The Third Pillar: Community Treasury

The Third Pillar: Community Treasury

The growth and evolution of the blockchain ecosystem relies on continuous innovation, especially when it concerns the development of projects that benefit the entire community. Consequently, ecosystem and public goods funding (PGF) plays a crucial role in providing the necessary support to such initiatives.

In today’s post, we explore the subject further and provide our thinking around the recently-proposed Community Treasury, as well as provide more context around distribution mechanisms and their evaluation. As with all other posts in the series, we invite the community to consider and provide feedback on the approach.

The Importance of Public Goods

In the realm of economics, a public good displays characteristics of non-excludability and non-rivalry, meaning that access to it cannot be restricted, and one individual’s consumption does not impede another’s.

Examples of public goods range from natural resources such as clean air to man-made constructs like roads. Contemporary industrial-knowledge societies have introduced various new public goods, including open-source code, which has historically served as a foundation for the modern Internet, which can itself be considered a public good. Consequently, it is reasonable to view open digital infrastructure as a public good.

In the world of blockchain, public goods funding (PGF) may refer to supporting open-source projects that contribute positively to the blockchain ecosystem that may not be financially viable on their own. The significance of funding is demonstrated in the need for continuous innovation and development of novel solutions and services benefiting the entire ecosystem, e.g., network client development, decentralized identity systems, as well as blockchain-based decision-making systems.

Moreover, PGF is capable of contributing to the resilience and security of the network layer by funding projects that contribute to decentralization on an off-chain level, preventing central points of failure and ensuring a balanced distribution of power. As an example, take the funding the Ethereum Foundation continues to direct towards empowering various client teams, thus democratizing the development of decentralized infrastructure, indirectly ensuring that no team possesses enough power to dictate its terms by monopolizing the client infrastructure.

Additionally, PGF presents opportunities for enabling equitable access by supporting initiatives directly or indirectly targeting underserved communities or addressing systemic issues within the broader context, e.g., lack of formal financial infrastructure that 2 billion people struggle with worldwide.

Last but not least, PGF contributes to the long-term sustainability and growth of the blockchain ecosystem, as it invests in projects designed to benefit all participants, not just a select few.

The Community Treasury

To address the needs of ecosystem and public goods funding, the Community Treasury was introduced and proposed in the recent POL Whitepaper:

The Polygon ecosystem and the whole Web3 industry are still in the early adoption and heavy development phase. To remain on the current growth trajectory, the Polygon ecosystem will need ongoing economic support in years to come.

To address the need for ongoing ecosystem support, we propose the Community Treasury, an in-protocol, community-governed ecosystem fund. It introduces at least three major benefits to the Polygon ecosystem:

  • Ongoing, self-sustainable economic support for as long as required;
  • Increased decentralization by reducing dependency on the Polygon Foundation;
  • Achieving the next level of transparency and community inclusion.

As described in § 5.2, the Community Treasury is funded by a predetermined emission of POL. The emission rate dedicated to this purpose is 1% per year, or ≈100 million POL in absolute terms, and can not be changed for 10 years. This guarantees strong ecosystem support during this period, critical for development, growth and positioning of Polygon.

Once the Polygon ecosystem and Web3 reach maturity, the ecosystem will likely not need significant economic support anymore. At that point, the community should intervene and decrease or discontinue the emission for the Community Treasury. In an optimistic scenario, where maturity is reached before the 10-year period of guaranteed funding expires, the Community Treasury might end up having more funds than the ecosystem realistically needs. In that case, the community should decide how to utilize this excess POL. For example, a decision can be made to burn it.

As mentioned, and as the name indicates, the Community Treasury should be governed by the community, via an agreed upon governance process. The governance process and the wider Polygon governance framework are being designed and established as part of the Polygon 2.0 effort, and explaining them in detail is out of the scope of this paper. Instead, we give a brief overview of its two likely concepts:

  1. Polygon Funding Proposals (PFPs): Formal proposals for funding or other activities or improvements related to the Community Treasury. PFPs can be submitted by anyone, and should be publicly available and discussed. Similar concepts can be observed in other prominent governance frameworks.

  2. Consensus gathering: The process of making a decision on a specific PFP. The decision can be made in a direct manner, where every community member can participate, or via delegates who represent the community. As mentioned in § 4.3, POL should be technically enabled to hold governance rights, so it can potentially be utilized as part of the consensus gathering or the delegate election process. POL holders are directly economically incentivized to approve good proposals and reject the bad ones, which makes the decision making process more likely to benefit the ecosystem.

Approaches to Fund Distribution

Having understood the importance and proposed implementation of the Community Treasury, i.e., where the proposed funding for development of the Polygon ecosystem comes from, we would now like to present, categorize, and evaluate several fund distribution mechanisms for community consideration.

In our approach, we present and analyze several models, focusing on a following set of factors:

  • the layout of the decision-making actor, i.e., a small set vs. a large set;
  • checks and balances coming from the community, i.e., implicit and explicit;
  • on-chain/off-chain nature of execution.

Small-Set Decision-Making with Implicit Community Checks

An organization where a small group of decision makers selects and executes the distribution of funds from the treasury, which may itself be funded by an on-chain mechanism, e.g., continuous token issuance or revenue from sequencer auctions. There’s no token governance involved to fund the organization, distribute funds, or otherwise.

The organization’s mandate may be provided by (1) protocol-level, on-chain, decentralized consensus of validating stake and full nodes; (2) the wider ecosystem and social consensus, ranging from dapps to infra providers; and/or (3) legal obligations in governing documents. If the ecosystem consensus indicates that the organization doesn’t fulfill its mandate, it may be capable of cutting off the funding by organizing a hardfork. This is also true for all other treasury management models, as long as the funding mechanism is protocol-level.

Notable examples in this category include:

Select advantages:

  • Efficient in vision setting, decision-making and fund distribution, as well as earning on treasury and its diversification as all decisions are made by a small group, i.e., the org’s board of directors or people it hires. The org can still obtain non-binding feedback from a broad group, e.g., the entire community, on use of funds without meaningfully slowing down decision-making.
  • Efficient in fund custody, since it can use both on-chain and off-chain crypto custody, as well as storing value in fiat.

Select disadvantages:

  • Small group, i.e., the org’s board of directors or people it hires could be poor decision-makers or be inefficient at properly securing or distributing funds. Admittedly, this can be mitigated with use of non-binding community feedback and influence over board members.
  • Informational asymmetries could arise for a small group with internal org knowledge.

Small-Set Decision-Making with Explicit Community Checks

An organization with distributed decision making regarding ecosystem funding. The decision-makers, e.g., token holders, might elect a board of an entity that acts as a middleman, e.g., a foundation, to enact decisions made by token holders via votes. Full control over the entity, as prescribed in the founding documents, may remain with the community.

A desirable voting model might be characterized by liquid democracy to facilitate meritocracy:

User A delegates their voting power to user B on issue X, who may in turn delegate their total (A+B) voting power to user C on issue Y. All the while, user A can still vote on every issue themselves if they so choose.

In order to avoid try to avoid the pitfalls of simplistic 1 token = 1 vote models, e.g., overaccumulation of governance power, voting power may be defined by either one of these models or their combination:

  • Sybil-resistant token-based quadratic voting, e.g., 10 users voting with 1 POL each > 1 user voting with 10 POL. Relevant example: quadratic funding by Gitcoin.
  • 1 Community Member = 1 Vote model with peer-based expansion of membership, i.e., an initial cohort of reputable community members expands the set each season by adding new members each. Example: Optimism Citizens’ House.

Notable examples in this category include:

Select advantages:

  • A large set explicitly checks:
    • the entity that distributes funds, allowing for most efficient action against the entity’s inactivity or malicious activity;
    • the use of funds, resulting in community empowerment, fostering engagement and innovation;
    • treasury diversification;
    • diversification of methods for custodying funds.

Select disadvantages:

  • Over-reliance on the community, e.g., a large number of votes and lack of incentives, may lead to voter apathy.
  • Large set explicit checks are extremely time consuming and low activity usually requires significant backchanneling.
  • Informational asymmetries could arise for a small group with internal org knowledge, even with explicit community checks.

Large-Set On-Chain Decision-Making

An organization in which a set of permissionless smart contracts govern a treasury. The role of any external entity is limited to initial deployment of smart contracts and funding of the treasury, at which point it becomes just one of other regular participants. The decision-makers are capable of changing any parameter of the system, including full control over the treasury.

A social layer of governance is needed to facilitate coordination and introduce social and reputational checks, e.g., a customary rejection of on-chain proposals if they don’t go through off-chain deliberation first.

Viable voting models for this type of governance may be a combination of:

  • variable quorum requirements for interacting with different smart contracts, e.g., the main treasury contract may require higher quorum for votes than a smaller treasury contract dedicated to yearly ops;
  • delegation-based governance, including liquid democracy.

Notable examples in this category include:

Select advantages:

  • Fulfills the Web3 ethos of a decentralized organization for anyone to permissionlessly leverage.
  • Greatest potential for decentralization out of all models. However, it should be noted that centralized token holdings may still be a cause for concern.
  • It’s notably harder to censor when fully on-chain.

Select disadvantages:

  • Any governance and voting model is limited by on-chain data here, unless it takes up risks by introducing oracles. For example, quadratic voting based on sybil resistance can’t be used because no non-gameable on-chain indicators of sybil resistance exist yet.
  • Token-based voting leads to plutocracies where money = influence, which in turn leads to non-optimal outcomes.
  • There are always clear lines of attack since all rules are defined on-chain. The organization can only mitigate them.
  • Social, community consensus is oftentimes the last line of defense against attacks, hence community’s governance culture is critical.
  • The on-chain, permissionless fund distribution model may introduce tax and liability risks to token holders.
  • A model with complete decentralization that also maintains security and efficiency has arguably not yet been identified in the fund distribution space.


While the blockchain industry persistently experiments with various governance frameworks to optimize for security, efficiency, and decentralization, we know that the Polygon community can have a significant impact on these considerations.

We want to thank everyone who has participated in the discussions and provided feedback on previous Governance Pillar posts. Likewise, we want to invite community feedback and consideration of the potential approaches to Community Treasury fund distribution presented in this post. Which of the presented models would you like to see implemented for the Community Treasury? What have we missed in our classification and what can we learn from existing treasury management systems in Web3? Comment below!


Mateusz Rzeszowski

George Serntedakis


Hudson Jameson

Bojana Tomic


This is a big and unique event in the world of digital currencies


It is very exciting to follow your projects


nice and strong project


Awsome project and community

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pretty awesome keep it up we are waiting the best from you


thats a project that have a FUTURE…nice

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Greeat project
and lovely community
thank you all


i love this community so much!!


I believe Optimism is doing a really great job around everything that means governance. I do see similarities between what Polygon shall do and the direction Optimism is going right now. OP stack will consist of multiple protocols - Optimism, Base, Zora, new chain to be launched by A16z, which all will have same governance framework. They will present more details soon about it, but in the meantime I recommend seeing this presentation of Jesse Pollak from ETHCC in Paris link.
Congrats for all the effort that Polygon team has made and we all do believe that decentralization and governance shall be made in the best way possible.

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Greetings from Aragon, we will be responding to each pillar in kind. Thanks for separating each pillar to create the opportunity to have constructive discussions. Separated governance models is also becoming popular for larger DAOs to compartmentalise complexity and decrease risk.

Public Goods compile a large portion of web3, with most projects unable to generate revenue due to the nature of open-source technology and developer focused ecosystems. Extracting revenue is challenging and only a few models seem to be working, to name a few: Successfully running a chain, liquid staking providers, and exchanges. Aragon is a great example of a protocol that doesn’t generate revenue via aragonOS/OSx but has provided safe storage and governance capabilities for over $15 billion in TVL and for over 6000 DAOs since 2017. By definition this is unsustainable. Providing support for great builders on the Polygon stack is essential until web3 reaches a more mature state. I particularly like the focus on public goods, which narrows the allocation possibilities (can you confirm this was your thought)?

We highly recommend that the definition of 2 of the potential grant recipient groupings be defined much more narrowly (offchain projects & underserved communities) and focused around reaching Polygon’s mission, and further engrained through token/governance incentive alignment. It’s these types of groupings, when broadly defined, that can create highly contentious arguments within communities.

With the incredible gains we’ve made in tooling and will see soon, I don’t see a particular reason why Polygon would allow for offchain voting, which goes directly against the ethos of web3 and what Polygon itself is building. There are many ways Aragon has and can support Polygon to ensure the use of onchain voting. Including:

  1. Onchain delegate voting on Polygon (1 cent per vote or less)
  2. Onchain voting abstracted away from the voter (the DAO pays)
  3. Gasless voting with ethereum onchain execution (using a tendermint blockchain)
  4. L2 voting with L1 execution via Polygon (being worked on)

There are lots of options which would keep with the ethos of web3, create transactions on Polygon, and be more incorruptible and secure than offchain voting, and we are happy to provide support.

Another one of the most important aspects for voter participation and one of the most requested features we get from DAOs is 1 UI. A place where the community can participate as easily as possible without lots of software spaghetti and broken user flows. It also greatly helps with transparency. Something to take into consideration.

Security, efficiency, and decentralisation three pillars we strive to achieve and look forward to seeing Polygon continue to navigate/address, both in your product suite and future DAO!


Hey @Leuts.eth, thank you for providing Aragon’s perspective on our plans. It’s incredible to see this type of in-depth feedback from established governance infra providers.

While the Community Treasury should “provide ongoing support for further development and growth of the Polygon ecosystem” (from the POL whitepaper), public goods are especially near and dear to a lot of hearts at Polygon Labs.

Could you please expand on the type of narrowing-down you would like to see? I agree that too broad of a scope is a killer to efficiency in grant frameworks.

I believe that both on-chain and off-chain governance have their respective trade-offs. On-chain governance allows for maximum transparency, security, and trustless execution where it matters. This is why, for system smart contracts, I view on-chain governance as an ultimately essential component. On the other hand, on-chain governance is currently incapable of providing sybil resistance or supporting novel governance mechanisms based around contributor reputation, for example. That is unless of course we’re okay with introducing unchecked and trusted entities into the system. I also don’t believe that off-chain voting, as it concerns the distribution of funds towards ecosystem growth, goes against the Web3 ethos, and would point to Gitcoin as an absolutely positive influence in the space which utilizes off-chain tools to experiment with quadratic funding.

I’m absolutely on the same page here. Making governance accessible (and heaven forbid fun) has not been high enough of a priority in the space.


Thanks @Mateusz

I do believe internally defining a “public good” and focusing on providing grants to “public goods” building and bringing value to the Polygon stack is very important. The reason being is that public goods are often defined as unlikely to generate revenue, typically built on the protocol level, and for everyone. Non-public goods with PMF should have a clearer chance of generating revenue if they are successfully creating value and thus in theory should be less likely to receive and rely on grants. This was recently discussed on twitter between Adam Cochrane and Owoki, looping back to the serious problems Gitcoin seems to be having in the industry. Maybe another forum discussion defining what the community would like to define as a public good and what threshold could be allocated to public goods funding versus other projects, might bare fruitful.

Successful VC’s, investors, and non-pofits that allocate capital typically follow methodologies to narrow their scope and use their competencies to allocate capital properly. By having too large a definition of who can receive funding, you leave the door open to distributing funds incoherently. Focus is key. “offchain projects & underserved communities” allows funding to potentially be allocated to endless possibilities and in my opinion makes it more difficult to make succesful decisions. It opens up the door to nefarious actors inundating the grants program with requests that are misaligned and not in the best interest of the community. A narrower target also allows for better determination of how much funding can go to projects due to precedent and gained experience. For example, who is an “underserved community?” who fits into that classification, as almost anyone can define themselves as underserved in some way. I won’t propose something definitive but here’s an example:
Protocols that are governed onchain and that bring sequencer fees to Polygon. Just an example!
Maybe this definition of who can receive a grant should be a separate topic completely?

I think this is a perfect example of why Polygon should focus on onchain governance. Polygon is without question one of the leaders in web3 in nearly every aspect. If we have a missing link to robust governance due to the complexity of building tooling, then Polygon can and should be leading by helping to build that, after all, Polygon’s entire value proposition is its technology and products, which are onchain.

Overall thanks for the great responses and follow-up questions! Love how well thought out you and the team are, and where this is all headed! As long time ecosystem partners, we are here to help!

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