A Better Way to Distribute Crypto Ecosystem Grants

The blockchain ecosystem today stands at a crossroads. It's an industry built on the backs of those who work relentlessly to create the future of finance, identity and more. However, it's also a space where recent financial constraints have pushed many stakeholders and businesses to exit prematurely.

Tim Haldorsson is the founder and CEO of Lunar Strategy.

The long-term sustainability of this ecosystem may depend on one crucial lifeline: crypto grants. These initiatives already play a pivotal role in providing the necessary resources to Web3 builders, especially during bear markets when liquidity is scarce.

However, while the idea of non-dilutive funding is noble, things are rarely so black-and-white in practice. There are points of friction affecting the smooth facilitation of crypto grants, and potential ways to improve this crucial flow of capital.

To understand the urgency of fair crypto grant distribution, we must first acknowledge the liquidity crunch currently affecting the blockchain ecosystem. Numbers don't lie, there is a significant financial squeeze pressing on the crypto space, affecting how firms plan to grow, hire and invest.

Over $500 million was pulled from crypto asset funds this summer, a resounding blow to the available capital for Web3 startups that has sent ripples of uncertainty throughout the industry. What's more, venture capitalist involvement in the blockchain space has been on a decline for seven consecutive quarters since its peak in Q4 2021.

See also: AI Is Killing Crypto Venture Capital Interest 

The result? Layoffs and downsizing have become increasingly commonplace as Web3 projects struggle to navigate the choppy waters of a bear market with limited resources.

In the face of these difficulties, one ray of hope has emerged: crypto grants. Organizations like Dfinity (ICP), 1inch, Uniswap Foundation, Near, Aave, the Solana Foundation and others have recognized the importance of supporting builders in the Web3 space even in the face of harsh market conditions.

These grant programs act as a buffer against the economic constraints that have caused many crypto startups to fold. They offer a level of financial security that can make all the difference for promising projects, enabling them to continually thrive, innovate and contribute to the ecosystem.

In essence, crypto grants provide an invaluable lifeline for Web3 builders, helping to ensure job security for the professionals in the space who keep the wheels turning behind the scenes.

However, it's not all smooth sailing in the world of crypto grants. A major challenge lies in the politics that sometimes affect the grant-awarding process. It’s not unheard of for insiders or well-connected individuals to be favoured over a purely merit-based system. This directly results in a less-than-optimal distribution of resources and, in some cases, negative consequences for stakeholders.

When insiders hold sway in the distribution of crypto grants, it can lead to situations where projects with immense potential falter. The native tokens of these projects might be dumped in the process of backdoor dealings, leading to a loss of value for investors and contributors. This opacity can also lead to promising products and services meeting an untimely end to their life cycles.

Suffice to say, it’s an unsavoury situation that not only affects the immediate stakeholders but also erodes trust in the entire grant ecosystem. So, what is the way forward?

In order to ensure the sustained growth and inclusivity of the Web3 ecosystem, it's imperative that we address these challenges. Grant appraisal and awarding processes should be well-documented, transparent and subject to rigorous oversight to ensure legal compliance at every stage.

A commitment to transparency is paramount to creating a level playing field and safeguarding against any unethical practices that can impact the ecosystem negatively.

The significance of fair distribution of funds and other resources cannot be overstated. When crypto grants are awarded based on merit, rather than favouritism, the entire industry wins, rather than a select group of players.

Fair distribution also attracts more talent and discerning investment to the crypto space. Consequently, innovation becomes more robust, there is more room for diversity and the likelihood of breakthrough projects emerging increases.

In our quest for fairness, it's also important to look beyond borders. The globalisation of crypto grant funding can have a profound impact on the Web3 ecosystem. Supporting projects across multiple regions globally is not just an act of goodwill; it's a strategic move that aids the uniform development of the Web3 ecosystem.

See also: Creating a Sustainable Blockchain Ecosystem with Public Goods and Staking

By providing support at both localized and regional levels, we can make a substantial impact in underserved areas with tremendous growth potential. This can effectively bridge the gap between developed and emerging markets while encouraging a diverse range of voices and perspectives to contribute to the Web3 narrative, ensuring that no one is left behind.

Crypto grant programs give builders the security and confidence to keep plodding ahead despite the financial turmoil of a bear market. However, to truly unlock their potential, we must prioritize fairness, transparency and global cooperation.

By addressing inconsistencies in grant distribution, emphasizing merit-based awards, and providing support on a global scale, we can ensure that the Web3 ecosystem continues to evolve, thrive and ultimately fulfil its promise of a more decentralized and inclusive future for all.

Crypto grants should not be a privilege reserved for a select few but a resource accessible to all. The time has come to embrace these principles wholeheartedly and work together to distribute crypto ecosystem grants fairly, for the benefit of builders, stakeholders and the entire Web3 community.