Grants are treated as charity; A moral obligation for successful projects to redistribute the wealth they’ve created. That is exactly where some protocols and DAOs go wrong.

This is the time for builders to be building protocols. Building protocols has never before been economically profitable for the builders of the protocol - all the value accrual happens at the application layer. How much value did HTTP accrue v/s Facebook?

Now is the time to build the protocols for web3. It’s the geekiest way to get rich. It’s also the reason it’s attracting the best talent.

Moats

Protocols only moat is usage by other applications and protocols. When hundreds of products are built using your protocol, you’re likelihood of failure is proportional to the likelihood of all the 100s of products built on top of your protocol failing.

It is in the best interest of a protocol to encourage more builders to build using their protocol. Uniswap is now used by hundreds of dapps, if not thousands. For Uniswap to fail, all the dapps should either fail or move to a competitor. Uniswap now is more an AMM protocol than a swap dapp. Uniswap has a moat - in the number of products built on top.

Capital Abundance

This is unique to web3 projects alone - because of which using the Grants nomenclature from the web2 (or non tech) world a misnomer.

Most projects in web3 have their own token. It’s the right thing to do. You want to have a system in which the stakeholders are incentivized to participate in a way that’s beneficial to the entire ecosystem. A token is a great way to represent that transfer of value, which might be distinct from the economics of the protocols they are built on.

That means all these projects are now sitting on a millions of tokens, even if their market value is small. All the DAOs and protocols have tokens in their treasury and need to deploy it.

Deployment

The protocols and DAOs need to deploy their treasury tokens in such a way that the value of the tokens that remain in the treasury actually increases.

DAOs need to spend money to increase their wealth.

The only way to deploy money in such a fashion is to spend it on people who’ll build on top of the protocol. People who would compose on the protocol. DAOs need to give out incentives to builders to build on their protocol over the various other options they have.

The job of the grants program is to incentivize composability; so we might as well just call them that - incentivized composability programs.