I just want to start off by saying that it’s awesome to see all the developer activity the grants program has generated for Compound. This surge of engagement undoubtedly benefits the protocol by encouraging further enhancements and innovations. I would like to thank Questbook for starting up CGP 2.0.
That being said, while I understand the eagerness to start CGP 3.0, I think it’ll be beneficial to give the community some more time to digest the results of CGP 2.0. Given the recent conclusion of CGP 2.0, the community hasn’t had the opportunity to fully assess the impact of the funded projects and determine how best to enhance the program for CGP 3.0. There are also ongoing discussions by other parties, such as Alastor & w3s and Alphagrowth, that can shape the direction of CGP 3.0 and we should allow those discussions to develop before rushing to fund a specific program.
I would also like to provide my thoughts of the grants program from an objective bystander’s point of view by pointing out some areas of improvement for future grants programs.
Questionable value from current inbound approach
The lessons learned from CGP 1.0, as articulated by Larry Sukernik, emphasized the superiority of Request for Proposals (RFPs) in yielding valuable contributions for the protocol, in contrast to an inbound approach. To quote Sukernik:
I want to preface the following section and say that I trust all involved parties (grantees, domain allocators) act in good faith for the protocol’s betterment. Yet, I reference specific examples not to call out specific projects, but to highlight how the current inbound approach falls short in optimizing protocol value.
Reviewing the projects funded by CGP 2.0, I question the value that some projects provide to Compound. Funded projects are occasionally redundant, given existing solutions. An example is the $30K grant to launch Comet on Optimism, which was approved despite Compound Labs already communicating the work being done there months prior. This grant was revoked after Labs cleared up the miscommunication, but it was concerning to see the cross-chain domain allocator’s lack of familiarity with the cross-chain work being done for the protocol. Another example is the Compound API kit grant to build a Typescript SDK for interacting with Compound, which already exists.
For novel projects not replicating existing work, there are certain projects that get paid a good amount of money and get to leverage Compound’s brand to launch a product that mainly benefits themselves rather than the protocol. I’d like to avoid providing specific examples here, but there are many projects that collect fees from users, none of which are given to the DAO. There are other projects that seem more like a solution in search of a problem, as is the case with cross-chain infrastructure projects that benefit greatly from being adopted by a blue-chip protocol like Compound.
Considering the significant portion of the DAO’s funds allocated to these grants, it’s wise for the DAO to reevaluate its fund allocation strategy, aiming to efficiently direct resources toward projects that generate maximum value for the protocol.
Lack of a dedicated quality oversight stakeholder
There are three major stakeholders as part of this CGP arrangement:
- Questbook/Program Manager
- Domain Allocators
- Grantees
Although each of these stakeholders likely operates with good intentions, none are strictly incentivized to look out for the best interest of the DAO. Questbook/the program manager is paid to run the program. Domain allocators are paid to allocate their funds. Grantees get paid by hitting milestones. However, none of them are solely responsible for maintaining project quality, which opens the door to potential harm to the protocol’s reputation if issues arise.
This came to our attention when we realized a grant project received the green light from OZ to launch on mainnet, despite lingering security concerns tied to their contract. This situation raises significant concerns, as the protocol’s brand could suffer irreparable harm if any issues were to arise. While there seemed to be an implicit assumption that OZ, as the official security partner of the DAO, would uphold the quality standard, it appears this expectation was somehow overlooked. Given that any project launched via the grants program is backed by the DAO’s funding and implicitly carries the DAO’s stamp of approval, maintaining a high project quality benchmark is essential. Clearly defining the responsible entity for upholding this standard going forward is crucial to safeguarding the protocol, especially as more grant projects are shipped using the Compound banner.
Suggestions for improvement
Based on the issues presented above, here’s a list of suggestions to improve the grants program moving forward:
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Focus on RFP model instead of inbound approach
- Have the active members of the community curate a list of projects to be funded, prioritizing projects that hold the highest potential value for the DAO. This guarantees that projects with the most positive impact on the protocol receive priority and attention.
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Designate OZ as the quality oversight stakeholder
- Leverage the DAO’s existing relationship with OZ by designating them as an impartial security advisor that champions the protocol’s best interests. As a current security partner, OZ is well-positioned to uphold a quality benchmark for projects launched under the Compound name. Approval from OZ could even serve as a prerequisite for milestone payouts, promoting the delivery of high-quality code over expedited development.
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Tie milestone structure to value creation
- Align milestone payouts with tangible protocol value creation rather than task completion devoid of substantial impact. Shift focus towards funding projects that genuinely enhance the protocol. Implementing performance-based milestones, such as payouts triggered by a Dapp driving TVL to Compound, can help achieve this goal. Another approach is to consider retroactive grants, rewarding projects based on their actual contribution to protocol value.