Setting Up a Grants Program for Ecosystem Development

A DAO grants program is a structured mechanism for allocating treasury funds to external contributors building tools, content, or infrastructure that benefits the broader ecosystem. Unlike venture investing, grants are typically non-dilutive, awarded for work that may not have immediate commercial return but creates public goods—open-source code, educational resources, or community tools. Successful programs from Uniswap, Optimism, and Aave have demonstrated their power in bootstrapping developer activity and user adoption. The core challenge is designing a process that is transparent, efficient, and resistant to fraud while aligning incentives with the DAO's long-term goals.

The first step is defining a clear scope and focus area. A broad "general grants" program often leads to low-quality submissions. Instead, specify targeted request for proposals (RFPs) for needed work, such as "Develop a Subgraph for protocol analytics" or "Create multilingual documentation." Establish funding tiers (e.g., small: <$5k, medium: $5k-$25k, large: $25k+) with corresponding diligence requirements. You must also decide on payout structure—common models include upfront payment, milestone-based payouts, or a retroactive public goods funding model like that pioneered by Optimism. The program's rules should be codified in a transparent, accessible charter.

Operationally, you need to set up the tools for submission, review, and payment. Use specialized platforms like Questbook or Gitcoin Grants Stack to manage applications, or create a simple process using Snapshot for voting and a Gnosis Safe for multisig approvals. A grants committee or working group is often tasked with initial review; its members should be respected community members with relevant expertise. For larger grants, a community-wide vote via Snapshot or your governance platform adds legitimacy. All applications, deliberations, and decisions should be documented on a public forum like the DAO's Discourse or Commonwealth channel to ensure transparency.

Sustainability and impact measurement are critical for long-term success. A grants program is not a charity; it's an investment in ecosystem health. Define key performance indicators (KPIs) upfront, such as code commits, user adoption metrics, or generated fee revenue. Require grantees to submit final reports. Many programs, like Compound Grants, include a vesting or clawback clause tied to deliverable completion. To ensure ongoing funding, allocate a specific portion of the DAO treasury or protocol revenue (e.g., a percentage of swap fees) to the grants program. This creates a flywheel effect, where funded projects bring more users and value back to the protocol, which in turn funds more grants.

A grants program is a structured initiative where a protocol, foundation, or DAO allocates capital to fund external projects that contribute to its ecosystem. Unlike venture capital, grants are typically non-dilutive, meaning they don't require equity or token warrants. The primary goal is to incentivize development in strategic areas like core protocol infrastructure, developer tooling, user experience improvements, or research. Before writing a single line of code for an application portal, you must define the program's strategic objectives. Are you aiming to increase Total Value Locked (TVL), grow the developer community, or enhance security? Clear goals will dictate your funding focus, evaluation criteria, and success metrics.

The legal and operational structure of your program is a critical, non-technical prerequisite. You must decide on the governing entity: will it be a traditional foundation (like the Ethereum Foundation), a DAO (like Uniswap or Arbitrum), or a corporate entity? This choice impacts liability, grant disbursement mechanisms, and regulatory compliance. You'll need to establish a multisig wallet or a DAO treasury like Safe (formerly Gnosis Safe) to hold and manage funds. Furthermore, decide on the grant currency—native tokens, stablecoins, or a mix—and plan for the tax implications for both the grantor and grantees in relevant jurisdictions.

With the foundation set, you must design the program's operational framework. This includes creating public documentation that outlines the application process, eligibility criteria, funding tiers (e.g., small builder grants under $10k, milestone-based grants up to $50k, and large ecosystem grants over $100k), and intellectual property (IP) rights. Will you use a standard agreement like the Grants 2.0 Agreement from Open Source Law? You also need to assemble a review committee or working group. This group should include technical experts, community leaders, and potentially external advisors to ensure fair and informed decision-making, avoiding conflicts of interest.

A well-defined program scope acts as a strategic filter. It answers the core questions: What problem are we solving? and Who are we funding? This clarity prevents mission drift and ensures all stakeholders are aligned. For example, a program might focus exclusively on funding zero-knowledge proof tooling for a specific Layer 2, or it could have a broader mandate to support developer education across the entire ecosystem. The scope should be documented in a public charter or handbook, referencing key documents like the Ethereum Foundation's Ecosystem Support Program scope for inspiration.

Your budget is the tangible expression of your scope. It must be realistic, sustainable, and broken down into operational categories. A typical grants budget includes: grant disbursements (the capital awarded to projects), operational costs (compensation for program managers, legal, and marketing), and a contingency reserve (often 10-15% for unexpected opportunities or costs). For instance, a $5M annual program might allocate $4M for grants, $750k for operations, and $250k in reserve. The funding source—whether from a treasury, foundation endowment, or community treasury like a DAO—must also be secured and transparent.

The scope and budget must be calibrated together. A narrow, deep technical scope (e.g., funding formal verification audits for DeFi protocols) will have different budget requirements than a broad, community-focused scope (e.g., funding local meetup groups globally). Use data from past rounds or similar programs to inform your averages. For example, if your goal is to fund 20 early-stage developer tools, and historical data shows such grants average $50,000, your grants disbursement budget line should be at least $1M. This data-driven approach prevents over-commitment and sets clear expectations for applicants.

Finally, define clear funding tracks or categories within your budget. This creates structure for both applicants and reviewers. Common tracks include: Protocol Development (for core infrastructure), Research & Academia, Developer Tooling, and Community & Education. Allocating a fixed percentage or dollar amount to each track, such as dedicating 40% of the grant pool to tooling, ensures strategic resource distribution. This granular planning, documented alongside the scope, is what transforms a grants program from an idea into an executable, impactful initiative.

The first step is defining the application intake process. You must decide on the submission platform—common choices include a custom-built portal, a tool like GitHub Discussions, or specialized platforms like Questbook or Gitcoin Grants Stack. The application form should request essential information: project description, team background, technical roadmap, requested funding amount, and key milestones. Clearly state the eligibility criteria, submission deadlines, and required documentation (e.g., proof-of-concept code, whitepaper) to filter out incomplete or ineligible proposals early.

Once applications are submitted, a triage and review phase begins. Implement an initial screening to check for completeness and basic alignment with your program's focus areas. Qualified applications then move to a formal review, typically conducted by a committee of internal experts and/or external domain specialists. To ensure objectivity, use a standardized scoring rubric. Criteria often include technical feasibility, potential impact on the ecosystem, team competency, and value for money. Tools like Snapshot or Karma can facilitate off-chain voting and feedback aggregation among reviewers.

For high-stakes or complex grants, incorporate a milestone-based funding model. Instead of disbursing the full grant amount upfront, funds are released upon the successful completion and verification of pre-defined deliverables. This mitigates risk for the funding entity. Smart contracts on platforms like Sablier or Superfluid can automate these streaming payments, releasing funds continuously over time or upon milestone approval. This model aligns incentives, as grantees are paid for demonstrated progress.

Transparency is critical for community trust. Publish the review rubric, anonymized application summaries, and final decisions (with rationale) on a public forum or dedicated transparency page. For community-driven programs, consider a multi-stage governance process. This could involve a committee shortlist followed by a final community vote using a tool like Snapshot or Tally. This hybrid approach balances expert assessment with decentralized community sentiment.

Finally, establish a post-grant tracking and support system. Successful grantees should provide regular progress reports against their milestones. Assign a point of contact from your organization to offer technical guidance, networking introductions, and promotional support. This ongoing engagement increases the likelihood of project success and fosters long-term relationships within your ecosystem, turning grantees into advocates and collaborators.

The primary function of a grant review committee is to evaluate proposals against the program's stated goals, technical feasibility, and potential impact. Committee members act as the program's quality gate, ensuring funds are allocated to the most promising projects. A typical committee might include 5-7 individuals with diverse expertise, such as a protocol engineer for technical due diligence, a DeFi researcher for market analysis, a community manager for ecosystem fit, and a legal advisor for compliance. This diversity prevents groupthink and ensures proposals are assessed from multiple critical angles.

To form the committee, start by defining clear selection criteria. Look for individuals with proven domain expertise, a history of constructive contributions to the ecosystem, and no significant conflicts of interest. Many programs, like Optimism's Citizens' House or Arbitrum's Grant Review Committee, publicly announce openings and accept applications. Others, such as Uniswap Grants Program, appoint members through a governance vote. Transparency in the selection process builds trust with the community. Once selected, provide members with a formal charter outlining their responsibilities, decision-making framework (e.g., scoring rubrics), and code of conduct.

Compensation is non-negotiable for a sustainable and professional review process. It recognizes the significant time investment and specialized knowledge required. Compensation models vary: a flat fee per proposal reviewed (e.g., $200-$500), a monthly retainer for a set workload, or a stipend paid in the ecosystem's native token. For example, a committee reviewing 20 proposals a month with a $300 per-proposal fee would represent a $6,000 monthly budget. The compensation should be competitive enough to attract top talent and be publicly disclosed to maintain transparency. Payments are often managed via a multisig wallet or through the program's administrative budget.

Effective committee operation requires robust tools and processes. Use a dedicated platform like Gitcoin Grants Stack, Questbook, or a custom Notion or Airtable workspace to manage submissions, assign reviewers, and track scoring. Implement a blind review process where possible to reduce bias, and require each proposal to be evaluated by at least 2-3 committee members. Establish a clear rubric with weighted categories (e.g., Impact: 40%, Feasibility: 30%, Team: 20%, Community Value: 10%) to standardize scoring. Regular calibration meetings help align scoring standards among reviewers.

Finally, establish clear escalation and conflict-of-interest (COI) policies. Any member with a personal or financial connection to a proposal must recuse themselves from its review. Disputes or appeals should have a documented path, often involving the program lead or an oversight board. Continuously gather feedback from both applicants and committee members to refine the process. Publishing aggregated review summaries (while maintaining applicant anonymity) can provide valuable transparency and help future applicants understand the program's priorities and decision-making criteria.

Milestone-based payout structures are a core mechanism for managing risk and accountability in ecosystem grants. Instead of disbursing funds upfront, grants are released incrementally upon the successful verification of pre-defined deliverables. This model protects the grantor's capital and aligns incentives, ensuring grantees are funded for demonstrated progress. Key components include a clear grant agreement, objective success criteria, a trusted verification process, and a secure, often automated payout mechanism. Platforms like Gitcoin Grants Stack, Questbook, and OpenZeppelin Defender provide frameworks to implement this model.

The first step is defining clear, objective milestones. Each milestone should be a concrete, verifiable deliverable, such as "deploy a verified smart contract to testnet," "achieve 100 active users," or "publish a technical audit report." Avoid vague goals like "make progress" or "build community." Use the SMART criteria (Specific, Measurable, Achievable, Relevant, Time-bound) for each milestone. Document these in the grant agreement, which should also specify the payout amount for each milestone and the total grant value. This clarity prevents disputes and sets clear expectations for both parties.

Automating verification and payouts using smart contracts significantly reduces administrative overhead and enhances trust. A basic escrow contract can hold the total grant funds and release portions when specific conditions are met. For on-chain milestones, verification can be automatic (e.g., a contract checks for a specific transaction or state). For off-chain work (like a research report), you can use a multisig wallet or a decentralized oracle like Chainlink Functions to trigger payouts based on manual attestations. The code snippet below shows a simplified milestone escrow contract structure.

solidityCopy
// Simplified MilestoneEscrow contract example
contract MilestoneEscrow {
    address public grantor;
    address public grantee;
    uint256 public totalGrant;
    uint256 public milestoneCount;
    uint256 public currentMilestone;
    mapping(uint256 => uint256) public milestoneAmount;
    mapping(uint256 => bool) public milestoneCompleted;

    constructor(address _grantee, uint256 _totalGrant) {
        grantor = msg.sender;
        grantee = _grantee;
        totalGrant = _totalGrant;
    }

    function completeMilestone(uint256 _milestoneId) external {
        require(msg.sender == grantor, "Only grantor");
        require(!milestoneCompleted[_milestoneId], "Already completed");
        milestoneCompleted[_milestoneId] = true;
        uint256 amount = milestoneAmount[_milestoneId];
        (bool success, ) = grantee.call{value: amount}("");
        require(success, "Transfer failed");
    }
}

For program scalability, consider using specialized grant management platforms. Gitcoin Grants Stack allows you to create rounds with milestone-based distributions managed by a round manager. Questbook enables the creation of granular grants with tasks and automated payouts via Gnosis Safe. OpenZeppelin Defender can automate admin tasks and secure multisig operations. These tools handle much of the smart contract deployment, UI, and workflow, allowing you to focus on reviewer selection and milestone evaluation. Always conduct a test transaction with a small amount before funding the full grant escrow.

Effective milestone-based programs require ongoing management. Establish a clear communication channel with grantees for progress updates. Use a transparent system for milestone review, whether through a designated committee, community voting, or expert reviewers. After completion, analyze the program's impact: track metrics like funds deployed, milestones achieved, and developer retention. This data is crucial for iterating on your grant framework, attracting higher-quality applicants, and demonstrating the return on investment to your ecosystem's stakeholders.

Begin by formalizing your program's operational framework. This includes publishing the official Request for Proposals (RFP) document detailing focus areas, grant sizes, and evaluation criteria. Establish the legal and financial infrastructure, such as a multi-signature wallet (e.g., using Safe{Wallet}) for fund custody and a clear process for milestone-based disbursements. Tools like Questbook or Gitcoin Grants Stack can streamline application intake and review workflows, reducing administrative overhead from day one.

Next, activate your review committee and define their workflow. Implement a transparent scoring rubric for proposals, assessing criteria like technical feasibility, team experience, and ecosystem impact. Schedule regular review cycles and establish clear communication channels with applicants. For technical grants, require a proof-of-concept or code repository link. Documenting this process publicly, perhaps in a GitHub repository, builds trust and sets clear expectations for all participants.

Finally, plan for post-grant stewardship and program evolution. Successful programs measure outcomes, not just outputs. Track key metrics such as code commits, user adoption, and protocol integrations stemming from funded work. Schedule retrospective reviews with grantees to gather feedback. Use this data to iteratively refine your focus areas and processes. Consider transitioning to a more decentralized, community-driven model over time, potentially using governance token votes to direct future funding rounds.