Why contests are better than grants for a healthy crypto community
A crypto project is a lot like a startup in that it requires a big pool of capital to get off the ground. How do projects get that capital?
ICOs were one way for projects to raise cash, but it turned out that regulators didn’t like them very much. Also, many ICOs ended up offering pretty bad returns to people who invested in them.
Aside from ICOs, crypto teams can raise seed money from VC firms like Pantera capital, and lots of projects get funded like this.
Another way to get funding is with crypto grants. When a team receives a crypto grant they don’t have to pay back the money or give up equity in their company to a VC firm, and because of these generous terms, crypto grants are quite popular.
However, is there a better way?
In this article we’ll look at crypto contests and why they could be a better way to distribute capital than crypto grants.
What is a crypto contest?
A crypto contest is a new way to give money to a crypto project. The money is given away with no expectation that it will be paid back, nor is the winner of a crypto contest expected to give up equity in their company.
The difference between crypto grants and a crypto contest is how the winner is chosen.
With crypto grants, a small group of people chooses who gets the money. For example, the Ethereum Foundation (EF) gives out lots of grants to Ethereum developers, however, only a select group of people have a say in which projects receive funding.
A crypto contest changes this structure so that the community has a say in who gets the money. Similar to a grant, the organization that’s giving away the money sets up the contest. However, the organization is then obliged to fund the contest winner, even if they don't agree with the choice.
Here’s how a crypto contest works.
- An organization, like the Ethereum Foundation, allocates a pool of money for a specific purpose. For example, $250,000 for a team to build an interoperable layer 2 scaling solution.
- That organization creates a contest. For example, finding the most elegant solution to a bug in a smart contract.
- Anyone can participate in the contest by submitting their solution to the smart contract bug.
- The contest winner is determined by community voting.
- The funds are awarded to the contest winner.
Contests vs. Grants
One of the problems with crypto grants is familiarity bias. The committee responsible for choosing who receives the grant may be biased towards giving the money to developers or groups of developers that they’re already familiar with.
These pre-existing connections make it harder for an unknown developer to win a crypto grant, especially considering how much competition there is.
Crypto grants can also dissuade people from applying because of how much paperwork they require. The official application process can be daunting to someone without credentials, or for non-native English speakers.
Crypto contests do away with the official paperwork and instead focus on skill. Who can prove that they’re the most talented developer? Crypto contests can identify the person(s) with the most skill, not the team with the most credentials.
How do contests help to make a crypto community healthier?
Crypto contests give the community a bigger say in who receives the money. Contests are held in public and participants publish their results for everyone to see.
Since crypto contests are transparent, community members can vote for which team they think should win the contest. The award isn’t based on how well a team can present itself on paper, but on how well a team can do in an actual contest.
Community members who vote for contest winners are more likely to take an interest in the project, which leads to a healthier ecosystem with more participation from everyone.
What can contests be used for?
Crypto contests can be used anytime an organization has a sum of money that they want to award to a developer for a specific purpose, such as:
- Creating scaling solutions to increase transactions per second and reduce fees
- Developing new dapps for just about any purpose
- Building new interoperability standards, like WBTC on Ethereum
There’s really no limit to what crypto contests can be used for.
Projects that are Using Contests Today
Free TON is one of the few projects that’s currently using crypto contests instead of grants. Given the advantages of crypto contests though, there’s a good chance that other large organizations will start using them in the future.
Another form of crypto contest is bug bounty hunting, which most good projects engage in. The more bugs and coding issues a person can find, the more crypto rewards they receive in return.
The Final Advantage
One final benefit of crypto contests is how quickly they can disperse funds. With a crypto grant, a committee has to filter all of the applications, debate the pros and cons and eventually award the money. The entire process can take months.
Crypto contests are much quicker. The contest takes place, the community votes on the results and once a winner is chosen the money can be dispersed immediately. In crypto land, where one day equals a week in the traditional markets, time is of the essence.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.