Everyone needs money, even decentralized open-source projects such as cryptocurrencies, and many have their own way of raising funds for development and other purposes. Litecoin is struggling to find donations to fund ongoing development. Dash is currently undergoing a difficult budget cycle with low turnout due to various technical issues. We can learn a whole lot from looking at the tough month affecting two radically different approaches to funding.
The old premine/rich founder/begging for donations model is showing its limitations
Back at the beginning, Bitcoin off of the enormous potential for the technology it pioneered and the goodwill that came along with it. Other coins without that first-to-market advantage, however, have struggled to find the same wellspring of support, resorting to other methods of finding funding for critical development. A premine or founder’s reward was one such approach, or other circumstances where the creator ends up with a whole lot of money, and can serve as a one-person treasury. Those methods have fallen out of favor (though honestly they were always frowned upon), and now one old-school way is left: hustling for donations.
The problem with the pure donation model, other than the reality that you’ll always be begging for scraps without a rich benefactor, is that it depends on market action or enthusiasm from the community: people who don’t have money don’t give, and the same goes for people who aren’t interested. With the thousands of coins out there right now, and the ten long years that this space has existed, it’s getting harder and harder to capture enough excitement to generate sustainable funding for a large-scale professional cryptocurrency.
Self-funding mechanisms are years old now, but rarely utilized
Now, many years ago Dash developed a self-funding mechanism in the form of the DAO (decentralized autonomous organization) and treasury, and continues to operate this way to this day, with quite a few other projects following its lead. However, treasury coins are still few and far between, with only a handful of the top coins using this funding mechanism. For most of the space, this is still uncharted, ignored territory, and if major players collectively wake up to the genius of being able to fund yourself, they are going to essentially be starting at square one.
Years worth of mistakes have been made, and learned from, on self-funding platforms
What has not been properly appreciated about self-funding coins is that, for the real ones, their development and communities have relied on this functionality for years now. This has led to the best kind of thing happening: mistakes. Errors. Bugs. Failures. Losses. With each passing funding cycle, some new pain point comes to light, and we learn from it: what works, what doesn’t, what’s needed, what potential threat vectors are, and so on. A successful, state-of-the-art governance and funding platform isn’t built on the best technology, but on lessons learned the hard way.
Copy-paste doesn’t work when you skip years worth of lessons learned
The day will come when everyone collectively gets tired of begging for donations and, spurred by some popular pundit’s recommendation, will start deploying self-funding mechanisms, likely a direct copy of previously successful projects. However, they won’t know everything it takes to truly run something like this effectively. They won’t know the different attempts to game the system that are sure to crop up, accountability measures and metrics, participation issues, attack vectors, waste, redundancy, and more. In brief, they will miss out on the wealth of knowledge that comes with making lots of mistakes and learning from them, and will have to start at the beginning and make them all for themselves.
You can keep hanging on to the methods of the past as they get less and less effective, or you can get a head start on the future.