Innovating Trust in Web3: Pioneering the Future of Decentralized Fundraising

Hey there fellow adventurers in the realm of decentralized innovation!

Today, I’m here to share my journey of the past month as one of 6 fellows of the ArbitrumDAO Co.Lab. It was a journey through the twists and turns of finding out how to establish trust and evaluating potential within online environments and decentralized ecosystems. So, buckle up and let’s dive into the nitty-gritty of my exploration.

Context of my research:

What brought me into Web3 a few years ago was already the question: How to build a protocol to improve trustworthiness in online environments. Within the fellowship I am investigating in particular the challenges that Decentralized Innovation Funds face in trying to improve funding outcomes and to foster valuable community contributions.

I came up with this problem:

Reputation is a complex topic with countless exciting use cases. The task of formulating a narrow problem statement was therefore a challenge in itself. Which persona, which use case, which aspect of the user journey should I focus on at the beginning? Since I already had a lot of experience with decentralized innovation funds and have even received grants and projects related to reputation, it was only logical to focus first on the program managers and governance leaders of such initiatives.

The result was the following initial problem statement:

I am a Product Owner of a Decentralized Innovation Fund, I am trying to establish the best systems in order to fund and support the best proposals to grow the ecosystem, but it is hard to evaluate the feasibility and potential success of projects, because the decentralized nature of the environment makes it difficult to know what teams and proposals are trustworthy, which makes me feel overwhelmed and frustrated.

I spoke to these people and asked questions:

My research interviews were mainly with program managers and governance leads from Decentralized Innovation Funds, but also with governance leads from DAOs and two CEOs from two different but somewhat related use cases (medical research and journalism).

I divided the conversation into 3 thematic blocks:

• Reveal their main goals, but also the frustrations that plague their ecosystem and shed light on what upsets token holders.
• Explore the complicated dance of recognizing and validating “good” behavior, establishing criteria for promising proposals, tracking the use of funds, and evaluating expertise.
• Deep dive into the world of reputation systems: How can it build trust, combat fraud, and ensure fairness while overcoming implementation hurdles and guarding against bias and manipulation.

What I learned about my customer:

What was interesting to observe is that the terms reputation and reputation protocols have different meanings for different people. For some it’s all about fraud protection, for others it’s about finding ways to reward contribution and for others it’s about reviewing and validating past activities. Caution is therefore required when using the term, as it must be set in the right context.

The typical program manager has their own vision of what a best-in-class decentralized innovation fund looks like and it is almost a passion to find innovative ways to ensure the best outcomes. Most of them go their own way first. But many are starting to pay more and more attention to what others are doing, because it is a very challenging topic overall. This means that we are moving in a very fast and experimental space.

A reputation system that independently shows who has proven to be beneficial for the ecosystem is firstly just a by-product for everyone striving to build a dynamic and innovative ecosystem. But a very necessary one, because without it, the main goal cannot be achieved.

What I learned about reputation:

The importance of reputation is evident in various aspects of building healthy communities and incentivizing positive behavior. All participants say that it helps to recognize impactful contributions, power users or the quality of proposals and teams. Reputation also ensures the integrity of research. It plays a role in governance systems by providing more opportunities for small token holders and long-term contributors. Reputation helps to understand the reliability of content and supports the selection of the right content as data production increases through AI.

What I learned about the problem:

As I have been dealing with the topic of reputation for years, I already had a certain idea of what the solution should look like. The challenge was to go back several steps and listen carefully to the actual tangible challenges and problems of the program managers, but also of the token holders who form the community. It was important for me to look for things that they all have in common and also to discover patterns that different use cases such as DAOs, research and journalism have in common.

And indeed, I came across something:

One manager said that he has a problem with Proposal’s reviews. It is an open system, i.e. everyone can review proposals. However, the large number of reviews is not meaningful or even misleading. A reliable system has not yet been established.

Another said that there is already a good system for submitting milestones of proposals. But an independent and reliable review does not yet take place in most cases.

One community manager said that he finds it difficult to identify impactful contributions.

The managers from other industries also had their challenges: In decentralized journalism, there is the difficulty of assessing the quality and credibility of contributions and contributors. And in research, the integrity of peer reviews is a challenge.

What do all these cases have in common?

The reviewing process or in other words the validation and evaluation of contributions like proposals, reviews, milestones or articles is not just a challenge. Almost every decentralized organization has really big difficulties here.

How did it change my vision:

In fact, the research I’ve done so far has affected my vision and the focus of my work. Today, I am even tending to change the term from reputation system to review system.

It became clear through the findings from previous discussions that many programs and organizations have difficulty validating contributions and proposals. Therefore, in further discussions and research, I will focus more on reputation in relation to the review processes. Which means: How can a reputation system help to better validate contributions and deliverables and better evaluate proposals and reviews.

Where I am standing now — my new problem statement:

I am a Program Manager of a Decentralized Innovation Fund, I am trying to lay the ground for a vibrant and innovative ecosystem by funding the best proposals and incentivizing beneficial contributions, but it is hard to trust the evaluations of proposals, reviews, deliverables and contributions, because the integrity and objectivity of the evaluation cannot be reliably verified, which makes me feel overwhelmed and frustrated.

Wrap-up:

Overall, I was amazed at how many good concepts and approaches are already in circulation. But I also felt confirmed that there is not yet one perfect solution and that a lot of experimentation is still required. Such complex systems are not created in theory, they have to be tested, refined and developed in practice with real data. In general, I found everyone I spoke to be very open, interested and curious about my questions and subsequently also about my approaches and ideas.

And there you have it, folks! A glimpse into my journey through the labyrinth of decentralized innovation.