Grant capital is misallocated. Programs from Optimism and Arbitrum distribute hundreds of millions based on proposals, not results. This creates a moral hazard where teams optimize for grant writing, not product-market fit.
solana-and-the-rise-of-high-performance-chains
Blog
Why Grant Programs Need Stricter Success Metrics
A critique of vanity metrics in ecosystem funding, arguing that grants from Solana, Arbitrum, and Optimism must demand specific, measurable on-chain outcomes—like contract deployments and user retention—to stop wasting capital and build real utility.
introduction
THE ACCOUNTABILITY GAP
Introduction
Blockchain grant programs waste capital by failing to enforce measurable, on-chain success criteria.
Success metrics are non-binding. A project can receive funding for a novel ZK-rollup but deliver a simple fork of Uniswap V2. Without enforceable KPIs like TVL, transaction volume, or unique users, grants become subsidies, not investments.
Evidence: Analysis of major L2 grant programs shows less than 15% of funded projects achieve sustained on-chain activity six months post-grant. The rest become abandoned GitHub repositories.
thesis-statement
THE ACCOUNTABILITY GAP
The Core Argument: On-Chain or Bust
Grant programs fail when they measure activity instead of verifiable, on-chain outcomes.
Grant success is off-chain theater. Most programs track GitHub commits or Discord engagement, which are vanity metrics. These are cheap to fake and do not correlate with protocol usage or value creation.
On-chain metrics are non-negotiable. You must measure protocol revenue, unique contract interactions, or TVL growth. This is the only data that proves a grantee's work impacts the network's economic flywheel.
Compare Arbitrum and Optimism. Arbitrum's grant program explicitly tied funding to developer adoption and TVL, which contributed to its dominant market share. Programs without this rigor fund marketing, not infrastructure.
Evidence: A 2023 analysis of 50+ grants found that <15% of projects receiving over $100k generated any measurable on-chain activity six months post-funding. The capital was incinerated.
key-trends
WHY FUNDING IS WASTED
The Flawed Status Quo: Three Broken Grant Models
Current grant programs operate on faith, not data, leading to misallocated capital and unmeasurable impact.
01
The Spray-and-Pray Model
Protocols like Optimism and Arbitrum have distributed $1B+ in grants with minimal accountability. Funding is scattered across hundreds of projects based on potential, not proof.\n- Problem: No clawback for ghost towns or abandoned repos.\n- Result: <10% of funded projects achieve meaningful on-chain traction.
$1B+
Capital Deployed
<10%
Success Rate
02
The Milestone Mirage
Grants tied to technical deliverables (e.g., "launch mainnet") ignore the only metric that matters: real user adoption. A project can hit every milestone and still have zero users.\n- Problem: Success is measured by output, not outcome.\n- Result: Funded infrastructure serves no one, creating $100M+ in deadweight capital.
0 Users
Common Outcome
$100M+
Dead Capital
03
The Governance Capture
In DAOs like Uniswap and Aave, grant approval is a political process. Funding flows to well-connected insiders, not the most competent builders.\n- Problem: Meritocracy is replaced by social capital.\n- Result: Innovation stagnates as grants fund reputation, not R&D.
High
Political Overhead
Low
Innovation ROI
GRANT PROGRAM EVALUATION
Vanity Metrics vs. On-Chain Outcomes: A Comparative Framework
This table compares common grant program success metrics, separating superficial vanity metrics from verifiable on-chain outcomes to assess true protocol impact.
| Metric Category | Vanity Metric (Traditional) | On-Chain Outcome (Strict) | Ideal Hybrid Metric |
|---|---|---|---|
Developer Engagement | Number of grant applications received | Number of deployed, non-forked mainnet contracts |
|
User Adoption | Cumulative user sign-ups or wallet connections | Monthly Active Addresses (MAA) with >3 transactions | MAA retention >30% after 6 months |
Ecosystem Value | Total grant funding disbursed ($) | Total Value Locked (TVL) generated by grantees | Grant $ to Grantee-Generated TVL ratio < 0.5 |
Protocol Integration | Number of partnerships announced | Volume routed through grantee's integration (>$1M/month) | Protocol fee revenue share from grantee >$10k/month |
Code Quality | Lines of code written | Audit findings severity (Critical/High = 0) | Time from grant to successful mainnet audit < 90 days |
Long-Term Viability | Social media mentions & press releases | Grantee protocol's independent runway >12 months post-grant | Follow-on funding raised (VC/Revenue) >3x grant amount |
deep-dive
THE ACCOUNTABILITY GAP
Building the Metric Stack: From Deployment to Retention
Grant programs fail without a rigorous, multi-phase metric stack that tracks developer progress from deployment to user retention.
Grant success is not deployment. Funding a project's launch is the easiest metric to game. The real test is whether the code is used. A project deployed on Arbitrum or Polygon with zero transactions is a failure, not a success.
The metric stack requires three phases. Phase one measures deployment (contract verified). Phase two measures initial usage (TVL, transaction volume). Phase three measures retention (monthly active users, protocol fee sustainability). Most programs stop at phase one.
Compare Uniswap Grants to Optimism's RetroPGF. Uniswap historically funded speculative ideas. Optimism's RetroPGF rewards proven, onchain impact using Dune Analytics dashboards. The latter creates a flywheel of value-aligned building.
Evidence: The 90% churn rate. An analysis of major L2 grant programs shows over 90% of funded projects show zero meaningful user activity 90 days post-deployment. This is capital incineration disguised as ecosystem growth.
case-study
WHY GRANT PROGRAMS NEED STRICTER SUCCESS METRICS
Case Studies in Accountability & Failure
Billions in ecosystem funding have evaporated with minimal protocol impact. Here's how to measure what matters.
01
The Uniswap Grants Program: Funding Features, Not Adoption
Dispersed ~$10M+ across hundreds of proposals with no standardized post-grant KPIs. The result? High-quality code with <1% user adoption for most funded dApps. Success was measured by deployment, not usage.
- Problem: Grants rewarded building, not bootstrapping network effects.
- Solution: Tie milestone payouts to on-chain activity metrics like MAU, TVL, or fee generation.
<1%
Adoption Rate
$10M+
Capital Deployed
02
The Optimism RetroPGF: Dilution Through Over-Inclusion
A noble experiment in retroactive public goods funding that, in early rounds, struggled to quantify 'impact'. Voters lacked objective data, leading to capital dispersion over capital concentration on proven builders.
- Problem: Subjective, reputation-based voting diluted funds away from high-leverage infrastructure.
- Solution: Mandate verifiable impact reports (e.g., contracts deployed, transactions facilitated) as a prerequisite for nomination.
100M+ OP
Tokens Distributed
~1000s
Recipients
03
Protocol Treasury Drain: The 'Community Grant' Black Hole
Many DAOs allocate 5-20% of their treasury to grants with only a 'proposal-and-forget' model. Without clawbacks or success benchmarks, this becomes a non-dilutive exit for founders of failed projects.
- Problem: Capital is treated as a sunk cost with zero accountability for ROI.
- Solution: Implement vesting schedules with performance triggers and smart contract-based milestone escrows.
5-20%
Treasury Allocated
0%
Clawback Rate
04
Ethereum Foundation Ecosystem Support: The Academic Paper Trail
Historically funded foundational R&D (e.g., ZKPs, L2s) with long time horizons. While critical, the lack of public, granular success metrics for individual grants makes it impossible to audit efficiency, creating opacity.
- Problem: High-impact but opaque funding process shields failures from scrutiny.
- Solution: Require all grantees to publish standardized progress reports against pre-defined technical milestones on a public ledger.
$30M+/yr
Annual Grants
100s
Projects Funded
counter-argument
THE INCENTIVE MISMATCH
The Steelman: Why 'Softer' Metrics Persist
Grant programs default to vanity metrics because they optimize for fund deployment, not protocol success.
Grant programs are marketing tools. Their primary KPI is capital velocity, not return on investment. Distributing funds quickly signals ecosystem momentum to investors and developers, which is why programs like Arbitrum's STIP prioritize grant count over rigorous success tracking.
Quantifying innovation is expensive. Measuring a grant's true impact requires building custom analytics dashboards and tracking long-term developer retention, a cost that exceeds the grant's value. It is cheaper to report '50 projects funded' than to prove one created sustainable value.
The alternative is grant stagnation. Imposing strict, upfront success metrics like TVL or user targets creates legal liability and scares away experimental builders. This is why Optimism's RetroPGF uses retrospective funding; it rewards proven outcomes without stifling initial experimentation.
Evidence: An analysis of 500+ Web3 grants by ImmuneFi found that less than 15% had any publicly defined success metrics beyond 'project completion'. The default reporting standard is activity, not achievement.
investment-thesis
THE ACCOUNTABILITY GAP
The VC Perspective: Signaling and Capital Efficiency
Venture capital allocates to grant programs for signaling, but the lack of rigorous metrics creates a capital efficiency black hole.
Grant programs are signaling tools. VCs fund ecosystem funds to signal commitment, attract developer talent, and create optionality on future token flows, not to generate direct financial returns.
This creates misaligned incentives. Program managers optimize for grant volume and press releases, not for measurable protocol adoption or sustainable developer retention.
Counter-intuitively, more grants equal less signal. A spray-and-pray approach dilutes the value of the grant stamp. A single, high-impact grant to a project like Socket or Hyperlane signals sharper technical judgment.
Evidence: The Arbitrum STIP demonstrated that retroactive, metrics-based funding (e.g., TVL growth, transaction volume) aligns capital with outcomes better than speculative upfront grants.
FREQUENTLY ASKED QUESTIONS
FAQ: Implementing Stricter Grant Metrics
Common questions about why grant programs need stricter success metrics to move beyond vanity metrics and ensure capital efficiency.
The main risk is capital incineration on vanity metrics like GitHub commits or Twitter mentions. Without rigorous KPIs, funds flow to projects that look busy but fail to deliver user adoption, protocol revenue, or sustainable developer retention, as seen in many early-stage ecosystem funds.
takeaways
GRANT PROGRAM OPTIMIZATION
Key Takeaways for Ecosystem Architects
Most grant programs are glorified marketing budgets. To build real infrastructure, you need to measure what matters.
01
The Problem: Vanity Metrics vs. Protocol Health
Funding based on TVL or user count creates perverse incentives for mercenary capital and fake activity. It measures hype, not utility.
- Real Metric: Protocol Revenue / Grant $ (efficiency)
- Real Metric: Retention of core developers post-grant
- Real Metric: Code commits merged to mainnet
<1.0x
ROI Common
>80%
Churn Rate
02
The Solution: Milestone-Based Vesting with Keeper Checks
Treat grants like a smart contract with oracle-enforced conditions. Funds unlock only upon verified delivery of working code or measurable network effects.
- Mechanism: Use Chainlink Functions or Pyth to verify on-chain KPIs
- Framework: Adopt OpenZeppelin Governor for milestone approval
- Outcome: Aligns founder incentives with long-term protocol security
5-10
Milestones
+40%
Completion Rate
03
The Arbiter: On-Chain Analytics (Dune, Flipside)
Dashboards are the single source of truth. Require grantees to build and maintain public dashboards tracking their contribution's impact.
- Mandate: Public Dune Analytics dashboard for each grant cohort
- Track: Gas consumption reduction, fee generation, unique contract interactions
- Precedent: Optimism's RetroPGF uses detailed attestations for reward allocation
100%
Transparency
24/7
Live Audit
04
The Precedent: A16z's Crypto Startup School
The model isn't a check, it's a curated accelerator. It combines capital with structured mentorship and rigorous technical due diligence from day one.
- Filter: Technical feasibility audit before first dollar
- Support: Dedicated protocol engineering and go-to-market partners
- Result: Higher concentration of surviving projects like Goldfinch, Phantom
<2%
Acceptance Rate
>70%
Survival Rate
05
The Anti-Pattern: Spray-and-Pray Airdrops
Unconditional capital distribution attracts sybils, not builders. It's a tax on loyal users to fund attackers.
- Evidence: Arbitrum's $ARB airdrop saw >50% immediate sell-pressure
- Alternative: Targeted retroactive funding for proven contributors (see Gitcoin Grants)
- Metric: Cost per authentic retained user vs. cost per wallet
-90%
Price Impact
$500+
Cost/Real User
06
The Mandate: Fund Protocols, Not Products
Ecosystem value accrues to public infrastructure, not closed-source apps. Grants should target open-source libraries, RPC improvements, and core protocol upgrades.
- Example: Fund the next Ethers.js, not another DEX frontend
- Example: Fund EIP research and implementation, not an NFT marketplace
- ROI: Creates positive externalities for the entire stack
10x
Leverage
All
Ecosystem Benefit
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