BanklessDAO Project Revenue and Ownership Discussion - DRAFT 1

Governance
1

BanklessDAO Project Revenue and Ownership Discussion - Draft 1

Authors: Icedcool, HashedMae

This post is to kick off a discussion on revenue, and ownership at the DAO, which has implications in terms of alignment to the DAO, responsibilities of projects to the DAO, responsibilities of the DAO to projects, and other implications. Acknowledging that technically the DAO owns all projects, we wanted to facilitate the conversation in being more explicit to support clear decision making going forward.

As BanklessDAO projects are moving towards maturity, the decisions around how to structure their revenue, funding and overall governance becomes increasingly important. These structures are relevant as they define the financial impact back to the DAO, and who can make decisions around that. As some projects consider taking outside funding, how they should do that becomes pertinent. Ultimately this question is about, should projects distribute their own tokens for investing, encourage investing to the DAO with funds earmarked in some way for the project, a combination of the above, or something completely different.

This post is certainly not exhaustive, but we wanted to at least present some different options and ideas. As projects mature, this will help them define how they will set up their revenue and alignment.

Some implications that we think should be acknowledged are that investing may come with additional requirements from the investor that can alter alignments for projects. Additionally, by the Grants Committee funding projects, they maintain alignment and accountability to the DAO.

Scope:

To define, and recommend ownership structures to support the long term valuation and recompense of the DAO from projects.

An important distinction is for projects that are internal services vs revenue generating projects. This document is to define and make recommendations for revenue generating projects.

Internal services(like guilds, or training) may never generate revenue, although a separate post explicitly defining the relationship from the DAO to these, is important and necessary.

This list is not exhaustive, more to present ideas and options for the DAO to discuss, and ultimately vote on as a recommended ownership model.

Additionally, this document is to serve to support the Grants Committee’s decision making process and potentially require projects to have a revenue and investing model section.

Investing Models:

  • Incubator Model

    • Project receives funding from Grants Committee
    • Sources talent from guilds
    • Seeks revenue and compensates based on a VC/Investor model
      • X% revenue to the DAO
        • For perpetuity? (NFT Flipper)
        • Or one time revenue? (DAOPunks)
      • Y% revenue to the Project Multisig
        • Compensation is decided upon internally, ie coordinape, percents, etc.
      • May create a token to support equity distribution for investing.
        • Would be expected to grant the DAO a portion of tokens, to be discussed and approved with the DAO and/or Grants Committee.
        • Investors would purchase tokens/equity for a claim on the revenue of the project in exchange for agreed upon alternative token(stable tokens, etc).
        • Tokens would also be distributed to core contributors.
          • Depending upon governance of the project.
    • Ultimately seeks independence from the DAO, potentially as a subDAO, or its own DAO.
      • Ex, DAOPunks

  • Department Model

    • Project lives within the DAO, using DAO resources, infrastructure and the DAO provides overhead support, ie legal, marketing, etc
    • Project is a component of BanklessDAO
    • Project receives funding from Grants Committee
    • Sources Talent from Guilds
    • Seeks revenue, and investing would accrue to the BanklessDAO Multisig
      • Investing may or may not be earmarked.
        • In the case of earmark, BANK funding would be secured to the valuation of the investing.
          • 30 Day MA (?)
        • In the case of no earmark, the project would have to go to the GC to request funding seasonally. - Doesn’t really make sense but for exploration purposes including.
        • Earmarked allocations should take into account the overhead costs of the resources provided by the DAO
      • Funding to be distributed in the form of BANK.
      • BanklessDAO would be expected to continue to fund the project
      • Revenue would accrue to the BanklessDAO Multisig
        • This would be to compensate the DAO for the overhead provided
        • Potentially allows for a quicker path to where the DAO is not solely reliant on the value of BANK
        • Aligns with goal of treasury diversification
        • Creates potential for BANK as a utility token, where the project is collecting revenue in BANK which then flows back to the DAO treasury
      • Project would continue to request funding, perhaps annually or bi-annually.
    • Ultimately the project would be expected to continue on within the DAO.

  • A combination - Subdao model?

    • Distributes token so that investors can purchase a specific claim on the project without investing in the DAO and being exposed to all DAO projects.
      • X% to be sold, Y% is held by the DAO (maybe 50/50?)
    • Project continually seeks funding from the Grants Committee.
      • Maintains alignment to the DAO.
      • Is accountable to the DAO for performance.
        • Depending on the relationship with investors.
      • Compensates project contributors continually with a combination of BANK and invested token. (stable tokens, etc)
    • Sources talent from guilds
    • Utilizes DAO resources and infrastructure
      • Marketing, Legal, etc.
    • DAO maintains ownership stake in the project rather than just revenue share (% may come down to project by project basis, would need to establish a process for evaluation).

As stated, this list is NOT exhaustive, but is to kick off discussion around different revenue and investing models.

We welcome all thoughts and discussion.

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I love this line of thinking. The only way it makes sense to me to allow projects to have their own token is if it is for a claim of revenue and at that point I’m pretty sure we have legal issues at least in the US. Is there a way to accomplish the same outcome using bank instead of creating new tokens?

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Thanks for putting this out Iced! I’m looking forward to seeing everyone’s thoughts on this.

In my opinion, if the DAO funds revenue seeking projects and wanted to optimize for

  • the DAO’s mission
  • decentralized project governance
  • value accrual to the BANK token and the DAO’s treasury
  • DAO sustainability

The answer would be the SubDAO model.

Revenue seeking projects would create a governance token. The project would transfer some percentage of the token to the DAO multisig in exchange for funding in BANK. Core contributors could be paid in the project token and in BANK.

Hypothetically, the project token would accrue in value. The DAO would be free to do whatever it wanted with the token. The DAO would also be able to vote to disburse revenue back to the token holders (including the DAO) directly (a dividend).

Allocation percentages would have to be negotiated with the project teams in exchange for funding.

I think that paying in governance tokens is better than a set percentage of revenue (dividend). Many early stage projects will need that revenue to continue to fund development.

Companies only pay dividends when they don’t have a better way to invest the capital. It wouldn’t make much sense to put that on an early stage project.

Projects would be free to seek funding from outside sources or the greater market if they wanted too. This freedom would be best for the project and best for the bDAO. If bDAO held the governance token, what’s best for the project becomes best for bDAO.

This makes me think of frogMonkee’s post - Brain Dump #5 - Bankless DAO: An Ecosystem of Nodes

This is where the value proposition of the DAO and the Guilds comes in. What would incentivize a project to seek funding from the Bankless DAO? What services is the DAO providing for those contributors?

Would the marketing, legal, dev, or analytics guild be more incentivized to help a project if they knew the DAO’s multisig held the project’s token?

I like it because it is clear and would keep everyone’s incentives aligned. We would know exactly who had what governance claim.

As far as advancing the DAO’s mission, I think revenue seeking projects will have the best chance to accomplish the mission and provide for the sustainability of the DAO.

I think entrepreneurs and contributors are more likely to want to build in a place where they can be rewarded in governance tokens.

I think a centralized department model will turn a lot of people off too. A lot of us were drawn to bDAO to get away from that.

Maybe, a project would be required to hold a certain amount of BANK on their multisig as well. This would create an environment of alignment and coopetition between projects. Sort of like individual contributor levels within the DAO.

For instance, BB and DEGEN just got into a dispute. Would the projects have been more aligned if both projects held BANK AND the bDAO multisig held their governance tokens?

When the dispute happened, we didn’t know who owned what. It made it difficult to figure out that alignment. Yes, we both held BANK. But how would BB’s success help DEGEN? How would DEGEN’s success help BB? We didn’t know.

Theoretically, BB and DEGEN would give revenue back to the bDAO treasury at some point in the future. But that is still unclear.

Another pro for the tokenization model is that I believe that is just where the future is going. Let’s get in front of it. When a problem arises, let’s solve it.

I can already see a lot of issues and problems arising if we take this on.

BUT, as we have seen with many of the bDAO projects, these early problems are entrepreneurial opportunities that the bDAO can leverage to create new projects.

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Yes, i do agree with these lines of thinking!

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-PROBLEMATIC DEVIL’S ADVOCATE FAIR WARNING-
As far as I can tell, no one has discussed the bDAO’s mission in terms of the expected lifespan of the DAO, or the true nature of the mission. Because in case we haven’t noticed, the mission of bringing 1B people into DeFi is not actually a profit-seeking mission - it is a social benefit mission.

A) What happens to the DAO when 1 billion people are finally active in DeFi? Change mission? Dissolve? How would we know and/or track whether it was bDAO that accomplished that mission, or if it was just organic adoption through other market means? What is the expected time span that we think it will take to hit 1B in DeFi? Work backwards accordingly (I.e. in a hockey stick adoption curve, it might be 10M people added in year 1, 100M people in year 2, and 890M in year 3.) In any event, this question raises the intended lifespan of bDAO and its projects. Do we see bDAO living until 2050? Do project revenues need to try to accomplish that life?

B) If our mission is actually a social benefit, is it better to think of our org as a not-for-profit model, and the Treasury does not need to be replenished and is simply our gas tank to get us as close as possible to 1B people in DeFi? In this framing, the Department Model would seem to be the default structure, and if there are ancillary revenues from activities, they merely serve to extend the gas tank? But the gas tank is expected -and planned- to eventually run out. This framing also acknowledges accomplishment of (A) above and actually strategizes around an end-of-life or evolution of the DAO.

I’M NOT necessarily saying B is where my opinion lands. But are we automatically just assuming that our goal is an indefinite corporate lifespan of the DAO, artificially requiring projects to reach self-sustainability and revenue? Or are we explicitly just landing at maximizing value around BANK (and project revenues in any currency are a euphemism for optimizing around BANK) as risk-reward capital amongst and between all us entrepreneurs? If it’s the latter where BANK is our equity, then IMO it might be wise that all projects bill in and drive revenue in BANK, not their own token, to take advantage of and mutually support the BANK ecosystem.

Remember that in the venture model, Bankless HQ levies a 25% angel-investor tax on value accrual on BANK, without actually doing 25% of the ongoing lift, so this creates automatic drag on the revenue potential and store of value of BANK, if that is our aspiration.

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Appreciate your response thegoodnunes.eth! Good thoughts. I like thinking about thinking what happens if we succeed?

I wonder if we go by the gas tank model, are we kind of saying that BANK will go to 0 when it’s all said and done?

If we aren’t planning on sustainability, would the DAO and the community just dissolve? I would miss my friends and be sad.

The department model is a little concerning for me. It seems a little too centralized and people may balk at it.

I’m wondering more about the 25% angel-investor tax on value accrual on BANK? Do you have a source or a doc for that? How does it work? Thanks!

As far as for-profit and not-for-profit projects, I know in the dev guild we have been discussing a classification model for projects: For profit, not-for-profit, then sort of a DAO benefit classification.

Our problem is, we keep making cool apps for the DAO then discover that we could earn revenue outside the DAO on the projects.

As far as the mission, it always seemed a little nebulous to me. What does it mean to be BANKLESS? To me, a ‘bank’ is any centralized entity that extracts ‘too much’ value from the people using or providing the services. In my mind, Uber, Amazon, Airbnb, Facebook, Twitter are all banks.

Going Bankless pushes the value capture away from the BANKS to the drivers, sellers, social media posters etc…

In this model, we have a long way to go before we people are truly Bankless.

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@Icedcool - thanks for putting this together! I’d like to fully make the connection between this post and the GSE program post. What’s discussed here maps pretty neatly to the “2nd existential threat” of strategic alignment:

What is the shared mission?
→ How do we evaluate projects in support of that mission?
→ How do we support/fund these projects

It also highlights the dependencies between the two threats. Without answers to the above questions first, it’d be incredibly hard to figure out the right mechanisms for “contributors alignment”.

Directionally, I’d +1 the more distributed model over the departmental model. It’s been around for a little longer than web3 and we’ll be remiss not to learn from all the painful lessons that organizations that have practiced it for years have already learned. I’ve written a bit about this here.

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Seeing as how the DAO is not yet sustainable, the most DAO-aligned investment model is most compelling to me. Once we are sustainable we can decentralize our projects. We don’t have to only use one model. We can use them sequentially.

Project progression would look like this:

  1. Department
  2. SubDAO
  3. Separate Entity

We can either dilly dally our way to being self-sustaining or we can focus on getting there immediately. In the former, BANK will slowly bleed to 0 and we might never become self-sustaining. In the latter, we have a shot at onboarding 1B people, at making BANK more valuable, and at making something that will survive past May 2024.

If the goal is NOT to be a sustainable organization and we plan to dissolve, the value of BANK will eventually only be its “meme-ability”. Why would people hold it long-term? At that point, its fundamental value is no different than a doggy token.

The best way to impact the world is through a strong BANK token. BANK is our Schelling point. BANK is how we raise funds and deploy projects. We should drive long-term value to it, and the best way to do that is to make a sustainable organization.

In my opinion, we should hit escape velocity first and give ourselves some runway. Then we can fund more projects and begin to decentralize. But in all cases, the DAO must survive.

Projects → Revenue → Valuable BANK → More projects

TL;DR - Let’s start with the department model

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Excellent post on E3O’s. The Ecosystem Micro-Community Contract sounds like something the DAOlationships guild might be able to leverage to start delivering service for individual bDAO guilds’ needs. Landscaping the DAO horizon to find projects and teams that are directly our peripherally aligned with our various bDAO projects.

And not in reply to your post, I return to my request in my above post - that we take a clearer swing at defining bDAO’s stated mission and THEN optimize projects/compensation/systems.

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Great questions @itamargo.

What is the shared mission?

Personally, I would like to see an expanded and fleshed out mission statement. “Bankless” is pretty subjective and squishy to me.

I think we see some VC funds that only invest in companies with certain values alignment. I think that the GC only funding projects with that values alignment makes sense.

I also think the superDAO holding the subDAO’s token and vice versa achieves that alignment.

→ How do we evaluate projects in support of that mission?

To receive funding, projects will need to state their intentions. How does their project align with DAO’s mission? What are the KPI’s?

If they come back for funding, show some metrics and movement towards that goal.

→ How do we support/fund these projects

This is where the guilds come in. I’m leaning towards a model where the guilds are public goods funded by the GC.

Guilds act as talent hubs and collaboration engines. The guild’s purpose is to serve and support the projects. Their main function is to onboard new talent to projects, collaboratively solve problems, and find synergies between projects.

  • The DAO treasury holds project subDAO tokens.
  • A subDAO approaches the dev, marketing, legal, design (etc…) guild etc for help
  • The guild is incentized to place talent on projects to achieve KPI’s
  • The bDAO treasury holds subDAO tokens so if the subDAO wins, so does BANK
  • subDAO can now pay contributors in subDAO tokens AND in BANK

Right now, I wonder if some projects are closing their doors to new talent because the project doesn’t have enough BANK?

  • With limited BANK, seasonal funding, and no subDAO token, how can a project reward new contributors or grow quickly when the project becomes a hit?

At least in the dev guild, I think we’re having trouble with talent coming in then flowing right through. subDAO tokens can help incentivize, retain and reward contributors.

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Thank you very much for your post.

I think that it is very important to begin to discuss about these topics. Nevertheless, IMO we are miles and miles away from having projects that are able to sustain themselves. Our biggest achievements in terms of revenue came always from our community (as merch buyers or NFT buyers).

Perhaps we should really begin to better assess within our organization what is able to create revenue and what not and being more selective in allocating funding. Where we see potential we should invest more and implement some marketing strategies. IMO in many cases the DAO got exploited from community members that asked many tokens without creating any sort of output. This has been possible because we don’t have a control mechanism for projects. I would start from the basis in trying to amerliorate what our organization is (GSE goes in this direction)! When we will have several revenue streams I would begin to talk about Departments, SubDAOs etc.

At this stage we have only to address one question: if revenue is created, how much should be given back to the DAO treasury? I don’t see consistency here. Newsletter sponsorships go directly in the DAO treasury, whereas other project give back a small split. Then there is a category of projects that gives nothing to the DAO treasury. I would frankly concentrate on this practical problem! When we will have a clear picture on this, we could begin to talk about subDAO stuff etc.

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Got a bottom up strategy model that I really want to pilot in the DAO, I’ve gained some interest so far on 2 calls but I will go into more detail in the GSE application - Think it’s very relevent to project allignement, DAO mission and long term ambitions of guilds!

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@jonvaljonathan a lot of this resonates.
To build on/amplify your last point regarding the funding model:
Without a subDAO token, I can’t see how bDAO can protect its investments. What’s stopping the project team from striking on their own?
But it seems like an overkill in the incubation phase as many projects will fail, so this is a lot of complexity and overhead for managing very little risk.

@jakeandstake 's synthesis rings true to me: tie the funding model to project milestones (the ones I picked here are for illustration only): Incubation - KPI based BANK grants. Rev generation - subDAO token. Profitability - spin out/ separate entity.

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I think it is a big problem for bDAO. Right now, it’s all based on trust that one party is not going not to screw the other party over.

Personally, I’m more interested in trust-lessness and decentralization.

I agree. The builders should focus on building.

In my mind, this is a place where the DAO provides projects the service of tokenizing.

In the venture model, VC firms have to provide services to start-ups to deals done. Connections, talent pools, legal services, infrastructure are VC’s value adds. Why would a startup, entrepreneur, or builder want to work with bDAO?

Getting this organizational overhead taken care of is a big value add service that the DAO can undertake to bring in more projects.

Tranched and KPI based investment is very typical of the VC model as well. I agree with this approach.

The problem I see with waiting on the subDAO token until after revenue is:

How does the DAO ensure that they receive the correct allotment of subDAO tokens after the fact?

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The absence of a risk framework is a big problem the symptoms of which are articulated in the GES post.

The entire DAO has no risk reference or risk model. It’s all presumed and silent. Consequently it is impossible for any one or group to know the upside of any proposal or process, this includes governance.

In the present model its 100% risk to the DAO and zero risk to the contributor, which intuitively does not make any business sense.

If contributors are entrepreneurs and contractors then intuitively they should shoulder risk associated with their business.

What the DAO would benefit from is a ground up environmental scan, risk framework, the identification of a risk universe and risk assessment. Then the upside will be obvious and risks to the DAO can be shifted appropriately.

I will say that this is not a unique problem to this DAO nor a criticism, the vast majority of organizations that fail ultimately prove out to have not invested energy into building its risk framework including its appetite and tolerance and risk culture which would identify where resources should be allocated.

Frogmonkey articulated well how we all got to this juncture and now some of the shortcomings of the missing pieces are surfacing and he pointed to symptoms of the problem.

The issue with gaps in governance is that the status quo is easily blinded into believing there is no gap by recently bias or survivor bias. The problems articulated above and elsewhere demonstrate gaps in a holistic approach. Bolt on and band aid solutions will not address the underlaying issue.

IMO we should not articulate an ownership or revenue discussion without a risk framework.

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Refining on a post I made elsewhere, there is the posting collateral model:

Contributors post collateral for the work they will do. A contributors can be any size ( group, guild, project, individual) If they do it, they get he collateral and the comp. If they don’t do it, the DAO gets the collateral.

If the work is done, the DAO can use the collateral to develop its treasury before returning the collateral to the contributor. Either way, the DAO always gets paid.

This aligns incentives to use resources wisely.

Skin in the game. Even better. Post LP tokens to the treasury.

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This is why Bankless Consulting exists. 10% of net revenue from Bankless Consulting projects will funnel to the bDAO Treasury (in whatever currency the client has agreed to pay us). We’re testing this model and will soon start to get data on how well it works for BC, the contributors themselves, and bDAO.

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I really like how you’re pushing us to think about risk @rotorless.

It is making me wonder whether you would consider Time as posting collateral. For talented people, who have options to work on dozens or infinite DAOs and web3 projects, choosing to work on a bDAO project is a bet that they think contributing to this community will benefit them. If their team doesn’t deliver or if bDAO doesn’t last or BANK goes to 0, would you consider that a situation where they lost their (Time) posted collateral? Or is Time not sufficient skin in the game? Maybe it depends on how valuable the person’s time is, how valuable is their skillset.

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Hi Chuck,
Thanks for your comment . Other forms of collateral is an interesting idea to explore.
I used the token example mainly because its a familiar concept which is posting the same form of collateral as payment.

Using Time for collateral has a feature that tokens do not however which is the collateral cannot be returned. I think this concept could be explored some more but my gut tells me the inability to return the collateral will be a show stopper. I think that Time as collateral may be suitable in a loan scenario , where either bDAO or a member loans collateral to another member so they can post collateral .

One (not the only) challenges I see facing the bDAO is that risks are not quantified in any meaningful way and are not able to be mitigated or spread out.

It’s common to overlook risk framework or superficially estimate risk in a lot of organizations so it’s no slight. What can be hard to understand is that 60%-70% of governance is strategy, and risk framework feeds the strategy and shapes the decision process itself. Often, the step is missed. In good times and with some luck , the organization can continue. Then survivor bias and recency bias can create a blind spot .

WRT the last point, which will work best?

Blindly declaring what a vote process is, for example everybody votes on everything? or using a risk framework to aggregate the downsides and mitigation strategies to identify the opportunities for effective voting?

Simply stated where there is risk, there is reward. If we do not know our risks , then any claim about reward is just made up.

One caveat to the above is that a person who customarily works in a space can estimate risk because of experience, a carpenter for example. They can have a risk framework in their head. We can all do this for things we have some expertise in. But the same estimation method is not accurate outside of small pieces of the universe .

IMO this is the reason we see a a mean reversion like behavior in the DAO towards centralization and company-like proposals in governance and in guilds. People are uncomfortable with risks they do not know and will default to what they can estimate in absence of a risk framework system.

If I circle back to collateral. I think this idea came to me because I was reading centralizing nation-state type models of revenue return to the bDAO treasury and if We considered centralization as a risk to be mitigated, it points to other opportunities that raise revenue without centralization. Posting collateral presents one possibility of balancing that. I am certain with dedicated effort to build out a risk universe there will be other opportunities to consider. The beauty of a risk framework is that you don’t have to try to distinguish between good and bad ideas, it enables selecting the achievable idea from a field of good ideas.

I guess I the end I am saying there is no drawback to having a risk framework. So there isn’t really a reason not to develop one. Risk is everywhere and universal.

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Thanks for the super thoughtful reply @rotorless. I like the idea of formalizing a risk consideration framework for the bDAO Grants Committee and for the emerging Bankless Consulting enterprise.

IMO this is the reason we see a a mean reversion like behavior in the DAO towards centralization and company-like proposals in governance in guilds. People are uncomfortable with risks they do not know and will default to what they can estimate in absence of a risk framework system

^^ Great point here. We revert to safety when we cannot evaluate the risks. I suspect this is also why we see so little dissention in governance votes; many people don’t have a framework to evaluate risk or reward and so have a hard time forming their own opinions and therefore default to following the leader or whatever it looks like the herd wants.

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