Project Catalyst – Decentralized Funding on Cardano

“What causes poverty? Nothing. It’s the original state, the default and starting point. The real question is, what causes prosperity?” (quote by https://twitter.com/PerBylund )

The quote above is just a little something for you guys n gals to think about… Anyway, moving on.

Project Catalyst will help us understand how we can effectively deploy +$100m worth of funding in a decentralized way to help make Cardano become a more valuable network. People can submit their proposals to apply for funding, and these proposals will be voted on by Cardano stakeholders.

The link below contains more details on what’s been done so far and how it all might work: https://www.youtube.com/watch?v=WcI-ZvyeRd8 (by Dor Garbash who is the project manager at IOHK).

The funding should be used in a way that creates value for the Cardano network.

How do we create value for the network?

Here are some examples of ways we can create value for the network:

  • The funded proposal will encourage more people to make a high number of transactions on the Cardano network. For example, a low hanging fruit could be to lobby Tether to pull their stable coin off the Ethereum network and onto the Cardano network. Tether accounts for around 13% of all the gas fees on the Ethereum network which is quite significant. Moving Tether over to the Cardano network would encourage more transactions to be done on the Cardano network which would create demand for ADA.
  • The funded proposal encourages people to hold ADA in perpetuity. For example, Stake Pool Operators can offer value added services whereby people who delegate to certain SPOs will get something additional on top of the ADA rewards (you can see what we do here). Think Amazon coming to the party and saying, “hey guys, delegate to us and we will give you free Amazon prime membership.” Or Netflix saying, “hey, delegate to us and we will give you free Netflix membership.” Examples like this encourage people to HODL ADA because real world utility is being provided to HODL. Proposals that encourage people to HODL ADA will lead to the price of ADA going up, thus creating value for the network.

Given that we will see proposals come in many forms, the person submitting the proposal should answer this key question:

How will this proposal, if funded, create value for the Cardano network (e.g. how do we sustainably make ADA number go up relative to USD or BTC or Gold)?

If you can answer this question for us within the proposal, it will make judging the proposal much easier for myself and others, so I encourage you to think about this point and answer it well.

Voters should also keep note of the point above and figure out if the proposal can create value for the network.

We have a framework which will help you understand what information we need before deciding on whether a project/proposal should be funded. The framework will be useful for people creating proposals as it will help you understand what information you can add to your proposal to make it more useful/attractive to the people assessing it. For the people assessing proposals, the framework below will give you some key things to consider before giving the green light to a proposal.

Please note that the points below are just a framework and whilst it may be applicable to most proposals, some proposals will need other/more criteria to be judged effectively.

1 – Team

Has the team got the right mix of skills and experience to execute this proposal?

Has anyone in the team built a successful company and or made an exit?

If so, how many companies, how much was the exit, when and is it relevant to the current proposal?

Any other notable achievements by the founders / team which is relevant to the proposal?

Is this a high integrity team, are they transparent? (e.g. AMAs, answering tough questions, no nonsense responses, track record).

How long have the founders / team known each other for and have they been successful together before?

Are the team/founders full-time with the project/company?

2 – Advisors / Prior Investors

Any big names (individuals or companies)?

Has the team got the network and contacts to help them execute this project?

How involved are these advisors in the project?

How will they be contributing, what have they done so far?

Are the advisors compensated? If so, how much and what are the terms and conditions?

3 – Proposal

What type of proposal is it?

What problem is it solving?

How does it make money / create value (what’s the business model)?

How big is this problem (TAM / Target Market size in $ value)?

How much impact will it have on the space? (Is it a game changer)

Is the problem area growing, decreasing or is it unchanging?

4 – Minimum viable product / Prototype / Traction

Do they have a prototype?

If so, what stage are they at with the prototype?

What does the roadmap look like and what has been accomplished so far?

When can they get a prototype ready and how much will it cost?

Have they built up any traction (e.g. acquired customers, show growth statistics and any other custom metrics that shows traction)?

5 – Distribution

Has the team got a clear cost-effective distribution strategy (e.g. acquiring users/customers)?

Will the distribution strategy be effective?

How fast can they scale up?

Do they have an unfair advantage with regards to distribution of the product/service?

If so, how good is it?

6 – Competition

Which market is the project competing in?

How many direct competitors are there?

How many in-direct competitors are there?

Who are the key competitors and what do they do?

Is it a fragmented market or a consolidated market?

What is this projects USP compared to competitors?

7 – Funding / Returns

Is the funding requirement enough to meet the milestones stated by the team?

If not, how much do they need to get somewhere meaningful?

Complete breakdown of funding allocation and is it reasonable?

Will funding this project/proposal generate enough returns / create enough value within a reasonable time frame (let’s say within 3 years)? (x100 return required for very early stage projects as it will be higher risk) (lower return requirement for lower risk projects)

Here are some reasons why startups/projects fail. (Source of data: https://www.cbinsights.com/research/startup-failure-reasons-top/ )

We should fund projects that can be executed swiftly and generate good returns. Most funded projects will fail and only a very few will succeed so we need to cover those losses with the wins (hence the need to generate large returns). A series of small high-quality bets will be the best option IMO.

We are super excited to be selected as members of the focus group in Project Catalyst to help take this project in the right direction. We helped a similar project before that involved decentralized investment decision making which surprisingly worked very well, so we know it can be done. That involved around 50 participants who were all incentivised to find/research projects so the fund (around 7 figures) could buy a stake in the project (e.g. the token or coin). People who had a good reputation (from doing good work) received most of the rewards if the projects selected appreciated in price.

Guess what the top-rated project was… Yup, it was Cardano.

Thanks for reading.

This blog post will be edited going forward but should suffice in helping increase the quality of proposals produced and also the quality that goes into the assessment of proposals.

Photo by Clint Adair on Unsplash

3 thoughts on “Project Catalyst – Decentralized Funding on Cardano

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