Toward Accountable and Strategic Funding in ENS

Last week, I spent a significant amount of time reviewing all of the Service Provider applications and documenting my interpretations and opinions. That post can be viewed here: ENS Service Provider Program 2: Application Analysis.

Based on that experience, I believe the Service Provider Program in its current form is not a suitable mechanism for allocating significant resources. Instead, I think the ENS DAO should establish a small technical team to oversee how these resources are allocated, with delegates retaining a right of veto over any decisions made.

I believe this would be a better approach because:

• It would minimise overhead for delegates.
• Applications would be reviewed by people with appropriate technical expertise.
• It would reduce conflicts of interest.
• Funding flexibility would mitigate the current ‘all or nothing’ dynamic.
• DAO delegates would maintain ultimate control.

Good Intentions, Flawed in Practice

Avsa has invested a significant amount of time into the development of the Service Provider Program. That, in itself, sets the ENS DAO apart from other DAOs - we have intelligent, passionate participants who are actively trying to build novel mechanisms for funding alternative development teams and improving ENS.

In developing this second iteration, a number of contributors have made real efforts to improve on the first version. The work that the Metagov stewards have done to formalise process has been outstanding.

That said, I’ve raised concerns throughout this process that most applicants haven’t meaningfully engaged with the discussion despite it having a direct impact on their chances of receiving over $300,000 each. In some cases, I believe applicants recognise the process is inefficient and are simply trying their luck.

The process also clearly has significant game-theoretical dynamics implicit in it's design. Budgets have been changed simply because of the mechanism, and many applicants are having back channel conversations to discern what to ask for to optimise their chances. This, in my opinion, is ridiculous - we should be funding teams that will add value to ENS in excess of their cost. A good funding mechanism should not necessitate 'tactics'.

Misaligned Incentives

I’ve spoken to multiple delegates over the past few weeks. Almost all of them say the same thing - this process is overwhelming.

Many are time-poor, unpaid, and juggling multiple governance roles. The SPP adds another layer of work - one that requires significant technical knowledge to evaluate effectively, and yet offers no compensation or incentive to do so properly.

On the flip side, applicants are heavily incentivised. A successful proposal could mean hundreds of thousands of dollars in funding. Naturally, they optimise for what they think will win regardless of whether that aligns with what the DAO actually needs.

This also leads to performative participation. Teams engage just enough to stay visible or maintain relationships with delegates, especially in the weeks and months before the vote.

We shouldn’t be surprised by this. The incentives are misaligned from the start. We should be designing systems that acknowledge this reality and work around it.

A key part of that is proper technical review - the DAO should be making sure that what teams say they’ve done is actually true, and that what they propose to do is something the DAO actually needs.

Information Asymmetry and Overlap

Avsa recently mentioned:

Remember that the program rewards teams not projects and we implicitly trust them to change the project in light of new market conditions.

I note that amongst current applicants we have eight governance applications. Most of those teams are highly technically competent yet their applications have significant crossover.

One significant issue is that non-technical delegates may simply not realise the extent of the crossover - there is an information asymmetry which delegates are not incentivised to resolve.

I believe my own post was the first technical breakdown of the applications, and even that was relatively high level. Yet, without these kinds of deeper review, the program becomes a battle of presentation and positioning rather than substance or merit. My personal impression is that some of the longer applications attempt to obfuscate their lack of substance with their length.

Fundamentally.. we don't need 6 governance platforms. One well-selected and properly managed provider could meet the ecosystem’s needs more effectively. Two, perhaps, for redundancy.

A small salaried team with one explicit role would be well positioned to communicate directly with applicants to discern what sets their application apart.

Evaluation and Accountability

My position on this is simple - it is not accountability if no-one reads it, or cares.

There’s been a lot of discussion over the past year about accountability. Several Service Providers have gone above and beyond what’s required, posting quarterly updates and accountability reports. That’s fantastic but it doesn’t mean much if no one is constructively reviewing them.

Being frank, a number of delegates have said things to me akin to, "There are only three Service Providers that have actually done anything..". A number of these statements were made mid-year. It thus begs the question, why did we keep funding those other six teams? The program allows for the DAO to cancel a stream based on poor performance, yet this power has not been used.

I would argue that this is a culture issue. I believe that the DAO has not created a culture that allows for dissenting or controversial opinion. This is not helped by the social politics involved - I know he/she is not delivering but they are a 'nice person'.

The ENS DAO is, in effect, a business. DAO participants should be incentivised to push for what’s best for the protocol, not what’s best for their relationships. We need a culture where disagreement is not just tolerated, but welcomed. It’s through disagreement and constructive conversation that better outcomes emerge.

In my view, this is part of a broader incentives issue that plagues the blockchain ecosystem. If the ENS DAO wants to set the standard for excellence we need to prioritise culture. We can't simply do the same things and expect different outcomes.

The Two-Year Funding Blind Spot

One of the more obvious omissions in the current program design is the lack of any mechanism for delegates to express a preference between one or two years of funding for returning applicants - this is not a minor detail. A two-year commitment involves vastly different levels of risk and opportunity cost compared to a single year.

A lot of time and energy was spent on allowing delegates to express their opinion on basic vs extended scopes but this issue was not considered. As outlined above, this oversight is likely because people don't have the time or incentives to get knee deep in the fine details of the program. Rather than simply saying 'Oh well', we should pause (yes, again) and develop a program that considers this.

The DAO should be able to say, “We support this team, but only for one year” or “We support them, but not at this scope.” An independent technical panel would be able to flexibly make these decisions on the DAOs behalf.

Conflicts of Interest

Infrastructure

Lighthouse, Blockful, and Agora have each put real effort into building interfaces for the voting process. Their contributions will hopefully help delegates understand a complex system, and I genuinely appreciate the work they’ve done. But all three are also applicants for funding - In my view, this is a clear conflict of interest.

If we’re serious about legitimacy and trust, we have to bake that separation into the process. I believe that a technical body tasked with vetting and managing applicants should be made up of entities with no conflicts of interest - they cannot also be applicants, nor can they hold steward positions etc. In situations like this, they would coordinate the development of this infrastructure with external contractors.

Delegations

It is also worth acknowledging that ENS co-founders and original core contributors have significant token allocations that are disproportionately large when considered in the context of average voter turnout.

Recent delegations have in my opinion in many respects bastardised the integrity of the program and the DAO. There is an obvious conflict of interest when large delegations are made to entities heavily aligned with particular views or applicants.

I would implore anyone doing this or considering doing so to, at the bare minimum, be transparent about why. In my opinion these delegations should be withdrawn noting the precedent it sets - co-founders have allocations that exceed average voter turn out if fully utilised.

"We’ll Fix It Next Round" Isn’t Good Enough

One of the most common refrains I’ve heard throughout this process is some version of “We know it’s not perfect, but we will improve it next time.”

I don’t think that’s good enough.

We’re talking about allocating $4.5 million. These are not small grants. These are in some cases multi-year commitments that may represent the largest single source of funding a team ever receives. The idea that we should treat this as a learning experience and fix things later doesn’t match the scale of what is at stake.

This isn't a new problem either. Many of the issues we’re facing now have plagued the ecosystem for a long time - lack of participation and a general absence of real accountability.

Conclusion

I believe that a good funding mechanism should efficiently and effectively direct funds to areas of genuine need. I believe the program as proposed does not achieve this.

Instead I believe a Technical Review Committee should be established. It should comprise of three independent individuals with a high degree of technical competency. They would be tasked with reviewing proposals and allocating funding. DAO delegates would have a right of veto over any decisions made.

I’d encourage others to share their thoughts and help refine this idea. If you disagree with this proposal or think there’s a better way, I’d love to hear it. The point isn’t to be right - it’s to make sure the DAO it's limited funds efficiently, in a way that’s aligned with its goals.