Treasury management is broken. DAOs allocate capital reactively to fund speculative integrations instead of building core protocol moats. This creates a grant treadmill where value accrues to third-party applications, not the underlying protocol.
public-goods-funding-and-quadratic-voting
Blog
Why Your Treasury is Dying a Death of a Thousand Grants
An analysis of how politically-driven, speculative grant programs create existential financial risk for DAOs, and why a shift to outcome-based, retroactive funding models is the only viable path to sustainability.
introduction
THE CAPITAL MISALLOCATION
Introduction: The Grant Drain
Protocol treasuries are being systematically depleted by a grant-making process that prioritizes marketing over sustainable infrastructure.
Grants fund marketing, not R&D. Most proposals are for front-end integrations or liquidity incentives that offer no long-term technical leverage. Compare Uniswap's focused grant program to the scattershot approach of many L2 ecosystems.
The evidence is in the metrics. Analyze any major DAO's treasury dashboard on Llama or OpenOrgs. You will see a consistent pattern: operational runway shrinks while the number of funded, non-core projects explodes.
key-trends
WHY YOUR TREASURY IS DYING A DEATH OF A THOUSAND GRANTS
The Symptoms of Grant Failure
Grant programs often hemorrhage capital without delivering sustainable protocol growth. Here are the terminal symptoms.
01
The Phantom Developer
Grants fund anonymous or transient builders who deliver a one-off feature and vanish, leaving behind unmaintained code and zero ecosystem integration. The treasury pays for activity, not outcomes.
- Result: >50% of grant-funded projects are abandoned within 6 months.
- Symptom: GitHub repos with last commit matching the grant disbursement date.
>50%
Abandonment Rate
0
Long-Term Value
02
The Incentive Misalignment
Grants reward building to the grant spec, not building for real users. This creates zombie dApps with <100 MAUs and tokenomics designed to extract, not accrue, value back to the protocol.
- Result: TVL and fee generation from grant projects is statistically negligible.
- Symptom: Airdrop farming is the primary, and often only, user acquisition strategy.
<100
Active Users
$0
Protocol Revenue
03
The Governance Capture
Large, established teams learn to game the proposal process, turning the grants treasury into a recurring revenue stream for their own core development. This crowds out novel, independent builders.
- Result: ~70% of grant capital flows to <10 known entities.
- Symptom: Proposal votes are foregone conclusions, decided by delegate blocs.
~70%
Capital Concentration
<10
Entity Capture
04
The Metric Myopia
Treasuries optimize for easy-to-game vanity metrics like "lines of code" or "grants issued" instead of hard outcomes like protocol fee share or net new sustainable TVL. This turns the grant committee into a check-writing bureau.
- Result: A thriving grants program alongside a stagnating or declining protocol.
- Symptom: Quarterly reports highlight quantity of grants, not quality of output.
0%
Fee Share
Vanity
KPI Focus
05
The Liquidity Black Hole
Grants for liquidity mining programs create mercenary capital that flee at the first sign of lower APY. The protocol pays millions in emissions for temporary TVL that provides no lasting competitive moat or user stickiness.
- Result: >90% of incentivized liquidity exits within 60 days of program end.
- Symptom: Chronic, expensive re-incentivization cycles to maintain baseline TVL.
>90%
Capital Flight
Millions
Wasted Emissions
06
The Innovation Tax
By funding predictable, low-risk integrations (e.g., the 50th DEX fork), grants systematically defund moonshot R&D. The treasury becomes a subsidy for commoditized work, ceding the innovation edge to well-funded startups or other chains.
- Result: Protocol development lags 1-2 cycles behind cutting-edge narratives (e.g., intent-based, restaking, parallel EVMs).
- Symptom: The most discussed technical upgrades are built elsewhere first.
1-2 Cycles
Innovation Lag
Commoditized
Output
deep-dive
THE MISALIGNED INCENTIVE
The Core Flaw: Paying for Promises, Not Proof
Treasury grants fund speculative roadmaps instead of measurable, on-chain utility.
Grant programs incentivize vaporware. Teams optimize for proposal aesthetics and community hype, not shipping verifiable code. The deliverable is a PDF, not a contract address.
The metric is marketing spend, not user adoption. Success is measured by Twitter mentions and grant committee approval, not transaction volume or protocol fees. This creates a feedback loop of empty growth.
Compare Arbitrum's STIP to a generic ecosystem fund. Arbitrum's Short-Term Incentive Program tied millions directly to proven on-chain activity for protocols like GMX and Camelot. Generic grants fund a team's runway with no performance clawbacks.
Evidence: The developer-to-user ratio collapses. A chain can fund 100 grant-winning dApps that generate less combined volume than one organic success like Uniswap or Lido. The treasury subsidizes noise, not signal.
TREASURY MANAGEMENT
Grant Model Comparison: Speculative vs. Outcome-Based
A data-driven comparison of grant funding models, analyzing their impact on treasury sustainability and project success.
| Metric / Feature | Speculative Grants (Status Quo) | Outcome-Based Grants (Proposed) | Retroactive Funding (e.g., Optimism) |
|---|---|---|---|
Primary Funding Trigger | Proposal & Promise | Verifiable On-Chain Milestone | Verified Past Contribution |
Success Rate (Projects Delivering) | 15-30% | 70-90% (est.) | 100% (by definition) |
Avg. Administrative Overhead | 40-60% of grant value | 10-20% of grant value | 5-15% of grant value |
Capital Efficiency (Value Delivered / $ Spent) | 0.3x - 0.7x | Target: >0.9x |
|
Time to Disbursement | 3-6 months (committee review) | 1-4 weeks (automated verification) | Post-hoc, quarterly cycles |
Sybil Resistance | Low (reputational, subjective) | High (on-chain proof-of-work) | High (on-chain proof-of-work) |
Fits DAO Governance | |||
Requires Upfront Treasury Capital | |||
Examples in Wild | Most DAO Grant Programs | Uniswap Grants, Gitcoin Allo Strategy | Optimism RetroPGF, Arbitrum STIP |
case-study
WHY YOUR TREASURY IS DYING A DEATH OF A THOUSAND GRANTS
Case Studies in Funding Efficiency
Traditional grant programs are a leaky bucket. Here's how leading protocols are plugging the holes.
01
The Retroactive Funding Model
Paying for proven results, not speculative promises. This flips the incentive model, forcing builders to demonstrate value before claiming treasury funds.\n- Eliminates grant committee overhead and political lobbying.\n- Aligns incentives with actual protocol usage and growth.\n- Examples: Optimism's RetroPGF, Arbitrum's STIP.
$100M+
Distributed
-90%
Admin Waste
02
The Developer Bounty Marketplace
Treating development work as a spot market for specific, verifiable tasks. This replaces open-ended grants with precise deliverables and competitive pricing.\n- Dramatically reduces time-to-delivery from months to weeks.\n- Creates a liquid talent market for protocol-specific work.\n- Platforms: Gitcoin's Workstreams, Immunefi for security.
4x
Faster Payout
30-50%
Cost Savings
03
The Staked Governance Incentive
Directly rewarding engaged, long-term token holders who vote and delegate, instead of funding mercenary capital. This converts grant budgets into sustainable protocol-owned liquidity.\n- Builds resilient governance by rewarding skin-in-the-game.\n- Protocols like Frax Finance and Lido use ve-token models to direct emissions efficiently.\n- Turns grants into flywheel fuel for TVL and stability.
$10B+
TVL Aligned
>60%
Voter Retention
counter-argument
THE MISALLOCATION
Counter-Argument: "But We Need to Seed the Ecosystem"
Treasury grants are a capital-intensive and ineffective substitute for genuine product-market fit.
Grants create mercenary capital, not users. Teams optimize for grant criteria, not solving real problems, leading to protocol bloat and abandoned projects post-funding.
You are subsidizing inefficiency. The grant process itself is a governance and operational sink, consuming treasury resources to manage proposals that rarely yield returns.
Compare to Uniswap or Lido. Their ecosystems grew from irreducible utility, not grants. A protocol's core product must be its primary growth engine.
Evidence: A 2023 study by Token Terminal showed less than 5% of grant-funded projects achieved sustainable traction after the initial funding round.
takeaways
TREASURY MANAGEMENT
TL;DR: How to Stop the Bleeding
Protocol treasuries are being drained by inefficient, opaque grant programs. Here's how to fix the model.
01
The Problem: Retroactive Public Goods Funding
Upfront grants fund promises, not results. Retroactive models like Optimism's RPGF and Gitcoin Grants pay for proven impact.
- Funds outcomes, not proposals
- Aligns incentives with protocol success
- Reduces due diligence overhead by ~70%
$50M+
Distributed
-70%
Admin Cost
02
The Solution: Milestone-Based Vesting with Clawbacks
Replace lump-sum grants with smart contract-enforced vesting tied to verifiable deliverables.
- **Automated milestone checks via Chainlink Oracles or UMA
- Recover funds for failed projects
- Transparent on-chain accountability
100%
On-Chain
>40%
Recovery Rate
03
The Problem: Governance Capture by Grant Farmers
Sybil attacks and low-information voting lead to treasury funds flowing to well-connected, low-impact projects.
- Vote buying via Snapshot bribery markets
- Lack of voter accountability
- Grants become a political tool
~30%
Sybil Inflated
Low
Voter Turnout
04
The Solution: Conviction Voting & Specialized Committees
Implement DAOstack's Conviction Voting to weight funding by sustained community interest. Delegate technical assessment to a paid, accountable sub-DAO.
- Funds flow to persistently popular ideas
- Separates technical merit from popularity
- Reduces governance spam
5x
Efficiency Gain
Expert
Vetting
05
The Problem: No ROI Tracking or KPIs
Treasuries treat grants as marketing expenses with no measurement of return. Projects vanish after funding with zero accountability.
- No standardized metrics (dev activity, TVL, fees)
- Impossible to audit success
- Leads to repeated funding failures
<10%
Tracked
$0
Recovered
06
The Solution: On-Chain Analytics & Bonded Agreements
Mandate integration with Dune Analytics or Flipside Crypto dashboards. Require project teams to post performance bonds via Kleros or Polygon ID.
- Real-time, public ROI dashboard
- Skin in the game for grantees
- Data-driven future allocation
100%
Transparent
Bonded
Accountability
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Confidentiality24h Response
Time to ValueDirectly to Engineering Team
No Sales Fluff10+
Protocols Shipped
$20M+
TVL Overall