Funding Strategy 2024/25

Funding strategy considerations

This funding strategy outlines the allocation of the Tangle Treasury budget for the 2024/25 term. To ensure feasibility and acceptance by the Shimmer and IOTA communities, the strategy takes into account the following key aspects:

• Budget constraints
• Legal constraints (non-profit, previous contracts)
• Needs and wishes of the IOTA/Shimmer communities
• Learnings from the first year of treasury activity

Budget constraints:

Total budget at the start of the term:

• IOTA Treasury: $1,400,000 (8.37 million IOTA token)
• Shimmer Treasury: $130,000 (~22 million SMR tokens and various other crypto-assets as well as reimbursements worth $44,000 from the IOTA treasury)

Expected overhead costs (salaries, legal, services):

• IOTA Treasury: $300,000 ($25,000 per month)
• Shimmer Treasury: $50,000 ($4,000 per month)

Expected budget left for grant funding:

• IOTA Treasury: $1,100,000 ($92,000 per month)
• Shimmer Treasury: $80,000 ($6,700 per month)

Legal constraints:

The TCT must operate within the following legal constraints:

• Non-profit activity requirements:
• Not aiming for profit
• Not sharing any profits
• Not benefiting the members/staff apart from salaries
• No banking-like services i.e. holding assets or trading on behalf of others
• Compliance with AML/CFT regulations:
  - No business with entities whose status is prohibited (they appear on governmental sanction lists etc.)
  - No business with entities in complex geographic regions where AML/CFT would be ambigious

Community Needs and Preferences:

To ensure the strategy aligns with community expectations, continuous engagement with the IOTA and Shimmer communities will be maintained through:

• Social media platforms like Twitter/X, Discord, and Reddit
• Public meetings and AMAs
• Personal contacts within the community

Learnings from the first year:

The TCT committee is dedicated to continuously improving funding processes and decisions. At the beginning of the new term 2024/25, the previous team met to discuss all grants approved in the previous term. The major learnings that emerged from these discussions include:

• Developer-experience proposals: proposals for developer libraries, SDKs and similar projects only make sense if the underlying technology/codebase is extremely stable and not expected to undergo any major changes in the foreseeable future. Estimating the stability of a specific IOTA/Shimmer codebase for such proposals will requireclose collaboration with the IOTA Foundation.
• Early-Stage Startup funding: This type of funding is typically high-risk and high-cost, with little short term return. However, providing limited funding to keep a start-up afloat can be beneficial for the community by keeping project builders active and increasing the diversity of available dApps. Thorough reviews are essential to ensure that these projects are likely to receive more substantial funds outside the treasury.
• Infrastructure grants: Grants for projects like tax-software integrations, node provision and similar initiatives are generally very cost-effective and entail a very low risk of failure. These types of grants often deliver reliable and measurable results.
• Real-world event participation: Participation in real-world events remains a significant gap in IOTA/Shimmer communication. Supporting attendance and engagement at such events can achieve great impact at a relatively low cost compared to other types of funding.
• Media- and content-creation: Funding for media and content creation is most effective when it is coordinated with upcoming projects or technology news. It is more beneficial to fund specific pieces of content or small campaigns rather than general content creation, ensuring that the content is timely and relevant.

Funding Strategy:

Based on the previously discussed considerations and by integrating the learnings, the Tangle Community Treasury committee aims to refine its approach to funding for the term 2024/25, ensuring that resources are allocated effectively to maximize impact within the IOTA and Shimmer ecosystems.

General budgeting:

The general budgeting principles include:

• Quarterly, token-based budgets: Both the Shimmer and IOTA Treasury will divide their annual budgets into four quarterly budgets,with the first quarter being July 2024 to September 2024. Each quarter will get allocated a quarter of the total token budget at the start of the term.
• Calculating each quarters grant-funding budget: At the beginning of each quarter, the dollar value of the allocated tokens will be calculated. The expected overhead costs (salaries, services, fixed costs) of that quarter will be subtracted to arrive at the expected grant funding budget.
• Careful budgeting: These quarterly grant funding budgets will plan to spend only 80–90% of the available tokens, to be less impacted by price volatility or unexpected costs over that quarter.

Disclaimer: Budget calculations are subject to change based on the IOTA and Shimmer market prices.

Liquidation strategy

Goals of the liquidations strategy:

• Ensure the TCT can always pay its dues (i.e. overhead costs and grants).
• Liquidate token assets with minimal impact on the market

Liquidation principles:

• Understand all upcoming costs to the TCT in advance and plan token liquidations ahead of time
• Minimize market impact of liquidations by:
• Using different off-ramps (OTC trades, crypto exchanges, DeFi).
• Don’t sell large amounts of tokens at once on public exchanges
• Spread out token sales over longer stretches of time
• Do not announce liquidations or be too predictable (to avoid frontrunning)
• Minimize the risk of running into liquidity crunches that would force the TCT to violate its liquidation principles:
• If a grant gets funded, start liquidating IOTA/SMR tokens until its complete funding amount is secured
• Slowly build up a reserve of stable coins that can keep the treasury liquid even in times of low token prices
• Do not give out too many grants at once, in order to give the TCT time to follow the previous principles of full grant amount liquidation for each grant.

Proposal funding:

Goals:

All activities of the TCT fundamentally aim to improve the following on IOTA and Shimmer:

Increase on-chain activity, measured by:

• Daily/Monthly active addresses
• Market liquidity
• Total-value locked (TVL)

Increase social activity, measured by:

• Number and quality of active community members
• Number and quality of active projects utilizing IOTA and Shimmer
• Available educational resources
• Public presence and perception

Improve general crypto integrations of the IOTA / Shimmer technology:

• Being listed in popular multi-chain applications (wallets, dApps, etc.)
• Professional networks with other crypto communities

Funding activities:

The TCT supports three types of grant funding:

Open proposals

• Proposals can be handed in by any project or individual that has a concrete, thought-out and impactful idea for how they could improve the IOTA/Shimmer ecosystem by receiving community funds.
• Open proposals can be handed in at any time and will be reviewed at the earliest convenience of the reviewing committee.

Request-for-proposals (RFP)

• The TCT will create RFPs that ask for proposal submissions for a specific task (for example “create a new website for the Tangle DAO LLC”, etc.).
• Any entity will be invited to hand-in their bid until a certain deadline. Afterwards the committee will choose which proposal gets approved based on cost, value and likelihood of success.

Funding seasons

• The TCT committee can create thematic “funding seasons” with a fixed budget that aims to fill certain gaps in the IOTA/Shimmer ecosystems.
• In these seasons a general theme will be defined (for example “real-world events”, “marketing”, “decentralized finance integrations”, etc.) and any entity will be able to submit their proposal until a certain deadline.
• After this deadline all proposals will be assessed and compared against each other and a portion of the budget will be allocated towards the best of them to maximize value.

Types of proposals considered for funding:

Based on the funding principles and considerations discussed above the TCT committee decided to prioritize funding as shown in the table below.

Color coding:

• Green: Improved chances to receive funding
• Yellow: Chance to receive funding, but requires more thorough reviewing process
• Red: Currently not available for funding

Conclusion

The newly elected Tangle Treasury committee has developed a funding strategy for the 2024/25 term, detailing how it will work towards the overarching goal of growing the IOTA and Shimmer ecosystems. The committee outlined the scope of treasury funding and specified the types of proposals that will be prioritized for grant funding this year. This document will serve as both a communication tool for the public and a guide for the committee when deciding how to allocate community tokens for the greater good of ecosystem growth.