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DP3: 1Hive Funding Platform #3

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lkngtn opened this Issue Jul 2, 2017 · 36 comments

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@lkngtn

lkngtn commented Jul 2, 2017

Purpose

The 1Hive Funding platform would offer a standardized and accountable crowdfunding dapp on top of a curation market. Similar to Patreon or Kickstarter, an individual or group could champion a project and solicit support from the community to provide funding to bring the idea to market. The platform would support both funding milestones and time-based funding release mechanisms. In addition, early contributors to a project would benefit from the projects future success, so community members have the incentive to find the best projects early and shift their support to those. The result is that quality projects should bubble up and receive the most funding and attention from the community.

The platform would work well for projects that need funding, but do not necessarily have a practical application for a token. It would also work well as a standardized alternative to a traditional ICO, particularly, if a community forms around the project and opts to only fund projects that adopt the 1Hive model for crowdfunding accountability.

In the context of District0x, the funding platform could be used by aspiring district creators to bootstrap their projects. On a macro level, this will accelerate the growth of the District0x network as a whole.

EDIT 7/18 -- I expanded on the larger vision of this proposal as it related to District0x and DNT holders here: https://medium.com/@lkngtn/district0x-feedback-2-building-a-strong-network-effect-d629da10d5f6

Description

1Hive uses the curation market model to incentivize the initial support as well as the long-term success of projects within the community. If you are not already familiar with the concept of curation markets, which the Meme Factory district will be based on, I suggest reading Simon de la Rouviere’s introduction to the model, or the more in depth whitepaper.

In order to adapt the curation market model described in Simon's paper for the purpose of crowdfunding, we need to add some additional functionality. Specifically, we need to ensure that there is a way for both project founders and funders to set clear expectations up front with accountability mechanisms built into the system at the smart-contract level.

If the funding goal for a project is reached, an initial lump sum payment is made to the founder to start development. Any additional funding beyond the fundraising goal is locked into a reserve smart contract and released to the project founder over time subject to a vesting schedule. At any point, funders can opt to exit the project and withdraw their funds proportional to the remaining reserves.

If the community looses faith in a project or team, the reserve will go down and the runway for the project will shrink. If the community is confident in the project, the reserve will grow extending the runway for the project.

luke-sc-2017-07-02-12h-18m-52s

The reserve contract should support holding ETH and any other ERC20 compatible token, including District0x’s native DNT, Aragon’s ANT tokens, planned future tokens like Makers SAI/DAI stable token, or even other 1Hive project tokens. Founders should be able to specify which token should be used for the funding goal, and what the vesting rate is for each accepted token. This allows for founders to work on projects that may be specific to a certain ecosystem and be paid in that communities native token.

Eventually this could be integrated into the planned interface for district creation, such that district founders could easily solicit funding support from the community.

How it would work from a Founders perspective

A founder creates a new project proposal for the community, this contains a description of the project similar to an idea page on Kickstarter. The description would serve as the project’s pitch to the community. At a minimum the project would need to contain the following critical components.

  • The Minimum Fundraising Goal ( This is the smallest amount necessary to reach the an initial milestone and is released as a lump sum)
  • The Time-based Vesting Schedule ( This is the rate at which funds are released to the founder from the reserve)

Once the minimum fundraising goal is achieved, the goal is released as lump sum to the founder and should be used to fund the project.

If there are any remaining tokens in the project reserve contract, they will be slowly released to the project founder based on the vesting schedule determined during project inception. The funds can be used at the discretion of the founder, but should be used to further the goal of the project otherwise the community will lose confidence and empty the reserve contract.

The benefit to founders is the foundation of trust that is earned by using a standardized and accountable platform, which allows them to bypass significant hurdles related to ICO based crowdfunding.

In particular this mechanism works well in cases where the token is necessary for funding, but not strictly necessary for the functionality of the project, IE they are building an application, framework, physical product, or protocol that does not benefit from its own native digital asset.

Its flexibility allows for use-cases closer to Patreon (but with potential future profit sharing through token equity), or kickstarter (where funders can be given additional rewards based on funding tiers).

The tokens are ERC20 and can still be used for governance and be integrated into other services like Aragon that support BYOT (bring your own token) models.

Additionally, due to the standardized nature of the contracts, founders who leverage this process do not need to go through the expensive, and time consuming process of writing and auditing their own Crowdfund contracts, and as more projects utilize the same contract all of the participating projects will benefit from greater regulatory certainty.

How it works from a Funders perspective

A funder while be able to browse the district, search, sort, and discuss projects with the community. If the funder wants to invest or support a project they can buy into it and receive an amount of project tokens. The tokens operate as an equity tracking mechanism tied to the reserve and can be used at any time to exchange back to any token held in the projects reserve contract based on a automated market maker function.

If the funder chooses to exchange through the automated market maker the price will be determined by a formula. This may be something similar to the formula used by Bancor, or a different pricing function, a number of options for this function are described in the Curation Market Whitepaper. The formula that is used for the 1Hive funding platform will be standardized, but the specific formula used will be determined at a later date after testing several options. Likely, experimentation with different market maker formulas could overlap with development of the "Meme Factory" district.

Whichever formula is used will have the property of rewarding earlier investors over later investors, however, there may be an initial window where the formula is ignored in order to find the baseline market price and set the reserve ratio.

The benefit to funders using the platform is that they will have consistent terms that guarantee liquidity and project accountability. It also provides a standardized market driven reward mechanism for identifying quality projects at their earliest stages.

Functional Requirements

The district would leverage the District0x infrastructure that has been built for Ethlance and Meme Factory to provide the bulk of the required interface and functionality. In particular the following components would be necessary for the the project.

  • Ability to post a project with a description including the funding milestones and time-based funding schedule (Ethlance)
  • Ability to Search and Sort posts (Ethlance)
  • Ability to buy into a project or “Meme” with built-in market maker formula (Meme Factory)
  • Ability to Discuss posts (Meme Factory)

In addition to existing infrastructure the following new functionality would be needed.

  • A Smart Contract Vault that stores funding (in the form of ERC20 and ETH) that enables the market maker functionality of the project and manages distribution of funds to the project owner based on the initial funding milestone and time-based vesting schedule.

Uncertainties and Pending Questions

This section describes some uncertainties associated with this project that may need further discussion or research. They do not all need to be decided up front and some may not be possible to decide on until additional testing has been done, or after development on Meme Factory has been completed, but they are listed here for reference.

If additional questions come up in the discussion, they may also be added as line items here to help keep things organized.

  • What market maker formula works best for reserve contracts?
  • What are the regulatory implications for founders using the platform?
  • What are the regulatory implications for District0x or the 1Hive district based on the behavior of founders using the platform?
  • What does the user interface look like for founders and funders?

Technical Clarifications

  • The "Founder" may be a smart contract that represents a DAO rather than individual (perhaps an aragon organization or district0x district).

Final Comments

The 1Hive Funding Platform is a critical component for a project I’m working on (1Hive), but would also benefit the wider community and District0x in particular. If selected I would like to work closely with the team on the development of this district.

Please comment with any feedback or questions you have!

@joeyurgz

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joeyurgz commented Jul 2, 2017

This is fantastic! I am a big fan of this idea and think it would be a great way for us to deploy capital from the district0x ecosystem fund.

@Bradymck

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Bradymck commented Jul 3, 2017

Great write up, I have to say. This district proposal should be merged with the other one from @AngeloAdam. These go hand in hand for project development.

I have been conceptualizing a way to radically decentralize music production to the point the fans are direct owners in a project. Both of these district proposals combined are (In my eyes) exactly the tools needed to make this happen. The tokenization models used in the meme economy could also be utilized to do some really interesting things to dicencentivize "gaming the system".

Great work, very inspirational.

@lkngtn

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lkngtn commented Jul 3, 2017

@mckmuze I agree the combination of all of these decentralized technologies and the novel use-cases they make possible will have a huge impact on so many industries in the coming years. I'd love to hear more about the decentralized music production as I'm very interested in exploring how DAOs and Tokenized communities can share ownership rights to licenses, etc. I don't want to get too off-topic here, but if you want to chat about the decentralized music thing a bit more hit me up on the d0x slack!

@mikehostetler

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mikehostetler commented Jul 3, 2017

Love this concept.

I like how general this seems, because that lends tremendous flexibility, but I also see value in categorizing each type of crowdfunding campaign based on the type of project. Off the top of my head, here's a few basic ones:

  • Individual, time released - It's a smart contract funded employment contract
  • Individual, milestone released - Milestones released based off a consensus protocol from trusted reviewers participating in the project
  • DAO, time released - Smart contract funds released to an Aragorn managed DAO
  • DAO, milestone released - Funds released to an Aragorn managed DAO based off a funder consensus protocol

Each of those 4 categories needs to also contain logic to support profit seeking or non-profit projects. If it is a profit seeking project, you'll run into equity issues so probably best to avoid that. For a profit-seeking project, you could also categorize it as a pre-sale, which is what Kickstarter does, to avoid the equity question.

I could see different districts each existing to focus on these different use cases, which communities growing around each.

I like the mechanism that a project can be fully funded, but canceled mid-project if something isn't achieved. Lets face it, not everything works out and helping to quickly cut losing projects will help create a healthier system. This will need to be managed closely, perhaps a Founder can select the cancelation algorithm (cancel if 75% agree, cancel if 2 milestones missed, three strikes and it's canceled, etc).

@AngeloAdam

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AngeloAdam commented Jul 3, 2017

Along the lines of what @mikehostetler said, I think that a great feature for this would be the ability for the funders to vote, and only upon a certain percentage of the funders approving that a milestone has been met, will funds be released for the next milestones. Releasing funds in stages creates incentive for the project creator to continue working on it.

@lkngtn

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lkngtn commented Jul 3, 2017

@AngeloAdam I totally agree, I actually have something like that written up (though not published or polished) as an additional component for 1Hive. I choose to leave it out of this proposal as I think that creating a good decentralized governance/voting implementation is a project in and of itself and I think there is value that could be realized for the community with this even before that challenge is solved.

But based on some of the initial feedback it sounds like it may be worth polishing that up and including it even if it ends up being implemented in phases?

@simondlr

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simondlr commented Jul 4, 2017

Any additional funding beyond the fundraising goal is locked into a reserve smart contract and released to the project founder over time subject to a vesting schedule. At any point, funders can opt to exit the project and withdraw their funds proportional to the remaining reserves. If the community looses faith in a project or team, the reserve will go down and the runway for the project will shrink. If the community is confident in the project, the reserve will grow extending the runway for the project.

Aaah, this is excellent. 👏🏽. Such a great combination of bootstrapping the raising of funds alongside continuous incentives to remain aligned. Love this @lkngtn!

@RhysLindmark

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RhysLindmark commented Jul 4, 2017

Great to see this kind of work happening in district0x, @lkngtn! I'm exploring MVP's of token-based crowdfunding models through Patreon now (see www.patreon.com/rhyslindmark) and I'd be happy to be an Early Adopter dummy for this project. 👍

@lkngtn

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lkngtn commented Jul 5, 2017

I like the mechanism that a project can be fully funded, but canceled mid-project if something isn't achieved. Lets face it, not everything works out and helping to quickly cut losing projects will help create a healthier system. This will need to be managed closely, perhaps a Founder can select the cancelation algorithm (cancel if 75% agree, cancel if 2 milestones missed, three strikes and it's canceled, etc).

@mikehostetler Hmm, do you mean that if the founder decided to give up on the project he could recommend a cancelation of the project, in which case any remaining reserves would be distributed back to token holders proportional to their share? The vote could be done in the aragon entity, though a founder suggesting a vote like that might cause most people to just use the market maker functionality to get out of the project immediately.

@mikehostetler

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mikehostetler commented Jul 5, 2017

@lkngtn

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lkngtn commented Jul 5, 2017

Exactly - starting projects is easy, quitting them is hard. Personally, I'd value this district more if it made it easier for projects to fail quickly at minimal cost, that will spur more risk taking and innovation.

100% agree.

I think that ideally the initial lump sum funding amount should be a minimum needed to really prove a project or idea, and would love to see additional milestone-driven funding or bounties occur beyond the reserve vesting rate used to further project goals if necessary.

The process certainly should be manage in Aragon via voting.

I think this could definitely work but I'm worried that starting the voting process would just result in a large percentage of funders just exiting the project through the automated market maker functionality and drawing down the reserves. I'm not sure from a practical perspective if the vote offers significant benefit over people simply pulling out of the project after loosing confidence.

@joeyurgz

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Collaborator

joeyurgz commented Jul 11, 2017

Quorum obtained. A 52500 DNT reward will be added to your allocation from the Community Advisor pool. This proposal will be added to the CarbonVote implementation as soon as it is live.

@doamocracy

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doamocracy commented Jul 13, 2017

THIS!!!! I knew if I hung around the slack and on here I would get feel for what the community is about and the potential of these ideas. You are on to something...

@lkngtn

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lkngtn commented Jul 18, 2017

I expanded on the larger vision of this proposal as it related to District0x and DNT holders here: https://medium.com/@lkngtn/district0x-feedback-2-building-a-strong-network-effect-d629da10d5f6

@simondlr

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simondlr commented Jul 26, 2017

Hey Luke. Have you had a look at my curation clubs model? Think it's also an interesting derivation on curation markets to fund and direct development -> https://medium.com/@simondlr/curation-clubs-tokenizing-incentivizing-public-funding-with-curation-markets-276613e641f0

@xibot

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xibot commented Aug 2, 2017

1hive To The Moon! Outstanding!
This is a big step for mankind in the decentralized crowdfunding world!
Awesome!
:)
👍

@jpitts

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jpitts commented Aug 14, 2017

Great concept, and great use of the District0x infrastructure. I strongly recommend adding phases or stages as an intrinsic part of the funding and development process.

Two critical phases -- of use to both to funders and project leaders -- involve need-finding (AKA market research) and due diligence. Properly-conducted need-finding and due diligence need funding too, and creating mechanisms which enable these processes to occur will make a big difference to all participants.

@SpiryMedia

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SpiryMedia commented Aug 26, 2017

Great concept. Trying to figure it out how to vote 💃

@RhysLindmark

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RhysLindmark commented Sep 12, 2017

@Bradymck Can you add "Curation Market" label to this proposal? (I'm not sure if I can could've done this myself.)

Thanks!

@Bradymck

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Bradymck commented Sep 12, 2017

Sure! Done :)

@dahifi

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dahifi commented Oct 4, 2017

Typo correction: should be 'loses': If the community looses faith in a project

@spnjv

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spnjv commented Nov 8, 2017

Highly recommended reading for anyone interested in the project: https://www.sec.gov/rules/final/2015/33-9974.pdf

@lkngtn

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lkngtn commented Nov 8, 2017

Highly recommended reading for anyone interested in the project: https://www.sec.gov/rules/final/2015/33-9974.pdf

Thanks for sharing! I would also recommend reading up on the work of coincenter.org, and in particular checkout this recent presentation: https://coincenter.org/entry/how-do-token-sales-fit-with-securities-regulations

There is still a tremendous amount of uncertainty around what the SEC will and will not consider a security. But sense I get is that if the tokens being issued have immediate utility and are not issued under the pretense that the tokens will appreciate like an investment without further action on the part of the buyer then they are likely not securities.

With that is mind lets look at some of the usecases:

  1. A patreon style community: tokens are immediately used as a curation signal, reserves are gradually transferred to the founder. This seems to be defensible from a securities perspective.
  2. A kickstarter style community: tokens are immediately used as a curation signal, they eventually would be exchanged for the product or service being offered in the future (at a fixed rate), so while the cost per token may increase through the market maker, the value/utility of tokens is expected and communicated as fixed. I think this is also defensible.
  3. A funding platform for DAOs/Districts: this is perhaps the most interesting usecase, and from a securities perspective I think would be on a case by case basis (just as some ICOs are securities and some are not). However, I think in most cases a strong case could be made for these not being securities at all, since the token would have immediate utility both in terms of curation, as well as in governance of the project itself. Since token holders would be governing the project and responsible for its success or failure directly, it should be in pretty defensible territory.

I'm not a lawyer, but have been following the regulation around tokens pretty closely.

Cheers!

@kaidiren

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kaidiren commented Dec 9, 2017

When does it start ?

@neauoire

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neauoire commented Dec 12, 2017

I am so ready for this.

@Bradymck

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Bradymck commented Dec 12, 2017

Be sure to vote for it if you want to see this one first: https://vote.district0x.io/

@neauoire

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neauoire commented Dec 12, 2017

I had to vote through Github, I haven't figured out how to get DNTs into Metamask.

@imdying

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imdying commented Dec 12, 2017

@Bradymck

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Bradymck commented Dec 13, 2017

@neauoire You would need to send to the Eth address in metamask. You can add the contract address to see them as @imdying said but it's not necessary to vote. If you need help adding the contract though ping me in chat: https://district0x.chat

@neauoire

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neauoire commented Dec 13, 2017

Metamask was not working for me last night, it would take the contract address and halt. But, it's working again this morning. 👍

@Bradymck

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Bradymck commented Dec 13, 2017

Awesome, glad to hear

@GriffGreen

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GriffGreen commented Jan 2, 2018

LiquidPledging would be a great starting point for this, definitely consider reaching out and either forking our repo or just building off of giveth when this gets started :-D

@lkngtn

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lkngtn commented Jan 8, 2018

Everyone interested in 1Hive should take a look at Vitalik's recent post on "DAICO" the tap model he proposes is very similar to 1Hive's separation of funds into reserves and discretionary project funds. Check it out here: https://ethresear.ch/t/explanation-of-daicos/465

@leizerbeam

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leizerbeam commented Feb 16, 2018

hi lkngtn - great idea! i was wondering how you were thinking about the business stages after funding. Now that a community/organization has raised funds- what next? how would you propose this decentralized org hire their first employees, get their first marketers, write their first whitepaper etc? I have some ideas around this, would you like to discuss?

@lkngtn

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lkngtn commented Mar 5, 2018

@leizerbeam Definitely lets chat, how can I contact you?

@foldamer

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foldamer commented Apr 5, 2018

@lkngtn we are deploying a collaboration gym concept s2sreactor.com and 1Hive describes pretty much the token enabler we would like. Can we diacuss?

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