Novel Situation #1 - Project should not have a token or raised VC funding

Novel Situation #1 - (A situation that suggests Gitcoin Policy needs updatingā€¦)

ā€œGrant Applicants should not have a tokenā€

TL:DR This criteria is outdated since a large number of projects now use token based governance systems. We can revise this to read ā€œGrant applicants should not have a token other than governance tokensā€ to remain true to Gitcoin principals. We need to update it because we are denying quality deserving projects that should be eligible imo.

One of Gitcoinā€™s legacy eligibility criteria reads ā€œthe project should not have its own token or have raised VC fundingā€¦ā€ This comes from the earlier grant round criteria and is a carry over from a time when the general crypto space was less mature. Daos were not yet popular and had not determined that token-based voting was the preferred decentralized decision making method.

It is important to notice that the language in this guidance is suggestive (ā€˜shouldā€™) and not mandatory (unlike with quid pro quo or hate speech criteria where the wording is ā€˜mustā€™ and/or ā€˜shallā€™). This criteria is suggestive in nature not a mandate.

The development of the dao, with token voting, marked a key shift in the general decentralization movement. Now, for maybe the first time, groups of individuals could use legacy web2 tools combined with blockchain technology to rapidly coordinate around goals or themes.

Uniswap and Bankless might have been some of the earlier groups to become a dao and rapidly coordinate using governance tokens. Both are long term recipients of Gitcoin grant donations. The technique of creating and distributing governance tokens to a community which then forms (or already has formed) a Dao is commonplace. Token based voting is the number one method by which daos govern imo. Left alone, this system might be fine. Unfortunately it exists within the framework of the free market.

A market made even more free by the proliferation of pseudonymous and privacy enhancing tools and techniques associated with cryptocurrency and blockchains. And this free market is very observant. And created tokens become publicly accessible. When some project shows success potential the market wants to invest in and have some control over said project. The easiest way to do this is to accumulate governance tokens. Many governance tokens end up with some ascribed value and are traded on both centralized and decentralized exchanges. Even if this goes against the wishes/values of the founding team.

This creates the issue. At one time Gitcoin banned projects with (monetary) tokens. This was before tokens became the primary decentralized governance technique of daos. Now we have projects that meet all the eligibility criteria except for the ā€˜ā€¦should not have its own tokenā€¦ā€™ item. At this state in dao governance it seems inappropriate to deny funding to projects based on the existence of its own token. More critical, is how the token is used.
Greater investigation and analysis is called for. Questions I might consider include:
Examine the initial token distribution- how decentralized vs just the founding team?
Examine the general project tokenomics- how decentralized vs just the founding team?
Is the token actively used in governance?
How long was the token used in governance before it became traded on any exchange?
Is the token generating revenue and what happens to that revenue?
How much has the token increased in value since inception?
How much are the general operating expenses of the project? Using general operating expenses and token value change since inception, can it be determined if a project is earning or losing revenue? Again what happens to that revenue?
What are the metrics around trading the token? What is the total daily volume traded?
Is token deflationary or inflationary?
It is difficult to determine the true nature of a token without detailed financial auditing which goes beyond the expectations of an average grant reviewer.

In conclusion, I find it really is the reason for the existence of a given token that determines its effect on gitcoin eligibility. Did the token get created to facilitate governance or to generate centralized profits. If there is any evidence that the token got created for governance, I recommend the project be deemed eligible. Even if the free market used the created token for speculation. Unfortunately this opens the door to projects categorizing any and all tokens as gov tokens. To mitigate this we may need to consider the greater reputation of a project in the space.
Lastly, I would change the official wording on that criteria to:

ā€œGrant Applicants should not have a token other than governance tokens.ā€

Would love to hear other opinions on this matter. Do you think a project should be denied Gitcoin funding because it has a token used for governance? Why or why not?

Here is what Bright ID stated to the fdd:

Hi, Grants Appeals team,

Iā€™d like to outline the case for our appeal of matching funds eligibility dispute. The matching eligibility was disputed on the basis of the recent launch of the $Bright token.

$Bright is a community token for the community surrounding BrightID to decide on its usage.

I understand and in general agree that projects that raise funds through a token sale should remove themselves from matching fund eligibility.

$Bright was not sold, however; it was given away to BrightID verified individuals, through a process we called the ā€œfairdropā€ (ā€œfairā€ being used to signify that tokens were primarily distributed to unique humans, not wallets).

Bright DAO is a 1Hive Gardens DAO that only deals in its own token, $Bright. It is also not the entity that manages the BrightID Gitcoin grant.

The entity that manages the Gitcoin grant is a Delaware non-profit Legal DAO called BrightID Main LLC, receiving its non-profit sponsorship under the Grantcoin Foundation (DBA Hedge for Humanity). Philip Silva is the member that has submitted KYC on behalf of the Delaware non-profit to be able to receive donations through Gitcoin. I have CCā€™ed him in this email.

Though I donā€™t think any quid-pro-quo accusations were raised, Iā€™ll mention just in case that we were careful to avoid communication about the upcoming fairdrop in our grant description and tokens were fairdropped to Gitcoin contributors and projects based on their trust bonus usage, but not based on donating to BrightID.

More information about the $Bright fairdrop and token in general are found in the BrightID Gitbook.

Itā€™s my feeling that if $Bright receives enough price support that Bright DAO alone can fund the non-profit initiatives of BrightID, we should stop asking for donations from Gitcoin users, CLR.Fund users, Giveth users, and the Ethereum foundation. I hope we can reach that day soon.

Let us know if Philip or I can help clarify anything.

Feel free to make this appeal public. I donā€™t believe Iā€™ve said anything that shouldnā€™t be public knowledge.

ā€“Adam Stallard, Founder, BrightID

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I think this is a tough one.
Are we actually also denying projects like Giveth? An example that can be compared, in the sense that they also recently launched a token & are also 100% blockchain4good.

It would make sense to me to exclude Giveth, because their token became pretty successful on the open market, so they should be able to support themselves as of now. If BrightID is not able to (their tokenomics model with the fairdrop was/is very different) and they are threatened in their existence by this, this is quite dramatic, as they are doing crucial work in the identity space.

Would be curious to also hear @annikaā€™s thoughts on this or other people from the grants team.

Note to you @David_Dyor, Iā€™d try to be slightly more concise in your next post if possible :pray:, because thereā€™s a LOT on this forum and long blocks of texts like this can be overwhelming. (our time is limited as stewards) The quoted text by BrightID to me already summarizes most of it.

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Thank you for the detailed write up @David_Dyor Great work here!

THE INTENTION OF THE POLICY

The policy exists to make the subjective more objective and to eliminate favoritism & bias as we select which grants are allowed to benefit from the matching pools during Grants rounds.

The policy around having a token or over $500k in vc funding was intended to draw a line between projects that have adequate funding without needing Gitcoin Grants (and sometimes end up being for profit rather than public goods.)

BrightID is creating a public digital infrastructure that we all use and benefit from. The scale of what they are trying to accomplish is enormous. imho FUNDING PROJECTS LIKE BRIGHT ID IS WHAT GITCOIN EXISTS TO DO

Did BrightID launch a token. YES. Does that token provide them funding to complete the building of their system. NO.

The purpose of an appeals system is to allow for novel or gray area circumstances to be heard. It also serves to update precedent.

Because this is the first real end to end appeal which would change the current policy, we canā€™t play this as though we have hundreds of years of an English common law system to rely upon.

Instead, we must not punish the projects who are clearly in this gray area while we as a community find the proper tools to express community consent of these decisions.

Iā€™d say that leaving BrightID out creates undue hardship which is worse than the slight hit to our legitimacy.

THE UNSTABLE GROUND FOR FOLLOWING A LETTER OF LAW APPROACH

Everytime I think about this situation, I envision my grandfather slapping me over the head with a newspaper saying ā€œyou know what youā€™re supposed to do!ā€

The appeal process within FDD should be able to accommodate this situation, but please be aware that this is the first end to end appeal we have adjudicated. In the last year we have gone from:

  1. Kevin or Joe make the decision and tweet about it
  2. A group of reviewers make the decision
  3. A uniform set of standards is used by the group to make the decision
  4. A process for flagging and disputing is adjudicated by a community review panel
  5. This first case that didnā€™t get a legitimate decision in the mechanisms above and we have the resources to implement the appeals process.

The current appeal process was written by me when we were in stage 1 above! I had no clue how cumbersome the idea of having stewards vote on every appeal could be, or the damage it could do to a grant by making it ineligible while we formed our processes to execute said vote.

We have even written updates to the (so far unused) appeals policy, but havenā€™t moved them to the source of truth Gitcoin uses because that source of truth has been changing and we didnā€™t want to double the work. (See new knowledge base to replace support.gitcoin.co)

Working on the frontier of web 3 is exciting, but sometimes it means we are making this up as we go. Our legitimacy at this point isnā€™t from following the letter of the law, but from having a clear purpose, communicating our decisions in the post round governance briefs, and getting better round over round.

I see no reason why a rule that I wrote about a year ago which has seen :zero: uses thus far canā€™t be mended to provide the proper intention of our policy.

As we have matured, we have realized the need for a system based in English common law which can remove bias and provides a pathway for updating our precedent. Once this system is fully in place, then we can be 100% letter of the law, but we are still building that system now.

This community (ethereum/gitcoin) went through the DAO hard fork and realized that code isnā€™t law. In this case, the law isnā€™t law yet because it isnā€™t built on a solid substrate that is resilient to outside pressures.

WHAT WE WILL DO FOR THIS ROUND

For this case, we will open up the bright ID grant for participation as to not cause them undo hardship. (They already lost GR12 funding.)

We will then run the updated appeals process end to end during the round and be willing to turn off their eligibility if it is found that the community does not agree.

I believe the community is mature enough for this approach which is fundamentally allowing FDD to make a judgement call on whether they should be considered innocent until proven guilty or guilty until proven innocent.

In light of the massive evidence to suggest this is indeed a novel situation in which the letter of the law goes against the intended desires of the community, we feel safe to move forward in this way for this time critical situation.

We will continue the conversation here as well.

The decision to include isnā€™t final until the round is over, however, the decision to exclude would do irreparable harm.

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One addition: We arenā€™t guessing on the intended desires of the community. We ran a multi-month polis survey soliciting the opinions of the community during GR11. Maybe @erich can share that link here.

I am not sure I follow the logic on the proposal if governance tokens are tradable and have a market value.

When might this be? What threshold feels appropriate?

Yes, we are (I believe).

ā€“
I hate to be the stick in the mud, but I feel like BrightID was rightfully denied matching funds as their project has launched a governance token, which at launch arguably acted more like a liquidity token by offering several yield farming mechanics as well. IMO, This token was not launched as a pure governance token in that yield, LP and rewards were also promised. In contrast, Gitcoin has not set up LP pools, offered staking returns or any other financial incentives for GTC. I dont believe ENS has either.

I want to be clear, I participated in this fairlaunch, and I am big supporter of the BrightID team and work they are doing. I dont believe they should have access to the matching funds, but should be eligible to receive direct grants funding.

Though I donā€™t agree on the implied connotation (that they should be funded with matching funds), I do agree they should be eligible on the platform and users can decide if they want to directly fund or note.

I respectfully disagree as this creates a precedent that will only become harder to define round after round.

The Grant is open and has been open correct? We have only ever marked them as ineligible for matching funds, not disabled their grant entirely?

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It was made ineligible for the platform after the flag & dispute in GR12. Partly because the platform eligibility and round eligibility are coupled in the backend which is being updated for GR14.

With this solution, they will read as active and eligible for matching to start during GR13. We will then run the appeal using the current system and either keep or remove them before the end of the round.

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This is a great point to bring up for the appeal process. This decision here doesnā€™t mean they will be included in the round if they donā€™t pass the appeal process.

Think of it as a judge determining that a defendant can remain free before the trial rather than be jailed while waiting for trial.

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Yeah, here is the complete report from that poll: pol.is report.

To be clear, we received funds in GR12 directly from contributors, but didnā€™t receive the matching because a dispute was raisedā€“I believe by Joe? When @DisruptionJoe approached me about using BrightID as a test case for both the appeals process and the question of whether launching a community token should disqualify a project, I thought this sounded like a great idea, with the assumption that what was at stake was the GR12 matching fundsā€“which for us is a significant amount, but we didnā€™t need those funds urgently at the time.

I understood that eligibility for future rounds would also be at stake, but I didnā€™t think they would be blocked because the appeal was still underway; I thought they would only be blocked if the appeal was denied.

Like I said, we also hope to move away from needing Gitcoin grants, but weā€™re not there yet. In fact, weā€™re currently gearing up to apply for other kinds of grants.

So I am curious if the matching funds from GR12 are really goneā€“if they go away whenever there is a dispute, even that dispute is later nullified by a successful appeal.

We have a had a hiring freeze on our core team since the launch of Bright DAO. Weā€™re slowly reducing our team and trying to transition them to be contributors to Bright DAO instead and reducing core team to a minimum support staff to manage the ā€œcentralizedā€ pieces of BrightID. (App store listings, website, other web accounts, test hardware, etc.) Once this transition is done, the financial needs of BrightID core should probably go down from $30,000 / month to $10,000 / month, and BrightID Main DAO will need less grant money.

We did not anticipate that the appeal would take this long. I think there was miscommunication in FDD in terms of ownership of executing the appeal which may have been outside of @David_Dyor scope as he owned the outcome of building out the appeals system. I believe we focused on building the system rather than executing on getting BrightID through it properly and in a timely way.

For this round

The BrightID grant #191 is currently set as active and eligible for matching. We will execute on the appeal process during the next week. This could be compared to letting the defendant be free while awaiting trial vs being jailed while waiting trial.

Potential Outcome #1 - Appeal is successful / Ruling Overturned

In the case the community wishes to revise the policy (maybe how David suggests above), then their grant will remain active AND eligible for GR13 matching. In addition, we would follow up with a governance request to make a payment to BrightID equivalent to their matching lost in GR12.

Because this is a first, we donā€™t know if the community would prefer us to spend more from the matching pool to resolve this or if they feel that it is fair for the project to have lost these funds (or donā€™t receive them as a right, but more as a privilege). The snopshot vote would answer this question and set precedent for the future.

Potential Outcome #2 - Appeal is not successfull - Ruling is not Overturned

In this situation, BrightIDā€™s grant #191 will be made ineligible for matching funds on the Gitcoin backend prior to the final calculations for GR13.

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Per the research done on the Polis listed above, our community overwhelmingly is interested in funding public goods defined by what they are building rather than binary rules such as ā€œhas tokenā€ or ā€œ> $500k raisedā€.

Because of the reason presented by David above, plus this knowledge, we feel safe in allowing the appeal to continue in the manner described.

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Will do Kris! Thanks for the feedback.

My logic is based on the original reason a project creates a token. If it appears the token was created for governance purposes, not revenue-generation, then imo it should be eligible.

We should not penalize a project for what the free market chooses to do with a public token. Alcohol and Gun manufacturers arenā€™t penalized when their creations get abused.

My logic has the obvious problem of projects fraudulently labelling their token as ā€˜governanceā€™ when it was designed to create profit. I agree this will be a continuing problem however the steps I describe will empower Gitcoin reviewers and approvers to make the final call, based on judgement and experience. Now they donā€™t get the chance and great projects like Giveth and BrightID are getting denied. Feels wrong to me as I canā€™t think of more suitable projects for Gitcoin funding.

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I now believe it is the best way forward for the dao, though cumbersome (temporarily). It would be difficult to evaluate fringe cases as just one of many dao-workstreams when the precedent set could have major future ripples. I agree with Joe that a full Steward Vote is suitable. We can probably shave a day or two off by improving the workflow needed to obtain the full steward signal.

I will post a properly formatted proposal into the forum soon for vote on the appeal. Thanks for your feedback!

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Catching up here and first off, thanks @David_Dyor for flagging this.

Our ā€œshould not have a tokenā€ is a nebulous policy - and, for what itā€™s worth, is actually nowhere explicitly within the application flow - and I appreciate the opportunity for us to get more explicit and offer clearer guidelines to the community.

My initial reaction to the situation is that we will have to set objective guidance, and I donā€™t think some of the current proposed solutions lend themselves to that.

For example:

Everything in Web3 moves extremely quickly, and what was originally conceived as a governance token can very quickly turn into an extremely valuable tradable asset. As a result, I disagree with intent at token creation being the right yes/no barometer. And, even if it were, assessment of the teamā€™s intent at time of token creation is highly subjective and extremely difficult to discern.

This suggestion is clearer and more explicit, but IMO, this is still far too inclusive. There are projects with governance tokens that have billions in market cap and certainly do not meet the ethos of Gitcoin grants, based on their stage. I do not think governance tokens as an arbitrary cutoff makes sense for that reason.

I donā€™t think the existence of a token alone should preclude a project from being part of Gitcoin Grants; as you suggest, @David_Dyor, the landscape has evolved and many, many early-stage projects that I believe the community would deem eligible for grants do have small token experiments. That said, we have to draw the line somewhere.

A couple suggestions, perhaps, to get the ball rolling:

  • What if we allowed governance tokens that have not yet crossed a certain market cap? E.g., market cap has never been above $20M

  • I also still believe that VC funding is a material, measurable event that often greatly shifts a projectā€™s priorities. I am in favour of keeping something like the $500K VC funding threshold (I would perhaps up that amount, but would love to hear what the community thinks).

TLDR: Iā€™d propose we work towards some combination of objective metrics like the above two. These will, inevitably, be somewhat arbitrary - and weā€™ll likely need to experiment and adjust - but in order to scale this program and our approval process, we need to get explicit and start somewhere.

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Absolutely agree here. I believe Davidā€™s intention was to offer a conversation starter. The subjectivity of these parameters is why we need to solidify our appeal process so we have a consistent method for changing the policy in a fast paced environment. We will be posting on that tomorrow.

I very much agree here. One problem is that the token issue is wrapped up with this as though it were one issue. By separating them, our fidelity will improve.

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Copying some of my general comments on the topic from Discord - (not necessarily in response to BrightID or any other grantee):

For ecosystem rounds, itā€™s ultimately up to the round partner to decide. Hence why we really need to decouple side rounds (cause or eco) from the main pool in the future - ideally before gr14.

But I think there are plenty of reasonable cases where a project has a token but didnā€™t do a large fundraise (or a fundraise of any kind). Also ā€œtokenā€ is getting vaguer all the time. NFTs are tokens. Voting/governance tokens, non-transferable tokens - just having a token doesnā€™t always imply a large treasury to fund a project.

So I think itā€™s really a case-by-case situation. A fundraise or liquidity event should def be a pivotal moment, but even so, I think a project that raises a $200k seed round or something could arguably still qualify. There are projects that may have gotten large grants from other programs, non-profits that are funded via donations, maybe a project won a big hackathon prize, the line is blurry. If I had to draw a line, Iā€™d say raising > $500k should def disqualify you.

I want to make sure we arenā€™t talking past each other here, @DisruptionJoe - Grants that have tokens, or even VC funding, I feel should still be ā€œactiveā€ and ā€œvisibleā€ on the platform. Users should have the option to fund them (ideally the Grant owner is clear about this fact though), and if there are clear disqualifying criteria they should be marked inactive/no longer visible.

In this case, I feel BrightID should be active on the platform, but ā€œis CLR eligibleā€ should be disabled. These are options in the admin so folks see that we have multiple options:

I do agree with @annika that setting thresholds and clarifying this would be wonderful. I appreciate that the BrightID Grant is a strong impetus for us to do this. When we launched GTC, the goal was to have PGF define these criteria and then have FDD help confirm compliance.

Thanks for the discussion thus far, I love that this is pushing us to be better.

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