Development Funder is an open source smart contract that facilitates a three way trade to fund development proposals through the purchase of tokens. The three sides of the trade are Proposers, Voters and Purchasers. There are also 2 types of tokens used in the process Popular tokens and DAO tokens.
Proposers submit proposal ideas for funding similar to how Project Catalyst proposers submit ideas in Ideascale. Key differences from Project Catalyst are that proposal funding requests are directly in ADA amounts instead of USD equivalent and are limited to 10,000 ADA at a time. These differences are due to the way the funding process works and the desire for rapid frequent low risk funding instead of the slower larger funding process in Project Catalyst. Larger projects can be funded by breaking them down into funding requests for multiple smaller sprints.
Voters are public members who receive daily tokens, called Populars, that can only be used to assign support for one or more proposals. The Proposal budget is divided by the number of Popular tokens it has received to give a DAO token purchase price. The popularity of a Proposal is indicated by the more Popular tokens it receives. More popular Proposals are more likely to be funded since they result in a cheaper DAO token purchase price.
Purchasers are individuals or entities looking to purchase DAO tokens. Purchasers have a range of DAO token prices based upon the popularity of each Proposal. Purchasers place a bid on DAO tokens at a specific DAO token price for a specific proposal. If the popularity of a proposal rises to the point that the DAO token price drops to bid price point or lower and there are sufficient bids to fund the entire Proposal budget then the Development Funder smart contract executes the trade.
The three way trade works as follows. The ADA from the Purchasers is transferred to the Proposers to fully fund their budget. The Popular tokens are burnt and 4 DAO tokens are created for each Popular token burnt. The Voters receive 1 DAO token for each Popular token they assigned to the Proposal. The Purchaser receive 1 DAO token for each multiple of the DAO token price that they bid (for instance if the final purchase price was 2 ADA per DAO token and the purchaser bid 10 ADA then they would receive 5 DAO tokens). The final 2 ADA are placed into a special DAO-NET treasury to pay potential taxes and legal costs associated with keeping DAO-NET running.
The value proposition of DAO tokens is that they will be used for internal transactions within DAO-NET between DAOs at a more cost effective transaction fee rate. The utility and value of DAO tokens will be continually improved (see the DAO-NET: DAO Token Market proposal for more details).
The main impacts to each user group are:
- Proposers can receive funding for their development projects in days instead of months under Project Catalyst
- Voters are incentivized to participate in the funding process by earning DAO tokens that can be sold or used in DAO-NET transactions
- Purchasers can purchase DAO tokens at free market prices while funding proposals that they support
This solution is an open source platform for funding future development work, either open source or not, that is owned by the community and equally accessible by all therefore it explicitly addresses all aspects of the challenge.
By funding future open source development work this solution increases the number of Cardano Open Source projects and the number of contributors.
Quality of projects is increased by the feedback loop of Voters and Purchasers selecting those projects which they support for funding. Furthermore by forcing larger projects to be broken down into smaller sprints, the community is able to suspend funding for projects with poor interim deliverables.
Future enhancements of the Development Funder platform will be funded using the Development Funder process which is a clear example of the dog-fooding key metric.
The main risk for successful project delivery, due to the complexity of the smart contract, is the possibility of a security vulnerability in the code. To mitigate the risk, the smart contract will undergo an accredited third party security audit.
Post delivery, there is a risk in implementation that the value of DAO tokens may not be sufficient to incentivize market participation.
The primary method of infusing value to DAO tokens is to give them utility which is intended to be accomplished through the creation of a sidechain in which transaction fees are paid using DAO tokens at a lower rate than normal ADA transaction fees on the main net. The development of a sidechain is a major undertaking and is being done in stages, see DAO-NET & A2T Sidechain Design proposal for more details.
The secondary method for increasing value of DAO tokens is to make a market for them by easily interchanging with other cryptocurrencies by integrating with DEX and Automated Market Maker platforms, see the DAO-NET: DAO Token Market proposal for more details.