Next steps from Moloch: Bootstrapping DAO funding from small donors

I think we need better schemes for bootstrapping DAO funding from medium to small donors.

In its first 6 months, Moloch DAO has distributed $120k of it’s ~$1.3 million treasury (according to their Twitter). That means that the most prominent DAO for funding public goods in Ethereum, an ~$18 billion ecosystem, raised a budget ~1/10,000th the size of Eth’s market cap and spent the equivalent of 3-4 full time salaries over half a year. For reference, I believe governments regularly take in >15% of their nations’ GDP in tax revenues each year (not an expert). Even with shaky data, Moloch’s impact looks small relative to its prominence and the size of its community, and that doesn’t bode well for its giving structure, charity, as a way for smaller communities to fund projects.

Why hasn’t Moloch raised more total money? Why hasn’t it spent more of the money it has? There’s a lot to explore in these questions, but I want to focus on one angle: why hasn’t Moloch raised more from “middle-class” Ethereans? Can we make schemes for bootstrapping DAO funding that raise money effectively from many small donors? From a utilitarian perspective, most of the world’s preference information is locked up in people only capable of small funding contributions, and so the future impact of DAOs might really benefit from such models.

I think there are a few barriers for small funders right now:

  • No ROI — If I join Moloch with a tribute of 10 ETH, what happens to my money? My 10 ETH of shares, a lot of money for me, will depreciate as Moloch gives out grants, diluting share value. At best, I can ragequit and get nearly ~100% of my money back, accomplishing nothing.
  • No influence — Again, I join Moloch with a tribute of 10 ETH (assuming they let me in). As an investment, my money will sit inert, but at least I get the benefit of my voice counting in funding decisions, right? Probably not, unfortunately, since the plutocratic voting power distribution probably leads to severe imbalances in decisiveness. My vote won’t matter, so why would I take the financial risk of joining?

Here are a couple ideas to address these problems.

Option 1: An Equal Exchange-inspired scheme

Maybe we could implement an Equal Exchange-esque model: a model focused on non-exploitive-but-return-seeking investment in working organizations. This model primarily addresses the ROI problem.

A DAO sets out to raise funds. It lays out a mission and revenue model, then begins taking investment. Instead of giving investors pro rata voting power in the DAO, it entitles them to proportional shares of a dividend (it can also give them voting power), detailed in the business model. At any time, investors can convert their dividend shares into debt, to be paid by the DAO as the DAO can afford to pay it (preferred investor shares). The value of your shares doesn’t go up or down once you’ve bought them — you can always get your money back out, but while it’s invested, you will earn a dividend while supporting the project.

In DAOstack, such a scheme might look something like this:

  • Anyone can make a proposal sending funds to the DAO in exchange for dividend shares (and possible reputation)
  • The scheme records how much someone has contributed in exchange for shares this way
  • At any time, an investor can call convert_shares(amount) in this scheme to convert a percentage of their shares into equivalent debt
  • The DAO pays debt and dividends like this:
    • Anyone can make a proposal to send some DAO funds into the dividend share scheme (anyone can also propose the reverse)
    • Anyone can call redeem() in the dividend share scheme, which pays out whatever funds are in the scheme proportionally to debt holders and shareholders

(Dividend shares could simply be the same as reputation if the DAO is okay distributing all its voting power this way)

With this scheme, you get likely ROI on your money and stand a very small chance of losing value (if the DAO is competent).

A quick comparison with curved bonds that grant dividend rights:

  • Steeply sloped curved bonds (where price changes as supply changes) have the same issue as Moloch: the risk of your investment depreciating is high, and so smaller donors will probably shy away.
  • But what about a flat, or relatively flat, “curved” bond? (X investment in, m*X shares out, m is constant)
    • Your money can’t disappear!
    • But the DAO’s money can: at any time, investors can withdraw their funds, pushing all the risk onto the DAO. Maybe this doesn’t matter, but I suspect that a working organization can’t build a stable business with that kind of black swan flying overhead.

Option 2: Conditional charity

A conditional funding scheme might address the problem of influence. Instead of throwing money into Moloch and hoping the plutocrats will listen to me, what if I could give money that will only go to Moloch if a certain kind of proposal is passed?

This resembles turning DAO funding into crowdfunding, something with a strong track record of raising funds from medium-sized contributions.

Here’s an example scheme:

  • Anyone can propose a funding pot, phrased as a project request: “Request for a project to re-landscape the park, minimum budget $X, cutoff time Y”
  • Anyone can now contribute to this funding pot
  • Anyone can also submit a proposal to do the project
  • If funds raised > $X and one of these project proposals passes before time Y, the funders’ contributions go to fund that proposal. If not, funders get their money back.

This ameliorates the influence imbalance: I don’t care that Joe Lubin has 100x more influence than me if I can guarantee my money is only going towards things I really care about.

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To me, the answer here is simple: middle class people would prefer a monthly subscription. Most charity orgs, donor orgs, etc. leverage this funding model, and it’s something that should be prioritized in my opinion.

One thing that can be explored further is that when you have a subscription model, and your DAO has a bonding curve or a native issued token, and a part or all of its subscription income is used to purchase tokens from the curve or collatoralize it, then you have a more accurate valuation model for the DAO’s tokens. I predict that this would invite increased speculation, similar to a P/E ratio, and increased exposure by extension.

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