Posting this here, ran it through GPT 4 to make it more understandable and clean than the Discord discussion but I think its a pretty core consideration that needs to be addressed by the foundation for actual growth and getting quality devs and proposals.
I firmly believe that the primary limitation for quality proposals is the token lock, particularly considering it applies to the entire allocation. There are co-grants, of course, but altogether, they only total to around 120k, distributed across roughly 80 proposals.
Developers, by nature, aren’t mercenary-like, but many are not well-capitalized or adept traders. Hence, it’s unreasonable to expect them to somehow manage living expenses while they’re building their projects, especially with their grants subjected to market volatility for a year. This situation deters high-quality developers and channels them towards marketing-heavy projects, which may offer a more immediate means of compensation because thats how they eat.
Grant programs should prioritize long-term alignment rather than bounties. At present, we’ve swung to the extreme end of the spectrum, where developers are compelled to hold onto their tokens without any actual compensation. This either forces them to focus on other paying jobs and contribute only in their spare time, or to seek grants from networks/platforms that offer upfront payment, resulting in a reduced pool of quality developers and making the grants non competitive simply because of the arbitrary limits and restrictions not actual resource limits.
Interestingly, we don’t need to eliminate token locks to address this issue. We could allow locked tokens to be wrapped, permitting grant recipients to open loans or credit lines with third-party lenders or market makers, using their locked tokens as collateral or even keep them unwrapped and just make it clear that practices involving private entities between each other based on these locked assets are not banned and parties are free to engage in any activities they wish with their assets, as long as they respect the lock. This way, they’d remain aligned with the project’s success, since they’d want their locked tokens’ value to increase. They’d have funds from the loan to cover their living expenses and would face two options: default on the loan and act in a mercenary-like manner or increase the value of their collateral, repay the loan upon token unlock, and ultimately make a profit.
I genuinely want to ensure this idea isn’t specifically prohibited or viewed negatively, as it might influence future relationships or be grounds for revoking grants. I fully understand that the grant’s intent is governance, not compensation, but I believe the foundation’s liability ends at allocation. How people utilize their allocated assets would be their choice. I’m just curious if the foundation or community sees it as inappropriate or against the program’s spirit for grant recipients to independently engage with third parties in these arrangements, provided it’s not explicitly disallowed.
There doesn’t seem to be explicit limitations preventing such use. There’s a specific mention for growth grants regarding sales, but others only mention locks. Locked tokens aren’t synonymous with no sale or no abstraction. I understand the spirit of locks aligns with governance but financial abstraction may or may not be an intent of the lock, and this proposition actually reduces the likelihood of tokens being sold within a year if they are able to have credit lines through third parties.
I believe there’s significant value in standardizing and accepting these practices, particularly in attracting more talented developers and fostering more proposals.
By the way, I believe the one-year lock is not solely for legal reasons. The concern here may be securities law, but awarding tokens through grants inherently attributes some value to them in exchange for work. The duration of a lock doesn’t change an asset’s nature, and I’m unaware of any case law suggesting otherwise. There’s no strong legal basis for selecting the one-year duration. While it might offer some defense around tokens not being used as compensation, giving them away immediately upon reaching milestones is no different than locking them for a year. If the tokens were purely for governance and voting, it would be perfectly acceptable for them to be unlocked immediately for proposal voting. There would be no risk or reason to lock them so the only reason to lock them for 1y would be on the assumption they have financial value otherwise thered be no purpose for the lock.
I’m open to changing my opinions if anyone can provide case law, legal justification, or an explicit rule that relates to non-growth grants.
To clarify, I wouldn’t raise this issue if I didn’t think it could greatly benefit the ecosystem. Another consideration might be with the purchase of put options upon the one-year expiration and unlock, serving as a hedge for the locked tokens. However, I’m unsure if this would also be considered against the spirit of the grant, which is why I’m advocating for open discussion.