Total to date

Accelerating funding to take a proposal from an idea to a self-sustaining project, community group, or business is important to the growth of the Cardano ecosystem. The more successful solutions we can discover, the more likely we'll bring economic identity to 1+ billion people.

To solicit, propose, filter, and fund projects in Catalyst we currently rely on volunteers to drive participation in direct democracy. Unfortunately, direct democracy does not scale.

Making decisions through voting mechanisms alone is limited by the information, knowledge and expertise the community has access to. Catalyst for instance has a high participation cost. The relentless pace, language barriers, and technical nature of many proposals in Catalyst limit our ability to make effective decisions. The average voter casts ballots for 5 to 10 proposals and large Ada holders (Whales) can easily swing the outcome [1]. These factors can limit our ability to efficiently allocate the treasury to high-value proposals. Implementing rapid funding alternatives without careful consideration, or increasing the number of proposals without considering the limits of information distribution, may lead to structural misallocations of capital.

The Catalyst ecosystem encourages collaboration and, as the Cardano ecosystem has grown, loosely formed global teams have emerged. Open-source projects and the Catalyst Community rely on community contributions. Catalyst Swarm, Catalyst School, and the Eastern Townhall are examples. These teams are inspired to help solve vexing problems that are either technical in nature or address real-world problems, often both. Project Catalyst's success to date is a testament to the community. While we have bootstrapped collective action, volunteerism alone cannot and should not be relied upon [2][20].

Market mechanisms can and do provide a scalable alternative to these challenges. When combined with blockchain and smart contracts, radical market mechanisms[3] enable low-cost and transparent ways to quickly fund, monitor and audit the capital deployed to innovative projects or community efforts. Plutus Smart-Contracts unlock a toolbox of market-oriented grassroots financing options that should be explored as alternative methods for financing discovery.

Risk-Adjusted Bonding Curves (RABCs) are a mechanism specifically designed to help with financing uncertain projects in open ecosystems. They are an advanced conditional financing instrument made possible by Smart-Contract on Blockchains.

RABCs implement a type of Impact Bond[15] to drive performance-orientated investment via retroactive project funding. Conditional financing mechanisms will ensure projects with highly uncertain outcomes are retroactively funded only when they are successful.

The core mechanism is scalable; working equally well for small funding needs or when funding requirements are in the millions.

The design is applicable to innovative project scenarios: social or environmental change; science; early-stage and seed-stage technology start-ups; internal corporate project budgeting; DAO funding and coordination; leveraging community grants (e.g., Project Catalyst); art; and many different public good production situations.

RABCs have been researched and developed as impact finance instruments by Shruti Appiah[21] and the team at Blockscience [4] The community has funded the development of RABCs [5] on Cardano.

As a new method for funding projects, we need to validate the technology, build experience and gain knowledge using real-world scenarios. Our proposal's purpose is to inform the implementation of the RABC as a scalable long-term solution for discovering and funding successful projects in Catalyst, DAOs, and for impact finance, across the Blockchain ecosystem.

Team & Experience

The coordinating team has experience in financial markets software engineering, product management and design, tech start-ups, private equity and impact investing. Team members are also active in organising a legal-tech community and the Catalyst Eastern Townhall.

Robert O'Brien: Distributed Systems Software Engineer (Financial Systems) and Entrepreneur. Co-Founded three start-ups in Financial Data Analytics, International Trade Payments, and Impact Investing. Plutus and Atala Prism Pioneer. Co-organiser of the Catalyst Eastern Town Hall, a Cardano Catalyst Community initiative.

Joanna Yeo: Private Equity fund manager in Asian capital markets with a focus on digital banking/financial inclusion. She has overseen and led investments for a $700M private equity portfolio and developed a fund business in Asia for Morgan Stanley. She has conducted research on international trade negotiations supported by the Harvard Institute for Quantitative Social Sciences and Stanford Institute for Economic Policy Research.

Max O'Brien: Product Designer with experience in UI Design, UX Design, User Research methods, Game Design and Product Strategy. Currently works for a leading cloud-based accounting platform for small businesses and has previously worked for start-ups, studios and a public point-of-sale company. He routinely conducts user research and uses their results and behavioural data to inform designs and product strategies to help everyday people accomplish their goals.

Paul Beattie: CEO of a remote-first company providing Cloud-based Enterprise Resource Planning (ERP) solutions to New Zealand and Australian medium-sized organisations. Optimising processes and assisting customer organisations to scale through efficiency. Experienced accounting software product manager and marketer.

Tevo Saks: Tevo enjoys documenting systems and procedures that will achieve specific goals in an efficient way. Active participant in Project Catalyst since Fund 1, Catalyst Swarm core member, experienced Proposer and Veteran Community Advisor.

Our Solution

The objective is to learn and understand how RABCs can be used to drive performance-orientated investment via retroactive project funding.

We will gain direct experience conducting small scale funding experiments. We will conduct a rapid funding trial, perform user research, and collect data. By conducting small scale funding experiments we are seeking to leverage the knowledge and expertise of the Catalyst community to help discover and develop rapid funding mechanisms.

The requested funds will be used to set up, conduct and fund projects using the Risk-Adjusted Bonding Curve market mechanism. A small "sandboxed" token market will be established using a prototype implementation of the RABC and deployed on a testnet. Community members will interact with the experimental market using a prototype mobile App. Members of the community will be invited to invest in proposals using airdropped testcoins.

Proposal Archetypes

Social and environmental impact-focused proposals will be developed with members of the Catalyst Community. These mini proposals must each be completed within three months and require $3,000 to $5,000 USD funding.

Funding Experiments

The experiments will be conducted on a testnet using testcoins, but actual Ada will be used to fund proposals and reward participants. The reserved treasury funds (actual Ada) from this proposal will back the value of the testcoins and enable conversion. Reserved treasury funds will be converted using a one-to-one peg, one testcoin for one Ada. Conversions and disbursements of actual Ada will be done manually by our team, creating a controlled, sandboxed environment to experiment in.

Project teams receive funding by drawing down from their proposals' reserves; normal RABC behaviour. In the proposed experiments, sponsored proposals will have their reserves initialised with 20% of their funding requirement. An RABC creates a continuous market for project tokens, the remaining funding for project activity comes from transaction fees associated with trading activity. As investors speculate on the probability of success or failure they trade in and out of the project's token. The associated fees are used to fund the project's team in the same way Cardano transaction fees fund the Catalyst community treasury.

Only investors that hold a position in successful proposals are compensated when a project completes. Using RABC based Impact Bond[15], reserved treasury funds (actual Ada) will only be paid to successful proposals in the experiment. On success the proposal's reserve receives the nominal value of the proposal (the remaining amount requested for funding) plus a coupon payment (i.e. a bonus for success) of 20%, both denominated in Ada. Holders of the project token (the investors and project team) may then convert their tokens back to Ada at a fixed rate. The payment creates an incentive for participation in the funding experiments where methods of valuation are similar to Commercial Paper Fixed Income securities. Investors will also ascribe value to the testcoins they are investing with, creating a realistic environment for the experiments.

Testing both successful and unsuccessful funding scenarios is important, so selected proposals must have a reasonable level of uncertainty in their proposed outcomes. Safe bets in the experiment don't leverage the Catalyst treasury or require market mechanisms such as RABCs.

Describing Proposal Outcomes

Project Catalyst's purpose is to discover what the community values; input crowd, output meaning! As an approximation, Catalyst aims to progress the three pillars of Cardano's vision:

1. Bring an economic identity to those without it.
2. Be a social financial operating system that enables economic identity.
3. Empower self-determination of the network and surrounding ecosystem.

Progress in Catalyst is defined by reference to Return on Intent (RoI), a term that emphasises the discovery and experimental orientation of Catalyst's process. To apply RoI, we reframe the discovery process as an impact investment problem, managing intention by measurable Objectives and Key Results (OKR). We aim to leverage, with small reinterpretations, the extensive value measurement and reporting work developed by the Impact Management Project (IMP) [6][7]. Impact investments are made with the intention to generate positive, measurable social and environmental impact alongside financial returns, which maps closely the thinking required to achieve Cardano's vision.

Our initial mini proposals will focus on delivering social or environmental impact. Part of the experiment design is to assist and coach teams to develop suitable proposals and describe their objectives and key results according to the IMP framework.

In the early experimental phase, progress toward objectives will be managed manually, via spreadsheets, similar to funded cohort reporting in Catalyst Coordinator, albeit with a higher reporting frequency. Our intention is to automate the reporting as we build out the necessary tools in future work.

Selecting Proposals

Published proposals enter a selection phase. Using a simple Commitment Voting mechanism [8], investors bond testcoins to proposals they think are worth sponsoring. If enough investors commit to a proposal, it is elevated to a "sponsored" status and investor testcoins are locked into the proposal for the first two weeks of trading.

On a first-to-finish basis, this proposal's funding will pay out on three successful proposals with a maximum 20% coupon rate. Up to eight proposals can be sponsored assuming a conservative 60% failure rate.

Determining Success

Successful completion is self-declared.

Project teams regularly report their activity, inputs, and outputs that demonstrate progress toward their stated objectives.

A proposal team can declare success by meeting its objective before the targeted completion date.

However final judgement will be determined by the team running the funding experiment.

If a negative judgement is made, teams are not given the option to continue and the proposal is deemed to have failed.

A project also automatically fails when it passes the targeted completion date without meeting its objectives.

For the moment, the funding experiment in general is operating in a high-trust environment so there is some flexibility around success and failure built into the experiment; in future iterations, that assumption will be relaxed and the criteria more tightly defined.

Impact on Challenge Metrics

This proposal will have a significant impact on Project Catalyst. The RABC is an essential building block for grassroots DeFi and RealFi (trade, social and environment finance). Many aspects of project funding for Catalyst or DAOs, including team accounting and compensation systems, will also benefit. We'll adopt an impact investing approach to reporting and measuring proposal progress, importing the IMP framework to lay the groundwork for multi-capital accounting [9]. Most importantly, it will allow Project Catalyst to scale.

Project Catalyst is framed as an experiment - "things may break, things might change with each iteration." It started small and increases with each iteration, with shortcomings continually being revealed and adapted to. But as the number of proposals increases, those learnings are disappearing in the fog of administration.

Complementary approaches that surface and distribute richer information need to be explored with the same spirit of experimentation.

The results of our experiments into retroactive rapid funding (both the design and execution) will lay the groundwork by:

1. Establishing a precise definition of Return-on-Intent;
2. Providing perspectives and insight to funded cohort reporting and learning.

In toto, this proposal will provide insights on how to use RABCs to provide low-cost transparent, accountable methods to manage many thousands of pools of funds and intertwined programmable value streams.

Key Performance Indicators

Key Metric: Activity-based on the Orbit Presence [10] metric to measure CHAOSS Project Popularity (which measures community interactions/value). The scope of interactions and value is augmented with Defi metrics. Orbit Presence will be defined over the run of the funding experiments:

1. Number of mini proposals worked on and published
2. Reaching the target objective of eight sponsored proposals
3. Daily Trading Volume (DTV) - Measure of activity.
4. Total Value Locked (TVL) - Measure of confidence in proposals.
5. Daily Active Wallets (DAW) - Measure of momentum and engagement
6. Average Order Value - Measures who are investing, how much and how often.
7. The ratio of successful/failed proposals.

The DeFi metrics above aim to capture the different dimensions of speculative activity. Sponsoring proposals that fail, for instance, is important to learn about failure modes. Using RABCs, the sponsor pays out only on success; therefore understanding failure modes and what drives speculation around success or failure are important aspects of the overall experiment's design that we want to encourage. It may seem counterintuitive, but the RABC mechanism harnesses speculation for good; financial speculation funds project activity and helps monitor a proposals' health. Therefore a 100% success rate for sponsored proposals would be an experimental failure!

Community Contributions: The RABC mechanism provides incentives for investors to monitor and audit project activity. Therefore community contributions especially around mini proposals and active discourse around the progress of sponsored proposals are important to understand. We will measure contributions according to the Orbit Love[11] metric and codification of contributions will follow the Community Engagement Framework [12]. Specific tools, types and weights have yet to be determined.

Activity Metrics: Project Velocity [13], defined as a combination of base activity designing, setting up and running the experiments, and measuring the overall market activity. We are using Github Issues and Project Boards to track project tasks/activity of the proposal teams and also to help with collaboration outside of the team. Closed Github issues and their codification (naming semantics and labels) measure project activity.

What Success Looks Like

Our proposal will contribute to Project Catalyst learnings around using smart-contract market mechanisms to efficiently discover, finance, and fund projects. At the completion of the experiment, members of the Catalyst ecosystem will have a clear understanding of what Return-on-Intent is, how to measure it, and how we can monitor and audit progress towards proposal objectives.

The experiments will contribute specific insights on the use of RABCs as a funding mechanism. The process of proposal design and specification, how the community manages success and failure scenarios, and market performance will all inform the design of the Risk-Adjusted Bonding Curves and related services.

After One Month:

• Specification of the funding experiment and execution plan developed.
• Services configured to help monitor and track our primary metrics.
• Website and content (blog posts and video content) developed to help explain the RABCs and the experiment.
• Plutus-Application-Backend (PAB), RABC code, testnet configured, testcoins minted.
• Recruitment of proposer teams, and community investors have started.

After Three Months:

• Proposer Teams recruited.

• Mini-Proposal workshops have been conducted and proposals published.
• Testcoin airdrop completed.
• The funding experiment is underway, starting with the selection of sponsored proposals using commitment voting.

After Six Months:

• Three sponsored proposals successfully completed and payouts were made.
• Funding experiment completed and findings reported.

After Twelve Months:

• Two more funding experiments have been conducted using larger funding amounts, more proposals, and more investors.
• Funding proposals in an open market are live on the mainnet.

Licensing

All our source code will be licensed under a free and open-source (OSI) licence e.g. MIT, and contributions must be contributed patent-free. Contributors will be required to agree to a Contributor Covenant[14].

Published content will be licensed under the Creative Attribution-Noncommercial-ShareAlike International (CC BY-NC-SA) Licence v4.0. The specification will be published under a Creative Commons Attribution-NoDerivatives 4.0 International (CC BY-ND 4.0) licence.

Code, documentation, project activity and Jupyter notebooks will be made available on Github or similar service.

Budget Breakdown

The requested Fund 7 budget is for wages and expenses for six months. Forty percent of the budget (40.2%), or $28,500USD, is reserved for developing and funding the mini-proposals in the initial experiment. A component of that budget is allocated to running mini-proposal workshops to help teams develop their proposals to a necessary standard. Funds will be requested to perform further funding experiments that finance a larger number of proposals and higher budget ceilings.

The remaining funds for this proposal are to be used to design, set up, run and manage the experiments along with measuring and reporting the overall market activity.

• Experiment Planning, Design and Setup: $10,000 USD (14.1%)
• Content Development: $2,500 USD (3.5%)
• Community Management: $11,000 USD (15.5%)
• Mini-Proposal Workshops: $6,000 USD (8.5%)
• Funding experiment execution: $8,000 USD (11.2%)
• Project Management: $6,000 USD (9.1%)
• Reserved funds for sponsored proposals: $8,000 (11.2%)
• Reserved funds for successful proposals: $14,500 (20.5%)
• Software Services & Server Fees: $750 x 6 months = $4,500 (6.4%)

The success of the funding experiment hinges on Catalyst community involvement. The newness and experimental nature mean there will be plenty of direct community engagement over the lead-up to and execution of the four-month process.

The budget is based on a pro-rata hourly rate, spread over four team members working part-time on the project. FTE hourly rate of USD$100 includes all overheads; Adjusted for experience, nature of work, and short term intermittent nature of project funding.

Affiliated proposals

DeFi+Catalyst🔥 Retroactive Finance [22] covers the work required to develop a prototype of a mobile application used by the experiment. The funding experiments can start only when sufficient progress has been made on the prototype mobile application. If the retroactive funding user experience proposal is not funded by the community, then we will evaluate our options for progressing without the mobile application.

The proposal builds upon and validates the work of the Retroactive Project Funding SDK (Fund6) [5]. The work will provide insights for the ongoing work of the Give Users security and confidence (Fund6) [16] project. Many steps leading to the activation of the RABC market mechanism can run in parallel to the development of the RABCs. We will time the proposal's execution to coincide with the RABC development roadmap and activate the market when stable test implementations of the RABCs become available.

Distributed Treasury Building Blocks [17] are the foundations for the Retroactive Project Funding SDK.

The technology and experimental insights will also help the Distributed Autonomous Accelerator [18] proposal.

Proposal Workshop [19] goal is to create an educational onboarding mechanism for making proposals. Retroactive funding of projects is well suited to proposals that progress through the Proposal Factory workshops.

References

[1] Diversify Voting Influence F4: https://www.youtube.com/watch?v=PnHvoZwhIwY

[2] Griff Green : Our Collective Psychosis around Public Goods: https://www.youtube.com/watch?v=PFy458wCQ0g

[3] Radical Markets: https://press.princeton.edu/books/hardcover/9780691177502/radical-markets

[4] Risk-adjusted System Dynamic research: https://github.com/BlockScience/Risk-Adjusted-Bonding-Curves

[5] Retroactive Project Funding F6: https://cardano.ideascale.com/a/dtd/Retroactive-Project-Funding-SDK/369011-48088

[6] Impact Management Project: https://impactmanagementproject.com/

[7] Impact Management Platform: https://impactmanagementplatform.org/actions/organisations/measure-sustainability-performance/

[8] Commitment Voting https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3742435

[9] Multi-Capital Accounting and R3.0: https://www.r3-0.org/

[10] Orbit Presence: https://github.com/orbit-love/orbit-model

[11] Orbit Love: https://orbit.love/

[12] Community Engagement Framework: https://communityroundtable.com/best-practices/thecrs-work-out-loud-framework/

[13] CHAOSS Project Velocity https://chaoss.community/

[14] Contributor Covenant: https://www.contributor-covenant.org/

[15] Social Impact Bond: https://ellierennie.medium.com/how-to-improve-karl-and-vitaliks-really-good-idea-d49ee6dca60d

[16] Give Users security and confidence: https://cardano.ideascale.com/a/dtd/Give-Users-security-and-confidence/369892-48088

[17] Distributed Treasury Building Block: https://cardano.ideascale.com/a/dtd/Distributed-Treasury-Building-Block/384907-48088

[18] Distributed Autonomous Accelerator: https://cardano.ideascale.com/a/dtd/Distributed-Autonomous-Accelerator/382562-48088

[19] Proposal Workshop: https://cardano.ideascale.com/a/dtd/Treasury-for-Mini-Proposals/383495-48088

[20] EthCC4 Vitalik Buterin : Things that matter outside of defi: https://youtu.be/oLsb7clrXMQ?t=598

[21] The Future of Decentralized Finance: https://www.youtube.com/watch?v=vzsUSG5CSj0&t=180s

[22] DeFi+Catalyst🔥 Retroactive Finance: https://cardano.ideascale.com/a/dtd/DeFi+Catalyst%F0%9F%94%A5-Retroactive-Finance/385032-48088