way for token holders to signal how important an issue is for them that cannot clearly be expressing in executable on-chain referenda. Instead, it is a social coordination mechanism that allows us to determine how token holders will vote.

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This is a good initiative in general, but will be somewhat limiting if the categories are strictly defined. This is a community effort, and I know that there will be some innovative spending proposals that don’t follow regular patterns as time goes on, and there should be room to allow for those.

I’m not saying anything goes, but a well thought out spending proposal could feasibly go into an “other” category.

There also seems to be some tension between those that would rather burn than spend, and we as an ecosystem have to look at how we deal with that conflict.

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spending proposals should not be in arbitrary budget domains - unless those domains are coretime period based and therefore relevant to the core product the network offers.

focus spending on inter-disciplinary teams presenting ideas for purchasing and making use of coretime regions, it doesn’t matter how they’re structured, just that they’re effective.

create funding cycles for bootstrapping that, not spending on stuff that has zero relevance to the network itself.

the above leads to another cycle of subjective popularity contests, masquerading as strategy.

domains and indeed disciplines are irrelevant since attempts at categorisation speak to a different paradigm, unless of course you approach this with a focus on the token as the product.

in a world where actual coretime adoption matters, analysing spending through the above approach is like trying to understand a rainforest by getting ever more granular data on an ant.

turn the telescope around, you’re looking at the system backwards.

write off the millions spent to experience and start again with a blank sheet of paper.

Other is where the magic happens.

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I have see your thesis on core time consumption as a value-add elsewhere and agree with it. I guess the issue is then how do we relate categorisation with core time consumption - or does that even make any sense at all?

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I’m gonna trigger the off-topic brigade if i respond a length here, but that’s a really great question.

if you start with that in mind, it opens up a whole host of other more fertile areas.

start a new thread and i can respond, or happy to chat privately.

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Problem statement was identified well - lack of concept or any strategy for budget, what so ever, is 1 of the main issues with OpenGov or maybe root cause of multiple recent dramas related to Treasury funding. Missing such canonical document describing strategy of Treasury spending is not leading just to inefficiencies in Treasury spending & management but also to mismanaged expectations and unnecessary emotions. Community could handle way better recent arguments if we could point to clear defined objectives / needs and ideally their desired quality of output instead of beauty contests, politics, begging for support of large holders, etc. It’s obvious that everyone coming to ask for funding is biased towards her/his work and can be missing (real) added value for ecosystem which might be harder to justify. Or maybe easier if it some missing piece which was not picked by anyone yet.

But asking for budget w/o actual plan for what we should spend Treasury, might be wrong order of things and we should get together first on ecosystem (growth) strategy, it’s main priorities first and start to construct budget based on them. Only then we will have more clear picture about actual needs of ecosystem which we can use as reference for all potential suppliers of solutions. As of now high quality suppliers of X might not even know (same as us :slight_smile: ) that we need something what they can deliver for community. It’s much more practical to see clearly what is missing or desired in exact similar way as W3F grants have a nice section when you can see what kind of tooling/protocols are expected and desired to be build and funded - Open Source Stack · Polkadot Wiki. That was btw how we and other genuine builders (e.g. Kodadot team) started with Substrate and Polkadot by choosing topic which we liked, no one was working on them so we could contribute something useful.

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Hi, I’d be interested in helping out. Initiated this conversation, with a few others, on Project Catalyst (projectcatalyst.io). 1.5 years later it’s finally materialising in the next Fund11. Can share materials and thoughts.

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You might also want to check the funding categorization work done by George Lovegrove.

He highlights that contributor-based proposals and idea-based proposals should be treated separately. The latter should be broad, inclusive, unique and recurring.

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@alice_und_bob inspired by this discussion regarding potential treasury budget and categorization, I compiled this Polkadot GPS presentation to suggest a way forward.

Feedback please.

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@tomi I sent you a DM

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Love the idea and I think you’re onto something here - having a clearer budget re: allocation on spending and funds, even if it’s a “soft budget” (not enforced by code/law) will make it clearer to the community where funds should be allocated and should somewhat reduce the emotional side of treasury proposals.

Personally I would consider one year being a too long of a timeframe to test this with, quarterly is probably too short, but six monthly feels better here. We need to be able to test, measure and learn, spanning this over a year I fear will be simply too long to take lessons learnt.

As @ChrawnnaCorp said, this could be tested on Kusama first with quarterly planning, allocation and measuring for two epochs before attempting on Polkadot, it would give us lessons learnt and arm us for better spending habits on Polkadot.

I’d be happy to contribute to the effort :pray:

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It will short term remove some emotion - simply because it feels like a novel concept when in fact it’s just another round of elevating ‘experts’ to positions of influence, just wrapped up in political terminology.

The actual results, will see another cycle of hope, followed by disappointment, followed by acrimony before some new round of ‘strategy’ that gets closer and closer each round to the fundamental principles of the incentive game.

Polkadot governance/community/culture is locked repeating cycle of grief denial, anger, bargaining, depression and acceptance as people dance around the existential problem.

The treasuries explicit role as a common good pool is to subsidise demand for the resource sold by the protocol - spend time thinking through how that could be budgeted, not this.

Once that problem is on the road to being solved, then we will naturally move into evolving more nuanced social convention and political apparatus on top of sustainable foundations.

Kusama will soon be a place for radical experimentation and definitive impact matched to coretime demand, so this approach will be dead on arrival.

Waste time and resources in Polkadot, that’s what it’s for at this stage of proceedings since it lags behind economic reality by 9-12 months.

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I think a budget is a great idea and is going to happen sooner or later. I was thinking of a treasury proposal to split the treasury into two! Having a common treasury for expenditures and a sacred treasury for reserves. I will put a more well thoughtful layout of that when writing the proposal. However, I like the idea of categories! This will be perfect for the common treasury as it will be an effective way to allocate available resources for spending.