This article originally appeared in the Bankless newsletter here.

Anyone who has spent time deeply immersed in DAOs certainly knows that efficient and impactful capital allocation is one of the greatest challenges these organizations face. During the long bull run, there was little focus on smart treasury management, but as the bear market continues to keep crypto in hibernation (with signs of spring abounding!), DAOs must rethink their funding models.

Among the issues with current models are that there is little flexibility as to how proposals are submitted and reviewed, reviewers don’t tend to be subject-matter experts, and funding workstreams are often a DAO’s most centralized point of administration and can be rigid in the application of their rules and policies.

These funding practices can make it challenging for those tasked with funding projects, and stressful for project leaders who just want to launch an initiative they believe can benefit the community. DAOs need a way to allocate capital to projects that is both efficient and responsive to the needs of builders and the community, and that’s why Gitcoin built Allo.

Allo is an on-chain platform that allows DAOs to run a number of different types of grants rounds, from seed and seasonal rounds to Quadratic Funding and retroactive funding rounds. This week’s editorial, written by members of the Gitcoin team, illustrates why Gitcoin believes that “[u]sing Allo to solve the problem of efficient allocation of a community’s capital will unlock contributor potential in ways no one can currently imagine, ensuring capital gets into the hands of the right builders.” 🥰

This week’s DAO Spotlight focuses on Rocket Pool Oracle DAO, a select group of Rocket Pool node operators who help manage the administrative functions of the decentralized staking protocol. And we conclude, as always, with a TL;DR of some of the most recent DAO ecosystem takes and thought pieces, making it easy for you to cut through the noise and learn everything you need to know about the current state of the DAOs.

Funding Public Goods DAOs With Allo Protocol

Empowering Communities Through Responsive Allocation

Image credit: Tonytad

If you’ve been following Gitcoin, you’ve probably seen a variety of announcements coming out about Grants 2.0, the Grants Stack, and this thing called Allo. Our tagline at ETHDenver was, “Gitcoin is evolving.” There are practical reasons for this evolution. Vitalik Buterin called Gitcoin a central pillar of the Ethereum ecosystem. But after going through a quick rollercoaster of emotions — excitement, anxiety, joy — we looked at our AWS bill and realized we were overdue for some technical changes.

We also knew that Gitcoin could be more than Quadratic Funding and the Gitcoin Ecosystem rounds we know and love. We’ve distributed more than $50 million through our grants program, with an estimated global financial impact of $29.2 billion. We also distributed $41,500 to small businesses in Boulder, CO as part of the city’s COVID relief program. Past Gitcoin grantees include names like Uniswap, Optimism, and Dune Analytics. They also include Kotani Pay, Somleng, and AEDES from our round with UNICEF Innovate.

All that is to say: there’s something bigger happening here.

What Keeps Communities From Growing

Let’s take a big step back and re-examine how crypto has helped communities form and grow.

Crypto has proven to be an extremely effective tool for forming communities — bringing people together around a shared mission and pool of resources. ConstitutionDAO, Krause House, CityDAO, LinksDAO — all of these organizations raised vast sums of capital directly from their communities to help fulfill the purpose of their organization: buy a copy of the U.S. Constitution, a professional basketball team, fiat-space real estate, and a golf course. Not to say these were perfect cases, but it’s pretty remarkable to think that a DAO now owns a golf course.

Once a community has formed, crypto gives them a great set of tools for keeping community resources secure. Tally, Snapshot, Safe, and Governor Bravo help keep community resources SAFU, but anyone who’s run a large web3 organization knows there’s something missing. Why does it sometimes feel so hard to unlock members of a community towards goals they want to achieve? When it happens, it feels like catching lightning in a bottle: The BoysClub Zine took over Twitter the same weekend as the SVB banking crisis and SXSW.

As a community member, why is it so hard to just do the thing that you’re really excited about doing for your community? You come into a community full of excitement about their mission, you have a great idea to move the mission forward, and have to grind away at figuring out who has the budget to support your project. You just want to make great art, but what’s a little bureaucratic gaslighting among friends?

Allocation: The Missing Piece

In their current form, tokenized communities can’t reliably make progress towards their missions because there is one really important piece missing: there’s no meaningful way to allocate capital. Current governance systems are designed to keep capital safe, which serves a very different purpose from smartly deploying capital to fulfill a mission. What’s needed is an ecosystem of on-chain tools for allocating capital towards the things we care about. This is the next evolution of Gitcoin and the purpose of the Allo Protocol.

We see early signs of this in two places. First, the Airtable- or Notion-based grants programs that have sprung up in some larger communities, like Lens and Aave. These siphon off a portion of capital into a multisig and make it available through small grants. Second, Nouns has created the most marvelous fork of Governor Bravo that lets them run funding rounds. While the daily auction mechanism is a great innovation, the success of Nouns really comes back to how easy it is for an excited builder to get funding.

Allo Protocol (and the Grants Stack) will let anyone run a Gitcoin-style Quadratic Funding (QF) round, but it can do so much more than that. Create multiple pathways for community funding: a small grants program to seed new ideas and a quarterly QF round to fund and signal the importance of them. Integrate Allo directly into your existing protocol to reward a certain behavior (i.e. minting) and create an alternative incentive structure to staking rewards. Allo makes all of this and more possible.

Before we go any further, it’s important to clarify the distinction between Allo and the Grants Stack. Gitcoin built Grants Stack on top of the underlying Allo Protocol. We see the Grants Stack as an important tool for web3 grants-giving organizations, of which there are hundreds. We built Grants Stack to have three separate portions: one for builders, one for program managers, and another for donors. We predict that community-driven decision making using Grants Stack will soon go much further than just web3 grants programs.

In the Grants Stack current form, we’ve only built out the portion where people can use it to do Quadratic Funding, but fear not because we’ll be bringing Direct Grants and Quadratic Voting to the platform later this year. This increased functionality will enable communities even further.

Allo and Your Community

The key to Allo is its ability to help communities make decisions about capital allocation. Now that it’s easy to do on-chain, we expect that communities will develop many ways to fund projects within their ecosystem.

To drive the point home, let’s take a community like BanklessDAO as an example to explore four different funding models available through Allo:

1. Seed Round: A small grants program that seeds new media initiatives. If someone wants to launch a podcast solely focused on web3 and the upcoming presidential election in the United States, they’d apply here to get started.

2. Accelerator Round: An accelerator round meant for new media initiatives that are off the ground and in a growth stage. Grants in this program are larger and paid out in milestones. The team working on the election podcast applies and is awarded a grant to scale the work they’re doing.

3. Quadratic Funding Round: A Quadratic Funding round to signal community interest and distribute advertiser funding. In addition to being able to directly sponsor initiatives, advertisers can put funds into a pool that is matched by the DAO. The community then votes in a QF round each quarter to determine how the pool should be distributed. That election podcast is a grantee in this QF round and receives a large portion of funding, which allows them to continue working and now become self-sustaining.

4. Retroactive Quadratic Funding Round: A Quadratic Funding round to retroactively award driving growth of the overall Bankless brand. Let’s say all the Bankless media initiatives are published to a platform that enables minting of each piece of media, whether that’s a newsletter or a podcast. At the end of each quarter, all that minting data is used in a QF round to retroactively distribute a pool of funds. Assuming the election podcast went viral a few times and those episodes minted out and introduced a lot of new people to web3, accordingly, the election podcast team will be awarded a large grant in this round.

Here we have four different kinds of grants programs, funding different kinds of projects, in different ways — a plurality of funding mechanisms within a community.

There are two things here that are valuable to the Bankless community. First, Allo is interoperable with existing on-chain governance systems. So, the community can vote to allocate grant funds into a Safe where a committee controls how it is distributed in rounds or the proposal encodes all of the specific variables for who operates the round and what the parameters are for it. Second, because these grants programs all happen on-chain and within the Allo protocol, they’re fully auditable and transparent (not hidden in an Airtable somewhere).

Allo Empowers Communities

Through conversations with Gitcoin’s partners, it’s become evident that Allo is a much-needed tool in the web3 ecosystem. Using Allo to solve the problem of efficient allocation of a community’s capital will unlock contributor potential in ways no one can currently imagine, ensuring capital gets into the hands of the right builders. And we’ll be here enabling it. Empowering communities and the individuals within them is why Gitcoin exists, and we’re excited to help enable the future of grants funding.