Community pools, also known as community treasury funds, are funds on-chain that a core team sets aside when determining their token’s distribution. This funding is dedicated to stimulating development and promoting the adoption of the chain. These on-chain treasury funds have not always existed in the history of blockchain although, they are now commonplace on protocols’ paths to decentralization.
Purpose of Community Funding
Community funds are held on-chain and controlled by on-chain governance. One of the earliest forms of on-chain funding was Decred. 10% of the block rewards went to a development fund.
Today, community pools are funded through inflationary funding and may have additional sources of continual funding.
The main reason for including an on-chain community pool or treasury fund is to incentivize others in the industry to make meaningful contributions to the protocol. Improvements to protocols increase the overall value of a network. This kind of funding enables people to remain anonymous, work for themselves, or moonlight as a contributor but still create value for the network.
When a team designs their token economics while addressing the inflationary aspects of the token, they set aside some of that funding for the founding team (like equity), other stakeholders (like foundations), and block rewards. Usually, the team can also set aside some funding for an on-chain community pool. As time goes on and more tokens are minted in accordance with an inflationary schedule, more tokens will be minted and added into the community pool.
Anyone can submit a governance proposal and request community funding. Token holders, who can vote in on-chain governance, can approve or reject this funding. In the case of the Cosmos SDK, the distribution module responsible for collecting fees and distributing them to validators and delegators is the same mechanism that will define the community pool.
Some community pools are funded through on-chain mechanisms. Terra’s community pool used to be funded with seigniorage. Seigniorage comes from the value of the coin minus the cost of production. After minting a token, there’s some monetary value left over – that got sent to the community pool to help fill it. With Columbus-5, Terra no longer does this. Terra stopped doing this because their treasury pool had gotten so large that they were diluting the supply of the network’s token by adding to the community pool. Not enough individuals were applying for on-chain funding, so none of that supply ended up going back into circulation by funding independent projects.
On-chain treasury funds are dedicated to bootstrap development, pay contributors, and foster growth on the network. They work alongside foundation grant programs that can be more particular in the projects that they fund. Community Pools can be indiscriminate with their funding.
Community Pool Use Cases
In the Cosmos Ecosystem, protocols deploy community funding for various purposes.
Terra has a robust community fund that the community often uses to spur the development of projects building with the stablecoin or increase the protocol’s adoption. Terra recently approved a community funding proposal to sponsor the Washington Nationals baseball team. Terraform Labs requested 40 Million dollars to introduce signage, provide advertising, and have rooms named after the protocol.
Secret launched a committee structure in May of 2021. A committee applies for community funding from the community pool treasury every three months. Committees apply for funding for projects they’ll undertake in the next three months, a discretionary fund, and compensation for their committees. The business development committee was the first to receive on-chain funding from the community pool. Since then, Secret has added eight other committees dedicated to governance, international growth, design, and data (among others).
Overall, on-chain funding is on the roadmap for protocols to decentralize their protocol. On-chain treasury funds are underutilized. Part of the reason behind these un-used treasury funding is attention. Current builders in the space are focused on protocols of interest to them. As more people gain skills to develop with blockchains and smart contracts, and more chains need to employ lawyers, accountants, and organizers, stakeholders can gain the confidence to contribute to the protocols actively.
But the truth is, anyone can contribute to a protocol. Networks need people to manage and bolster social presences, coordinate between node operators and the core team, and write and translate documentation. There is so much opportunity for everyone by submitting a proposal for on-chain funding – all you have to do is ask for it.
