Co-written with Meg Lister

If you’ve engaged with crypto projects on any sort of scale, you’ve likely come across grants programs – there are tens, if not hundreds, of such programs in existence across Web3 today.

We’ve both worked in DAOs and Web3 for years – which means that we’ve inevitably worked around or with many of the best grants programs in the space. We’ve also both spent time at Gitcoin, where Annika was previously Grants Program Lead and Meg currently leads Product for Grants Stack. When Annika started her role as Executive Director at the Eco Association, it made perfect sense to tackle grants in her first few months.

While there’s a proliferation of grants programs out there, we have found that literature and ‘how-tos’ on running grants programs are very sparse – there are very few (almost none!) blueprints and documentation for how to run a successful grants program.

This writeup is our attempt to open-source some of the work we’ve done, and what we’ve learned, in hopes that it might help others 🫡

Grants in Web3: The Why

Given that Web3 embodies the values of decentralization and permissionlessness, it follows that the work being done itself might follow that pattern.

If you zoom out for a second, grants are a strikingly obvious starting point as a construct – if you’re looking to make a project truly community-owned and maintained, the idea of funding individuals to complete specific pieces of work is a natural one, versus hiring a lot of full-time employees into a centralized entity.

In addition, grants programs fulfill other functions beyond just “getting work done”. They can serve as excellent recruiting and marketing tools and help bring new community members into their ecosystem. They provide an attractive platform to tell the world about their ambition and what they’re after – and, tactically, how outside contributors can help.

Who we talked to

In order to effectively stand up a grants program, we researched the strategy, goals, and operating processes of some of the best in the industry: Aave Grants DAO, Uniswap Grants, Gitcoin, dYdX, Urbit, and more. Many of them were gracious enough to share their experiences. Through this research, we’ve developed a working model for standing up a grants program.

After digesting this research and talking to grants programs experts and administrators, we developed a working model for getting grants running at the Eco Association. Articulating this process helped the team crystallize the “why” and “how” initiating a grants program.

The working model outlined below is intended to call out the important decisions that need to be made before creating a grants program – without adding too much overhead!

Our working model consists of three stages:

1. Define goals

2. Decide on structure

3. Set up tools, workflow, and process

Let’s dive in.

1. Define Goals

It seems to us that some organizations jump to “let’s stand up a grants program” somewhat prematurely, without specific aim as to what they are looking to accomplish.

Hey anon, we’ll let you in on a secret: grants programs are not a silver bullet.

One meaningful thing that we found missing across many grants programs as an articulation of their goals. Even when they are clearly set up to facilitate dev work in their ecosystem and have funded interesting and successful projects, they often fail to articulate the value they’re trying to drive. How do these projects benefit the organization, and why were they chosen? Identifying and articulating clear goals sets the foundation for the right structure to be created – setting aside a budget that’s reasonable to meet those goals, recruiting individuals with the right expertise, and more. It also builds alignment and trust with the wider community by making them confident that token distributions will have direct benefits.

Over the past few years, we’ve seen grants programs espouse purposes of community engagement and marketing, decentralization, making investments, bounties, and getting projects done by outside stakeholders. We make the argument that while these are all worthwhile goals for an organization, most Web3 grants efforts should focus, first and foremost, on achieving outcomes that are in line with the macro-level goals of the organization.

In doing this, organizations should find measurable ways to track towards their goals, or they can risk getting caught up in the minutiae, process, and white space that setting up a grants program can entail.

While things like marketing and decentralization are worthwhile goals, grants programs themselves are rarely set up with the skills and tools to effectively enable them. They’re a nice side effect — not necessarily an effective program objective.

Likewise, contributing your treasury’s tokens into worthwhile projects with the hope that “rising tides lift all boats” is certainly noble, though one that few organizations have appetite for in today’s market.

2. Decide on Structure

Once a grants program has defined goals, it’s ready to create an organizational structure to support those. There are three key elements of the structure: types of grants, establishing a decision making body, and setting initial parameters (budget, timing, and SLAs).

2.1 Types of Grants

The first thing to decide in standing up a grants program is what type of grants you want to focus on at the onset. Broadly speaking, we see two categories of grants today:

1. RFPs (“top-down”) – Proposing a project idea you want to see get built

2. Community-initiated grants (“bottoms-up”) – Community members proposing their own ideas that they want to get funding for

RFPs

Many grants programs started soliciting applications by building personal connections with builders and telling them to submit an interesting proposal. While this was effective in getting grants off the ground, many of those projects failed to gain traction or benefit the ecosystem. In response, most grants programs now have a curated list of RFPs that potential grantees respond to directly or fork when submitting their application.

Though RFPs have a high setup cost, every grants program we interviewed noted that their most successful projects and relationships had originated via RFP. The most effective RFPs we saw had the following key elements:

• Project outline: what is meant to be built and delivered?

• Problem statement: what problem is this solving for the ecosystem?

• Budget: how much is the grants program willing to pay for completed work?

• Skills needed: what capabilities or expertise does the grantee need to possess to successfully complete this work?

RFPs are not only an effective way to communicate specific work to be done, but can also serve as inspiration for future projects. A few grants managers noted that their communities had “forked” previous RFPs and suggested different approaches to the project!

Community-Initiated Grants

This category is typically much more open-ended than RFPs; it gives free rein to the community to bring about ideas that they believe would advance the project and they ask for funding to execute on those ideas.

Community-initiated grants often flow through the project’s formal governance process — or, in more sophisticated projects, sometimes through other sub-governance processes — and are weighed in on by the community-at-large. These grants can be effective if done right, but we have heard program managers talk of the ‘garbage in, garbage out’ phenomenon — if you haven’t given clear direction on the objectives you’re going for in standing up a grants program, you risk receiving a lot of highly chaotic applications to manage that may not necessarily meet your focus, and can take a lot of time to sift through and respond to. For this reason, we see many projects just start with RFP grants at the onset.

Decision making bodies

The decision making bodies award grants to applicants, and in some cases are also responsible for reporting on its activities and managing grantees to ensure completion and success of their project. For RFP programs, the most common framework we see is an elected, salaried committee of 5-8 members. (For reference: dYdX Grants takes one of the most structured approaches to committee membership, with 5 committee members and a grants program administrator.) Committees allow a program to benefit from multiple points of view and bring in specialized expertise. The committee also plays a key role in sourcing builders – in conversations with Reverie, program manager for dYdX grants, they mentioned that two-thirds of successful applications had been the result of proactive networking and outreach.

Though committees have many benefits, they’re also the root of a critical problem facing grants programs: transparency and accountability. There’s rarely a process for disclosing conflicts of interest, or even for requiring committee members with a conflict of interest to abstain from voting on particular proposals. Many committees fail to give a rationale for their decisions, which perpetuates a vision of them as opaque and untrustworthy.

When setting up a new grants program, we recommend staffing the decision making body as a small committee. This allows the program to benefit from a few different points of view and allows the committee to share the responsibility of growing the program – and for new and smaller programs, the committee can be kept small and with enough oversight to prevent transparency and accountability issues.

The most common alternative to a committee is an in-house grants manager or grants team, which can be seen in programs like Uniswap that fund $1M+ of grants per year. This works well when the grants manager is also a domain expert and has the bandwidth and autonomy to both set the guidelines for the program and run it. They may benefit from grants analysts or external advisors to help evaluate proposals.

Another interesting framework comes from Urbit, where a grant is passed when a member of the community agrees to support it. A small set of members of the community have the power to support and pass potential proposals. Each of them has previously been a recipient of the grants program, and as part of their support, they will work alongside the grantee to ensure that the project is on track and keep the core team and community apprised of progress. In return, the sponsor receives a portion of the overall grant payment.

For community-initiated grants, the decision-making body is often a broad one. If a grant is going through community governance, every tokenholder might have the opportunity to vote on every grant. While this is highly democratic, it can also be chaotic and, in some cases, constitutes unnecessary work — for small ticket sizes, it may not be worth pestering the community and delegates for every single grant. One solution that is well-suited to community-initiated grants is Quadratic Funding, which uses the volume of individual donor contributions to determine how to allocate matching funds from a grants program.

2.3 Initial parameters

Okay, so you know what type of grants you want to launch with, and what your decision making bodies will look like… now what?

It’s time to get tactical — setting up initial parameters for the project.

Establishing expectations for timing, responses, and overall SLAs is key to a good grantee experience. At a minimum, grants managers will want to outline the following:

• How frequently do they approve new grants?

• When should applicants expect to hear back from the grants programs?

• What does the approval process look like, and how long might it take?

We were surprised to find how many grants programs failed to answer those basic questions, which could prevent potential grantees from investing the time in their application. Additionally, many programs failed to offer a feedback loop – responding only with a “yes” or “no” to an application.

It’s not surprising that some of the most successful grants programs have well documented processes and focus on setting grantee expectations. dYdX Grants recently launched their Grants Lifecycle, which details the different phases and timing of grant review. The Optimism Collective has a detailed page outlining the submission and evaluation process, associated timing, and criteria and participants for each step. When setting up a new grants program, use grantee experience as a competitive advantage to encourage builders in your ecosystem!

3. Set up tools, workflow, and process

Once you’ve got at least the bare bones of a structure decided on, it’s worth thinking about how you’ll manage the grants process as a whole.

By and large, from what we’ve heard, even the most prolific of programs are typically fairly scrappy and not hugely sophisticated in their software stack — Notion, Google Docs, and Airtable were frequently cited as key components of managing a grants program.

From a workflow and process standpoint — and, really, this goes without saying — the critical piece seems to be having clear owners with specific accountabilities for each part of the behind-the-scenes process. We heard a lot of complaints of grantees being ghosted or never hearing back on their applications — and we’d venture a guess that most of this isn’t being driven by malintent, but by unclear accountabilities.

Something else to note on this front: Web3 is nascent, we’re all figuring it out as we go — program managers and grantees both. Change is expected. If your program structure changes, if you’ve decided to halt giving out grants altogether, or if there’s anything your community should know, *tell them*. Unanswered grant applications and hard work from a prospective grantee’s perspective being tossed into the ether is an easy — and unfortunate — way to make a bad first impression and put a stain on your project. So, set expectations accordingly.

Conclusion

In conducting this research, we’ve been blown away by both the interest that Web3-natives seem to have in hearing about this stuff, and the passion and entrepreneurial spirit that people running these programs today showcase.

All that to say: we’re incredibly early – and if Web3 projects offer any signal of what’s to come, we’d venture a guess that grants are likely to be an important component of the future of work.