LXDAO: Web3 Grants Case Study Analysis and Application Guide

Author: Tristan, LXDAO

In the later stages of the last bull market, many project teams had ample cash flow to develop and expand their ecosystems, leading to the emergence of numerous Grants projects. However, we found that some Grants were merely for marketing purposes, while others resembled Bounties, paying contributors for their work. This has led to some misunderstandings between project teams and grant recipients.

The Grants we discuss here are more about project teams providing early or ongoing funding for projects that may not yet be profitable but are crucial for the development of the ecosystem.

It appears to be a contrasting investment model to VC, which expects substantial returns from mature business models in the future, while the former serves more to the necessities of ecosystem development.

1. Current Mainstream Categories of Grants:

Prospective Grants:

These typically appear in the early stages of an ecosystem, adopting an open funding model to attract more Proposals and Builders. They can even occur earlier than traditional VC angel rounds, and sometimes a good Proposal can secure corresponding Grants. However, the amounts for these Grants are usually small and more encouraging in nature.

RFP Grants:

If a project has a clearer development path, they tend to prefer this form of funding. All funded projects need to genuinely solve problems on the project roadmap, making it more suitable for Builders who are deeply engaged in an ecosystem.

Retroactive Grants:

These mainly target ideas that have already been implemented, are running continuously, and have made significant contributions. Funding is provided by the ecosystem to help further expand their influence and scale.

Quadratic Funding:

A new model of donations and governance, where donations are made through crowdfunding and the direction of these donations is decided through democratic governance.

Research Grants:

Funding for research on more foundational technologies and cutting-edge theories, focusing on long-term returns.

2. Case Studies

1. Ethereum Foundation
Funding Types:

• Prospective Grants
• Retroactive Grants
• Research Grants

Organizational Background:

EF is one of the oldest organizations in the crypto space, created to support the Ethereum ecosystem. Over the years, they have tried various support methods, forming the current Ecosystem Support Program (ESP) and grant programs run by other EF teams (which receive support from ESP as needed).

They developed a "layered" model to effectively allocate resources:

• ESP: They provide three levels of support for applicants, offering two different funding levels based on the project's scale.
• EF Teams: Internal groups that contribute directly to the Ethereum ecosystem. Other teams within EF also allocate and manage grants to achieve their ecosystem goals.
• Technical Specific Areas: They collaborate with external groups to fund specific areas like zero-knowledge technology and developer experience.
• Third-party Funding: Direct funding to external groups like 0xPARC, Nomic Foundation, and ETHGlobal, allowing them to decide on allocations.

Application System:

• ESP application process: https://esp.ethereum.foundation/applicants
• Small grants under 3WU typically have a decision time of about two weeks (form filling + review).
• Applications over 3WU have a decision time of 2-3 months, with no set funding cap.
• Upon completion of funded work, recipients deliver the completed work to designated evaluators. (There are no restrictions on the form of delivery.)

Relevant Requirements and Impact Measurement Standards:

• The funding scope of ESP is relatively broad, with no strict regulations, and the funding duration is also quite open.
• EF has not established standards for the impact of projects, and the ESP team has never published any for the review teams. They encourage and hope to hear more ideas, thus spending more time on internal discussions and evaluations.
• However, EF places significant importance on the project's own Roadmap, continuously monitoring Milestones to ensure project completion.

Past Funding and Transparency References:

• Past funding disclosures: https://blog.ethereum.org/category/ecosystem-support-program (includes community activities and various sponsorships, such as conferences, hackathons, etc.)
• EF currently has no plans for detailed disclosures regarding their past funding, only disclosing funding allocations through quarterly reports.
• In the first half of 2023, they funded a total of 113 projects, 2200WU, averaging 20WU per project.

2. Solana Foundation
Funding Types:

• Prospective Grants
• RFP Grants

Organizational Background:
SF was established in 2019 to support the Solana ecosystem. SF not only provides traditional Grants but also offers convertible Grants (Mint) and commercial investments (VC). Although SF announced its first wave of grants in November 2020, it has since transitioned to support rolling grant applications.
Application System:

• Application submission address: https://share.hsforms.com/1GE1hYdApQGaDiCgaiWMXHA5lohw
• The review team conducts preliminary reviews daily, filtering projects into corresponding vertical fields (i.e., DAO, NFT, DeFi, etc.) based on their project type. Then, the funding team and the technical team (SME) in the vertical field hold weekly meetings.
• Preliminary screening results are generally replied to within a week. If passed, a meeting with relevant members (funding team/expert team) will be arranged in about 10 days, usually completing funding within a month.
• Small-scale projects are decided by SMEs, medium-scale by the Grants team, and large-scale by the executive committee.

Relevant Requirements and Impact Measurement Standards:

• Grants guidelines: https://solana.org/grants#criteriaforevaluation
• SF's review is more utilitarian compared to EF (Ethereum), focusing on whether funded projects meet the urgent needs of the Solana ecosystem's priority applications, thus having corresponding measurement standards (non-quantitative).

Project milestone design rationality

(1) Milestones are designed at the outset and are practical.
Project impact assessment methods
(1) Defined jointly with the grantee
(2) The funding team assesses whether their performance is below expectations, meets expectations, or exceeds expectations.
Positive externalities
(1) How useful is the output of this grant to others in the Solana ecosystem?
(2) Does it address issues beyond the specific problems of the grantee?
Sustainability
(1) Is the grantee still in Solana?

Is the grantee continuing to raise funds?
(1) Is the project still progressing beyond the initial funding scope?
Cost-effectiveness of funding
(1) Can others generally achieve this, and can they do it cheaper/faster?

Past Funding and Transparency References:

• Currently, there is no consistent process for reporting results to the community or more publicly. They are working to submit quarterly funding reports to the community early this year.
• Past funding situation: 5K+, funded over 300 projects, with a 6% approval rate, committed donations of 16WU (unlocked by milestones).

3. Uniswap Foundation
Funding Types:

• Prospective Grants
• RFP Grants
• Research Grants

Organizational Background:

• The Uni Foundation was established in August 2022 and shortly after approved the UF Grants program (there was a previous UGP funding program for two years, but with less funding).
• Although the mission of the Uni Grants program is not reflected on the official website, it is focused on the development and success of the Uniswap ecosystem based on behavioral judgments.

Application System:

• Application submission address: https://www.uniswapfoundation.org/apply-for-a-grant (the V3 version is currently paused, and V4 Grants are still in preparation, so applications are on hold).
• The review process includes: proposal submission, proposal evaluation, decision/approval.
• For the management team structure and responsibilities, UF is not yet particularly clear (UF is still recruiting personnel related to Grants), so all reviews are still completed through community proposals.
• Current response time: 1-6 weeks, as all Grants requests now need to go through the community.

Relevant Requirements and Impact Measurement Standards:
Developer Tools

(1) How much can it enhance the efficiency of developers building projects on UNI?

Liquidity Provider Tools
(1) To what extent can it facilitate liquidity providers' participation or locking of funds on UNI?

Governance Tools
(1) To what extent can it activate community members' enthusiasm for governance?

For the RFP Grants section, there have been four valid FRPs in 2023 (currently in the preparation stage for V4):

• Provide liquidity widgets (under Liquidity provider tools and resources)
• Open-source design for Uniswap's LP user experience (under Liquidity provider tools and resources)
• Research - what bad hooks look like (under Developer tools)
• Proof of concept - hooks and developer documentation (under Developer tools)

Past Funding and Transparency References:

• Past funding disclosures: https://www.uniswapfoundation.org/funded-grants
• Past funding situation: a total of 176 projects, approximately 980 WU.

4. TON Foundation

Funding Types:

• Prospective Grants

Organizational Background:

• Originally developed by the Telegram team as a layer chain, but the project was terminated due to legal issues. The open-source development team continued the work. The Grants program was launched in May 2022, with a total of 200 million managed by Questbook.
• TON's funding is more philanthropic, although their mission is to assist projects that contribute to the TON core infrastructure and introduce new practical use cases. They provide considerable support for open-source technology projects and collaborative development with other ecosystems.

Application System:

TON currently uses Questbook to manage applications:
https://questbook.app/proposal_form/?grantId=0xe92b011b2ecb97dbe168c802d582037e28036f9b\&chainId=10\&newTab=true

After submitting an application in Questbook, the funding team conducts a preliminary review. If approved, experts will conduct a second round of review, based on which a decision on funding will be made.

The average review time is 7-10 days, with approximately 5 grants announced each month.

Relevant Requirements and Impact Measurement Standards:

• TON's funding program focuses on Prospective Grants and generally does not provide retroactive funding for projects that have already received funding.
• The TON website currently lists the following areas of interest:

• The TON grant program emphasizes milestone-based payments. Therefore, the grant disbursement criteria are whether the project has reached the first milestone and whether it has achieved all milestones outlined in the grant.
• Additionally, the metrics are continuously evolving. Although tracking on-chain statistics like TVL and active users is a relatively new approach, it is not static, and the funding team is exploring the types of data and related metrics that can be captured.

Past Funding and Transparency References:

• Past funding disclosures: https://blog.ton.org/category/grants
• The TON funding program not only provides financial support but also occasionally hosts Twitter sessions with grantees to share their work. They also offer technical and business expertise to grantees and are committed to extending this support to various contributing organizations within their ecosystem.
• Past funding situation: 138, funded over 100 projects, with an approval rate of over 80%, committed donations of 120WU.

5. AGD (AAVE Grants DAO)
Funding Types:

• Prospective Grants

Organizational Background:

• Originally ETHLend (which served the ETH ecosystem), primarily helping users lend and borrow cryptocurrencies without intermediaries. AAVE initially only served the ETH ecosystem until it launched versions on Polygon and Avalanche in 2021, expanding its ecosystem's empowerment scope.
• Initially, AAVE relied on individual Grants to support projects, and as adoption increased, it held two ecosystem donation events. In 2021, the community-driven grant program AAVE Grants DAO was launched.

Application System:

• Written application-review (segmented by amount): https://aavegrants.org/apply-for-a-grant
• For amounts under 2WU, quick funding is available, requiring only a review of the application. If they pass the first round of review, they will approve and send a confirmation letter within a few days.
  For amounts between 2WU and 8WU, an interview and internal review are required.
• For amounts over 8WU, proposals are shared on the AAVE forum. AGD cannot authorize but will guide applicants on how to share the proposal directly on the AAVE governance forum, with final approval determined by community Snapshot voting.

Relevant Requirements and Impact Measurement Standards:

Impact is measured in various ways, including assessing whether grantees have completed their set tasks and providing monthly and semi-annual reports. The metrics they focus on include:

• Increasing TVL or other protocol metrics
• Expanding the functionality of the AAVE platform and utilities
• Providing the community with easy-to-understand and novel insights
• Attracting new users and improving retention rates of existing users
• Developing GHO by stimulating demand, expanding its utility, and accelerating its transaction speed

While these are some of the metrics they use, they do not limit impact or protocol ROI to any single KPI or metric list, as they believe any project can benefit the Aave ecosystem or Aave protocol.

Past Funding and Transparency References:

• Past funding disclosures:
  https://governance.aave.com/t/temp-check-aave-grants-continuation-proposal/14831
• Past funding situation: Over the past two years, a total of 2097 projects applied, with 249 projects approved, an approval rate of 11.9%, and an average funding of 1.9WU.

Conclusion

The five Grants projects mentioned above are currently notable ecological cases in terms of funding scale and openness, primarily providing: Prospective Grants, RFP Grants, and Research Grants.

A well-known case of Retroactive Grants is the Optimism Foundation, and with the results of RetroPGF S3 announced, LXDAO is currently conducting more in-depth research. Notable cases of the new Quadratic Funding model include Clr Fund and Gitcoin, which have been shared within the community previously, and we will continue to monitor them.

Moreover, regardless of the type of Grants, the community's major point of contention currently lies in the measurement of the impact of funded projects, which is also an area that LXDAO will continue to focus on and research deeply. Many well-known projects are still exploring this aspect.

Reference: Project information is sourced from their respective websites, blogs, and community forums, with a focus on the review system, team information, and past selection cycles, particularly referencing "State of Web3 Grants Report" by Eugene Leventhal and Mashal Waqar.

Currently, there are a total of 95 ongoing Grants Projects, summarized at:
https://www.grant3.co/crypto-web3-grants?3eca70cf_page=4

LXDAO will continue to monitor and share valuable information in the public goods sector in real-time.