Beyond ISOs: SPO-driven Funding

I. Preface - Cardano Means Business:

Arguably the greatest feature of Cardano's staking ecosystem is that - relative to many other blockchains - it's not so difficult or expensive to become a validator on Cardano. But contrary to popular opinion, this isn't a great feature simply because it gives rise to a great number of stakepools. More accurately, it's a great feature because it will allow Cardano's consensus to become the cornerstone of a great number of business opportunities that couldn't be launched or sustained by other blockchains or the legacy financial system. In other words, once the fundraising power of its consensus is fully realized, it will give rise to a great number of sustainable stakepools.

In the cryptocurrency industry's first Initial Stake Pool Offering (ISPO, or ISO), MELD has been able to leverage Cardano's delegated proof-of-stake consensus to attract over 40,000 delegators and raise over $10 million in block rewards for the development of MELD. In a recent interview with Coin Telegraph, MELD CEO Ken Olling suggested the staking dynamic on Cardano was a factor in the MELD team choosing to build on Cardano. And given Cardano's large and engaged community, and the fact it has superior staking dynamics for fundraising, it's hard to imagine MELD's ISO being nearly so successful on another blockchain. Though what's most significant about MELD's ISO success is it shows Cardano delegators are excited to leverage their delegation rewards to get a stake in new business ventures.

Even if we're successful in our core mission of fostering trust and transparency in Cardano's staking community, our team at Stakeboard is under no illusions: Unless Cardano stakeholders can significantly increase the potential monetary rewards of delegating directly to small SPOs (and thereby increase the opportunity cost of keeping ADA on centralized exchanges) Cardano's critical consensus infrastructure will tend towards centralization. The good news is, The MELD ISO is one more indication Cardano delegators are eager to be on the bleeding edge of finance and business - and that they'll forego the 2-click convenience of centralized exchanges in favor of securing a potentially lucrative stake in a business opportunity they believe in.

Never before in human history have normal people been able to continuously contribute the interest earned on an investment to make a secondary investment in a business opportunity - all while keeping their investment principal unhazarded and protected by keys in their possession. Our team believes that if people are given user-friendly, informative access to this kind of opportunity, it will not only innovate funding models in the cryptosphere; it will pull capital from the far reaches of the investment world into projects based around Cardano Stakepools and Stakepool operators. That being the case, we'll be focusing a great deal of energy in developing two components of the Stakeboard platform:

1)  Stakepad will offer an improved version of the ISO model that will be of big advantage to any project trying to conduct an ISO. That said, it will be specifically geared towards benefitting the smaller fish in Cardano's ocean: Smaller development projects, smaller SPOs, and typical ADA holders who have limited-to-no access to private sales and the like.

2)  Stakestarter will go beyond the ISO model, blending features of popular platforms like Kickstarter and Patreon and adapting them to work within a delegated PoS funding model. The goal with Stakestarter will be to empower SPOs for whom the ISO model may not be an ideal fit to pursue business ventures that depend upon initial and/or ongoing funding, while providing delegators with a wider variety of opportunities than the ISO model affords.

II. Stakepad - Perfecting the ISO Model:

A. Intro to the Existing ISO Model

An Initial Stakepool Offering (ISO) can be the best way to fund the development of tokenized Cardano projects. Under the ISO model:

1. Project developers launch special purpose stakepools.

2. Delegators to these stakepools may forego some (or all) of their ADA block rewards

3. Any block rewards forwent by delegators are retained by the development team and used for project development.

4. In exchange for delegating to the SPO, delegators are rewarded by the developing project with the project's token(s) or other reward.

The ISO model creates a win/win situation for Cardano developers and delegators: Delegators are among the first to get a share of tokens from a project they believe in, and developers obtain critical funding and community engagement – without having to check the boxes and make the compromises required to obtain venture capital, and without needing to depend exclusively on Project Catalyst and the general treasury for development funding.

But there have been some serious problems with the ISO funding model until now:

1. Perhaps most significantly, in launching new stakepools for their ISOs, projects have cannibalized block rewards previously earned by small stakepool operators (SPOs). This trend could undermine the ability of small stakepool operators to maintain their pools, and prevent new, purpose-driven stakepools from being formed by small SPOs. This is not only a negative for the diversity and distribution of the Cardano SPO community. It's also one more pressure that could reduce the decentralization of the Cardano blockchain. And because SPOs are very active and influential within the broader Cardano community, insensitivity on this issue could harm the image of a development team fundraising via SPO, and limit not only their fundraising success, but also limit Cardano user adoption of their project.

2. Because the ISO model is dependent upon widespread support among delegators and the establishment of one or more stakepools, until now it has only been feasible for projects with extensive marketing reach. Practically speaking, this has meant projects have needed a large amount of influence or marketing capital to successfully launch an ISO.

3. A major problem has emerged of scammers setting up 100% margin pools mimicking ISO stakepools. In the case of MELD's ISO, millions of $ADA were delegated to fraudulent stakepools, resulting in a large number of delegators missing out on $MELD rewards and tens of thousands of ADA being diverted from the ISO to malicious actors.

4. Currently each new project that wants to launch an ISO has had to develop its own rewards model. And there has been a general lack of transparency about how much delegators will be rewarded, or when, to the point where large projects like MELD have launched ISOs without even first publishing specifics on the rewards ISO delegators would receive. This lack of clarity, and most projects' lack of a rewards dashboard for delegators to track their ISO rewards, has led to projects spending inordinate amounts of time fielding questions on ISO reward issues. And ISO delegators have expressed frustration with the ISO reward claiming process - both with the lack of clarity on how it will work, and the fact they'll have to pay seemingly inflated fees to claim their rewards.

B. The Minswap FISO Model – Pros and Cons

In response to the problem of cannibalizing SPO block rewards, the Minswap development team innovated the ISO model in what they've called their Fair ISO (FISO) model. Rather than launch new Stakepools for their ISO, Minswap adopted a model that was fairer to small SPOs by partnering with single pool operators who were randomly selected from a number of applicants that met criteria outlined by the Minswap team.

As stated by the Minswap team, their FISO model solves some key problems presented by other implementations of the ISO funding model. The FISO model:

Allows SPOs to directly benefit from the growth of DeFi and other projects on Cardano;

Further decentralizes the Cardano network;

And presents an opportunity for SPOs to build trust with delegators as ISO partners.

However, Minswap's FISO model does not solve the problem of reducing the main barrier to entry for most development teams that could benefit from an ISO - the fact that conducting an ISO requires a lot of marketing and a huge amount of time. On top of the need to market the ISO to delegators, devise a rewards scheme, and manage FISO related communications, Minswap's model also required their team to create an SPO application and vetting process that required substantial resources from the Minswap team.

Ultimately, the complexity of conducting a FISO alone means it won't be a feasible fundraising option for smaller projects. This means relatively few FISOs will be conducted on Cardano (predominately by larger projects), and this all translates to few opportunities for small SPOs to acquire and maintain new delegators.

Additionally, Minswap's qualifying criteria for stakepools were confined to data points that could be ascertained from the Cardano Blockchain. To be considered for partnership on the Minswap ISO, stakepools applying had to meet the following criteria:

• Single-pool operators only
• Pool size: 100k-2m ADA at time of snapshot
• Fixed cost: 340 ADA
• Minimum Pledge: 20k
• Margin: less than 5%
• Minimum of 1 block produced

These general parameters seem sensible, but the final selection of stakepools (which drew from a large number of qualifying applicants) was algorithmically randomized. Thus, it was fair in the sense that all qualifying applicants had an equal shot at being selected. However, the random selection approach leaves something to be desired in the sense that the delegator community has no say about the SPOs their delegations will support. And a project's ultimate adoption generally benefits from fostering community engagement as early and often as possible.

Last, for the time being there doesn't seem to be a pressing concern to integrate know-your-customer (KYC) functionality into a FISO protocol, but Sundaeswap's decision to not use their ISO as a means of raising development funds was made in part to avoid the potential regulatory interpretation of their ISO as a security offering. And other projects may be avoiding the ISO funding model altogether out of an abundance of caution about future securities regulations - especially from the US Securities and Exchange Commission and Internal Revenue Service.

C.  Stakepad - Stakeboard's FISO Partnership Model:

By partnering with projects that want to launch FISOs, as well as small SPOs already on the StakeBoard platform, Stakeboard will dramatically improve the Fair Initial Stakepool Offering in the following ways:

1. Stakeboard will use its platform to advertise the FISOs of its partner projects to SPOs and delegators, thereby lowering the marketing barrier to entry for projects looking to fundraise via ISO: Upon creating an account on Stakeboard, users will be signed up for notifications about upcoming FISOs by default; upcoming FISO information will be displayed prominently on the Stakeboard platform; and FISOs will be advertised consistently on Stakeboard's social media accounts.

2. Stakeboard will improve and expedite the SPO selection process for partner projects, providing projects with a list of stakepools that meet their criteria for potential ISO stakepools. These criteria will include basic parameters like those included by Minswap, but improve upon these criteria to improve FISO and Cardano network security.

Finally, Stakeboard will use its Alice Staking Detective to vet applicants on the basis of whether they've taken questionable or suspicious actions in the management of their stakepools since the launch of Alice. Alice alerts Stakeboard if and when stakepools greatly increase their margin or reduce their pledge, and these kinds of actions can be a red flag partner projects wouldn't be aware of unless they have similar software tracking stakepool actions on Cardano.

3. By enabling partner projects to implement a dual selection process, Stakeboard will allow partners to strike the right balance between fairness and community engagement in their FISO Stakepool selection process. Once Stakeboard has assisted partner projects in arriving at a shortlist of SPO applicants, there are two options for making the final selection:

• The selection can be put to community vote (the SundaeSwap model).
• The selection can be made via a random selection algorithm (the Minswap model).

Stakeboard's approach combines the strengths of each of these approaches: Because putting the final selection to a pure community vote will most likely result in the Stakepools with the most visibility - essentially the best advertised stakepools - being selected, and because many of the stakepools bringing the most innovation and equity to Cardano have negligible marketing reach, we believe most of the final selection should be made at random. But we also believe community engagement throughout the FISO process is important and valuable to a project.

For this reason, we propose to our project partners that no less than ⅔ of the final selection is made via randomizing algorithm, and no more than ⅓ of the final selection is made by a community vote conducted on Stakeboard. In practice, this would mean a selection of six winning stakepools (chosen from a shortlist of, say, 12 candidates) would be composed of four stakepools chosen at random, and two chosen by community vote. Or, with the selection of five winning stakepools, four would be selected at random, and one would be determined by community vote.

We believe this strikes the fairest balance in that it drives community engagement and lets the community decide on their top choice(s), while also offering a fair chance to purpose-driven stakepools, irrespective of their marketing budget or community following.

Compare this to the SundaeSwap model: A project that's funded by Alameda Research and Cfund just posted around 500 Stakepool applicants on their website, for a community vote that will almost certainly result in the selection of some of the largest SPOs on Cardano being selected as ISO partners. By partnering with Stakeboard, project partners can deploy a vastly improved FISO model with a tiny fraction of the resources accessible to projects like SundaeSwap.

4. As experienced, Cardano Stakepool operators, the leadership team of Stakeboard understands the amount of block rewards a stakepool is likely to receive with varying levels of delegation and pledge. So, whereas a project's winning stakepool partners obviously have an incentive to concentrate as much delegated ADA in as few pools as possible, Stakeboard will advise its project partners on how the FISO can manage delegation distribution to maximize the number of small stakepools that can participate, and keep stakepool pledge/delegation ratio in healthy balance to maxime the ADA rewarded to the overall FISO. What's more, Stakeboard will provide a simple, FISO staking interface, where delegators' ADA is automatically deposited in the correct stakepool to maintain the FISO's delegation distribution model.

5. Stakeboard will allow partner projects to opt for or against optional parameters that could make their FISO seem more fair and equitable to the delegator community. For example, Stakeboard can have users log into their Stakeboard account prior to delegating to a FISO, and limit the amount a logged in user can contribute to a FISO, making it much more difficult for whales to earn a vastly disproportionate share of FISO rewards. An option like this isn't available when conducting a FISO through other ADA wallets.

What's more, Stakeboard will be able to dynamically respond to FISO conditions to optimize outcomes for our partner projects. For example, if a partner project is an epoc into their FISO on Stakeboard, and delegator participation is lower than expected so stakepools are undersubscribed, Stakeboard will alert the partner about ways the situation could be improved. For example, Stakeboard could inform the partner they may want to remove the limit the project placed on maximum delegations from individual users. And if the partner wants us to remove this limit, stakeboard can send an email notification to every delegator in their FISO, alerting them that the limit has been removed and they can now delegate an unlimited amount to the FISO.

7. By directing delegators to stake to their FISO via Stakeboard, and making that a pre-condition of receiving FISO rewards, projects will greatly undermine the effectiveness of scammers and scam ISO stakepools. It goes without saying that all FISO stakepools accessible via Stakeboard's FISO delegation dashboard will be legitimate, and delegators who open an account on Stakeboard will receive a notification anytime Stakeboard becomes aware of a fraudulent ISO stakepool. Moreover, project partners will be able to easily communicate all important updates and information to all FISO delegators through Stakeboard's messaging interface, eliminating a great deal of confusion and the need for overly redundant communications.

8. Eventually Stakeboard will develop optional, know-your-customer (KYC) functionality for project partners concerned about potential regulatory ramifications from holding an ISO. As outlined in Charles Hoskinson's 11/29/2021 whiteboard video on ISOs, KYC functionality could be developed on-chain through a system wherein ISO delegates attach decentralized identifiers (DiDs) as metadata to be sent along with their delegations to SPOs. It appears Hoskinson will be proposing a Cardano Improvement Proposal (CIP) to enable this functionality, and Stakeboard is exploring this and other options for enabling project partners to perform KYC on ISO participants.

D. Conclusion

With these innovations to the ISO concept, Stakeboard and its project partners are going to change the game of who can raise funds to bootstrap projects on Cardano. Until now, it has been challenging for even the mega-projects of Cardano to conduct an ISO without garnering a great deal of criticism and expending a great deal of resources. But now, leveraging Stakeboard's infrastructure and SPO experience, projects with just a modest amount of capital will be able to conduct a well planned, well conducted, transparent FISO - where fairness to all of Cardaono's stakeholders - developers, delegators, and stakepool operators - is respected.

III. Stakestarter - Cardano's Fundraising Ocean

In his discussions of Cardano's development network, Charles Hoskinson frequently refers to a metaphorical analogy of "the island, the ocean and the pond." In his analogy, the pond equals all the development currently happening on Ethereum in languages like Solidiy and Vyper, the island equals Plutus (Cardano's expertly designed, high assurance smart contract language), and the ocean equals the world of "mainstream" developers working in languages such as Javascript, Python, C++, .Net, etc.

But this analogy could also be applied to the world of business fundraising, with the pond being equal to all the tokenized projects for which an ICO, private token sale or IDO would be an appropriate funding mechanism, and the island being equal to the FISO, which serves a similar function as IDO's and private sales for a similar kind of project, but does so in a way that's generally more favorable for Cardano's decentralization and stakeholder groups. And to follow this analogy to its logical conclusion - the ocean of fundraising opportunities consists of the world of current and proposed business ventures which need funding, but for whom neither the pond nor the island is an ideal fit.

It's hard to overstate how rewarding it could be for Cardano SPOs to venture out into this fundraising "ocean" with a completely new kind of vessel. And with Stakester, our team plans to equip Cardano SPOs with this vessel and the tools they need to successfully navigate it. We want to enable SPOs to advance their own entrepreneurial endeavors as well as partner with entrepreneurs to bring novel business plans and funding proposals to Cardano's delegator community. We want delegators' stakes in a wide variety of business ventures to become a transformative source of value supporting Cardano's staking ecosystem. And while we're still in the early stages of designing Stakestarter, we want to build it with the following features:

• Projects will be able to include proposals for both initial (seed) and ongoing funding.
• Ongoing funding will come in the form of block rewards earned via delegators who have reviewed the project's funding proposal and accepted the offering.
• Project proposals will be required to contain "subscription deadlines." And if a specified, minimum amount of delegations and/or initial, minimum funding amount is not pledged (i.e. locked in an escrow account) by delegators prior to this subscription deadline, any escrowed funds will be returned from the escrow account to the delegators.
• Projects will be required to provide evidence of progress periodically to delegators.
• Projects will be able to conduct KYC via StakeStarter.
• Proposals will be required to detail all rewards or benefits to be awarded to delegators for delegating to the project, as well as how and when they will be awarded.
• Possible extenuating circumstances (for example, a specified floor price for ADA being breached) and contingency plans (such as the temporary postponement of the project and delegator rewards being delayed), must be detailed in all project proposals so delegators understand as far as possible any potential risks involved in delegating to a project.

 While Stakestarter will obviously pose considerable design challenges, we're committed to coming up with a circumspect design that attempts to mitigate counterparty risks for both delegators and SPOs, as well as risks presented by external factors like market volatility. And because it's crucial that every product on Stakeboard builds trust (rather than erodes it) on net balance, Stakestarter's allowable stakepool parameters and funds distribution protocols will seek to limit delegation risks as much as possible. All that being said, if we overcome these design challenges, and develop a product that builds trust through transparency and safeguards, while at the same time rewarding delegators and SPOs for funding valuable projects, the range of opportunities Stakestarter could give rise to is truly oceanic. 

Related Proposals

If you want to lean more about Stakeboard (the overall platform that Stakepad and Stakestarter will be part of) and the other features we are building on it, check out the following proposals:

• Stakeboard a Social Staking platform: 

https://cardano.ideascale.com/a/dtd/Stakeboard-Social-Staking-Platform/383858-48088

• Defending Cardano Staking Ecosystem: 

https://cardano.ideascale.com/a/dtd/Defending-Cardano-Staking-Ecosystem/384952-48088

Connect with us

• Twitter: https://twitter.com/Stakeboard_
• Discord: https://dsc.gg/stakeboard
• Medium: https://stakeboard.medium.com

Stakeboard Team

Giovanni - Co-Founder

     Senior Software Engineer 

     16 years Development Experience - DevOps Advocate - Plutus Pioneer and Stake Pool Operator

     https://www.linkedin.com/in/giovannigargiulo/

Sebastiaan - Co-Founder

     Entrepreneur and government contractor for software integrations and solutions 

     16 years Development Experience - Plutus Pioneer & Emergo Academy 

     https://www.linkedin.com/in/sebastiaan-m/

Anthony - Head of Business Development

     Entrepreneur with 7 years business development experience, 15 years sales experience, primarily in financial services and real estate. 

     https://www.linkedin.com/in/anthonycapitan/

Trecy - Head of Design

     Passionate about creativity and design processes, I have been working for several years to design aesthetic and functional user experiences.

     https://www.linkedin.com/in/trecy/ 

Floriaan - Communication Manager

     Support, Community & Social media experience in IT, Design and Blockchain industries.

     https://www.linkedin.com/in/floriaan-mekes-96b510127/

Matteo - Product Manager

     Master degrees in Government Science - Product and Project Manager - Blog writer on blockchain ecosystem.

     https://www.linkedin.com/in/matteo-mannucci-201b12168/

 Roadmap

We've been hard at work on Stakeboard since August, and despite having to fund the project's development until now from the team's savings and on a volunteer basis, we can proudly say we've made huge progress: Platform design is complete and several core functions are built.—As of late November, SPOs can now verify ownership of their pools and create Stakeboard profiles. Nami wallet integration has been completed and delegating directly from Stakeboard has been enabled. And we recently launched the project's landing page at stakeboard.net.

Unfortunately though, we're quickly approaching the point where our abilities to self-fund the project will run out, which is why being awarded Catalyst funds for our Fund7 proposals will be critical to sustain project development.

That being said, Here's our Stakepad Roadmap:

January 2022

• Reward dashboard for delegators for a selected ISO
• ISO project creation
• ISO SPO signup system

February 2022

• ISO pool selection system
• ISO Project dashboard
• Design UI

March 2022

• ISO Communication Centre
• Refine UI UX
• MVP launch

 Key Performance Indicators:

1 month

• Provide dashboards for at least one live or historical FISO

3 months

• Increase by 10% Stakeboard base account creation (i.e 550)
• Increase by 10% verified SPOs on Stakeboard (i.e 165)
• 10 ISO delegations executed through Stakepad 

6 months

• Provide dashboards for all live ISOs (if available)
• Increase by 15% Stakeboard base account creation (i.e 1725)
• Increase by 15% verified SPOs on Stakeboard (i.e 230)
• Launch an ISO on Stakepad
• 20 ISO delegations executed through Stakepad

Cost breakdown

+  UX/UI $ 4300

+  Project Management and Marketing $ 2900

+  Front End $ 8500 (170 hours at 50% of developers' accustomed wages)

+  Backend $ 15500 (310 hours at 50% of developers' accustomed wages)

+  Cloud $ 600

+  DevOps $ 3500