---

Securing Digital Rights for Communities (Game Theory and Governance of Scalable Blockchains for Use in Digital Network States)

Chapter 23. A New Model for Startup Funding

A practical way to fund a project without compromising to Venture Capital or other centralising forces

Introduction

Many blockchain projects seek funding by selling a large portion of tokens (pre-mines, ICO's) or partnering with venture capital. This often results in centralisation and misaligned incentives between community members and founders and early venture capitalist investors. A more decentralised approach is possible, which we will detail in this following chapter. It should be noted that this is not the only way, and is just detailed as follows as a suggested way to create more decentralised projects with fewer conflicts of interest and centralising stakes or security risks. That method is to obtain funding from an existing, demonstrably decentralised DAO community, drop "miner or governance tokens" to its community, and let participants earn governance tokens by running infrastructure or otherwise contributing. This model avoids early venture capital, preserves a fair launch, and vastly improves the likelihood of achieving true decentralisation when compared to traditional crypto project funding that use pre-seeds, early investor stakes, pre-mines and ICO's.

23.1 DAO, Miner Tokens, and Fixed-Governance Supply

DAO Funding:

A community DAO (decentralised, with no single owner) can vote to fund your project over a set period. If you prove the project benefits that DAO's ecosystem, you receive an ongoing allocation. No venture capital or private deals are required.

Miner Tokens Instead of Pre-Mines:

Instead of distributing governance tokens directly, you drop a miner token to the DAO's community. Anyone claiming and staking these miner tokens can run infrastructure (storage nodes, validation nodes, etc.) to earn the system's governance token over time.

Controlled Supply and Inflation:

• Build Phase: Governance-token minting schedule is set to a minimum feasible amount in order to discourage massive speculative gains and over-rewarding of "early adopters".
• Maturity Phase: Once the system matures, the community members which have earned governance tokens by operating infrastructure (often at a loss during the build phase) can vote to raise the token minting schedule to normal levels, allowing wider participation and adoption during the maturity phase.
• Sustainability Phase: After several years and once the project is well established, having reached network effect, the new token minting may taper to a much lower, long-term, long tail sustainable rate.

Self-Funding Through the DAO:

The startup team relies on DAO proposals for funding while completing the initial build. Once the core is stable, the newly launched project can develop its own internal DAO over time, funded by a portion of its daily minted governance-tokens. The community, not a founder, then decides how ongoing maintenance or development is financed.

23.2 liquidity and Value Through Miner Tokens

• Autonomous Purchase: Anyone wanting to run infrastructure (and thus earn governance tokens) must acquire miner tokens. This can be done by claiming an airdrop, receiving them from the DAO community, or buying from individuals who already have them.
• Staking and Infrastructure: Once staked, miner tokens grant mining efficiency. i.e. all other things equal, an infrastructure operator mining with the same equipment but staking more miner tokens than others, would earn a higher share of governance token rewards than their peers. This aligns incentives with participants who truly support the network with real infrastructure and have paid into the network by buying miner tokens.
• Service Infrastructure Pools (SIP's): A related model can create an autonomous liquidity pool for these miner tokens. When new infrastructure operators buy miner tokens, the funds remain in the pool, benefiting the community by creating self-sustaining liquidity for the ecosystem in exchange for the miner tokens it issues.

23.3 Starting a Decentralised Project

1. Find a Neutral DAO:

   Ideally, this DAO is widely distributed with no single controlling whale. Propose your project, outlining how it benefits that community. If funded, the community avoids pre-mines and having to do corporate deals.

2. Drop Miner Tokens:

   • Purpose: Dropping the main governance token to everyone can lead to poor incentives. Miner tokens let only those who truly want to participate (by running infrastructure or delegating) acquire the real governance token.
   • Low Early New Token Minting: Keep governance-token inflation minimal in the initial build phase. Early participants gain influence, but not an outsized supply.
   • Ramp Up Later: Once the technology is proven, the community can vote to increase token minting, letting new contributors earn tokens and preventing early insiders from dominating.

3. No Founder Pre-Mines:

   Since the DAO funds your work, you do not need to give yourself or your team a large initial stake. All token allocations occur through mining, staking, or DAO proposals. This eliminates the usual "team or founder tokens" problem and fosters broader trust.

4. Distribute and Validate:

   • Encourage many accounts to claim miner tokens.
   • Let them stake miner tokens or run infrastructure nodes to acquire governance tokens.
   • Monitor distribution: if a single account accumulates too much, initiate community-driven remedies early on in development to maintain a wide token distribution and decentralisation of the network.

23.4 Key Advantages

• Fair, Low-Value Start: By keeping token issuance under the radar at first, you avoid hype-driven pump-and-dumps. Tokens slowly gain value organically as the network utility grows instead of purely via speculative investments.
• Aligned Incentives: Those who run infrastructure or actively contribute earn governance power. There is no venture capital or early founder dump. Everyone starts from zero.
• Voluntary Team Building: Without a massive pre-mine for a small group, talented community members step up voluntarily. People who see long-term potential contribute, rather than working as employees of a central entity.
• DAO-Based Accountability: The community can stop funding if milestones are missed. It can monitor distribution, reject bad actors, and ensure the project remains neutral and widely owned.
• Post-Launch DAO: Eventually, the new network forms its own internal DAO. The startup team can propose further work be funded by this new DAY, but only receives funding if governance stakeholders of the new system approve. This sustains development without centralising ownership.

23.5 Example: SPK Network on the Hive Blockchain

• Hive DAO Funding: The Hive community voted to fund SPK Network, which aims to provide decentralised off-chain storage (video, large files).
• Miner-Token Drop: Hive users could claim SPK miner tokens. Those who believed in the project participated and ran infrastructure, while uninterested users simply ignored the claim drop.
• Build Phase: Newly minted Governance token amounts remained low at first while the project was built out, preventing an unfair early grab by early adopters. Community trust and decentralised ownership grew gradually.
• Long-Term Vision: Once stable and utility is demonstrated, SPK Network can create its own DAO. Ongoing funding decisions will again be subject to decentralised votes, not founder mandates.

This approach kept SPK from needing an ICO or a venture round. No founder gained a massive token allocation. In turn, the community remains motivated, the distribution is healthier, and the final platform is more censorship-resistant.

23.6 Best Practices and Takeaways

• Avoid ICO's and Pre-Mines: Receiving or directing tokens on day one will centralise the chain, making it susceptible to regulation, securities laws and corruption, as well as misaligning the incentives of the founders and the community
• Find a neutral, decentralised DAO Dropping value to such communities means that one central stakeholder or entity will not control the governance of the system you are building
• Drop miner tokens to the DAO community: Having to stake these tokens and provide a service in order to mine governance tokens, means only those who are interested in the project and also provide genuine value to it will have influence over the governance of the new ecosystem being developed
• Monitor for genuine decentralisation: Once the miner tokens are dropped and governance tokens are being distributed, the system can be monitored for strong distribution of tokens, nodes and governance stakeholders. If this tends to centralisation, the community can take mitigating actions.
• limiting influence of early adopters: starting with a very small governance token inflation initially during the build phase, ramping up inflation once the system goes live and normal operation takes hold and finally moving to a limited long tail minting schedule after several years of operation allows the system to adequately reward its value creators while keeping fees low or at zero into the long term.