2. Replace challenge setting with funding categories


Challenge settings increase the complexity and time required to create, manage and use funding categorisations. Challenge settings often leads to bad outcomes with a few examples being overlapping categorisations, excluded ideas and innovation and increased complexity of decisions for voters.


The problems faced by challenge settings can be removed by using broad, inclusive and recurring categorisation. Effective funding categorisation helps prevent bad outcomes and offers a more simple, efficient, scalable, egalitarian and scalable approach for the funding process.

Research and analysis

What this proposal is about
Funding categorisation is a vital part of the funding process. This improvement proposal looks at the importance of funding categorisation, why challenge setting don't offer a good solution and how applying better categorisation approaches to a new solution can lead to many advantages such as being more simple, efficient and scalable.
What this proposal isn't about
Why funding categorisation is important
  • Funding categorisation determines who has access to funding across different countries or demographics.
  • Funding categorisations define what ideas and innovation can be submitted in a given funding round based on the categorisation used.
  • Funding categorisation determines the amount of funding available to different focus areas based on the budget allocated to each categorisation.
  • Impacts how scalable and efficient the funding process is based on how funding categorisation is created, managed and used. Categorisation impacts whether Catalyst can effectively scale to reach a global audience.
Issues with challenge settings
There are a number of issues with challenge settings that need addressing for the Catalyst funding process to function effectively and scale:
  • Low barrier of entry for malicious actors
  • Unilateral budget weighting decisions and increased complexity
  • Complexity justifying specific challenge settings
  • Limited challenge team knowledge or ecosystem understanding
  • No comprehensive data or supporting evidence that justify categorisations
  • Time consuming for multiple stakeholders
  • Duplicate challenge settings
  • Overlapping categorisations
Desirable funding categorisation approaches
The different approaches that exist for funding categorisation have been analysed. The following approaches were found to be more desirable:
  • ​Broad - Making categorisation more flexible to a wide range of situations, increasing healthy competition and significantly reducing the justification of categorisations along with reducing the budget weighting complexity.
  • ​Inclusive - Ensuring that all people and ideas have at least some access to funding each funding round to reduce complexity over categorisation justification of who to exclude, increase overall competition and also be more egalitarian by ensuring smaller teams and minorities are able to submit their ideas and innovation.
  • ​Unique - Removing overlap between categorisations so that they are easier to use for proposers and easier to govern for voters as they won't need to compare all the overlapping categorisations when considering what budget weightings would be sensible.
  • ​Recurring - Help reduce the effort required by all stakeholders in the process by reusing categorisations rather than submitting, assessing and voting on new ones every funding round.
Advantages of using funding categories
Funding categories lean towards being closer to the desirable approaches of being broad, inclusive, unique and recurring. This results in funding categories having many advantages over challenge settings:
Comparisons between funding categories and challenge setting
  • Challenge teams - Changing to funding categories would mean challenge teams would not need to propose challenges each funding round as funding categories are a recurring approach to categorisation. Challenge teams could still form around categories and perform the same roles as they do with challenges currently. In parallel to this Catalyst contributors can be explored as a way to support similar efforts that challenge teams currently perform such as proof of life meetings.
  • Proposer - Proposers would have a guarantee that they can submit proposals each round as funding categories are inclusive. They would also be able to more clearly understand where to submit proposals as funding categories lean towards being unique making it easier to see where different proposals could be submitted. Proposers would learn about these categorisations and take that understanding into the next funding round.
  • Voter - The voter with funding categories would not have to vote on a large number of challenge setting categorisations each round. Instead they would just vote on the budget weightings to apply to each funding category. In the future even this budget weighting decision could be automated with an algorithm to further simplify the process!
  • Proposer assessor - Proposer assessors would not be needed for funding categories as the categorisation is recurring. Assessors would instead have more time for assessing idea or contributor based proposals.
  • Analysis - Analysis on the impact of funding categorisation would be easier to perform than with challenge settings as the categorisation is unique, more clearly categorised and recurring. Recurring means that the data available on categorisation usage would increase over time. This data will help lead to suggesting changes more easily based on clearer data and analysis to find potential improvements.
  • Budget weighting risks - There is a risk that the community set budget weightings are not favourable to the ecosystem. However this same outcome occurs with challenge settings to a larger extent as it is easy for many focus areas to be excluded based on the challenge settings voted in. Better information flow to voters on the impact of decisions here will be an important part of producing effective outcomes. Automation of budget weighting is a longer term solution to this problem.
  • Competition for smaller teams - Using broad categorisation will increase healthy competition between proposers which may make it harder for smaller teams to get access to funding. There is currently no guarantee this will be an issue however if it is there are many approaches to help with directing funding. As well as this an independent goal and objective setting process will be effective at highlighting community preferences on what is highest priority.
  • New contributor model - There are risks around the introduction of the contributor funding. These are covered in Catalyst and Cardano contributors improvement proposal.

Next steps

  • Agree that preferred funding categorisation approaches are effective
  • Agree on the focus areas that should be in each categorisation and any naming conventions
  • Plan how to handle the budget weighting vote in the Catalyst voting app and what safeguards to add if any