# Conditional Funding Markets - Development Grant for Crowdfunding Module (Part 1/2)

# TLDR

The Break Even Movement has made it clear that more performance-based decision making is necessary. CFMs use prediction markets to evaluate proposals BEFORE funding - ensuring only those with the highest predicted ROI get funded. This $90k development grant builds infrastructure that can turn Nouns treasury into a growth engine, enabling Nouns to sustain into the future and fund the next wave of Nounish innovations.

# Problem

**Out of 800+ Nouns proposals funded, few have returned money to the treasury.**

While revenue generation wasn't the original focus, the Break Even Movement has sparked critical conversations about sustainability. The treasury has funded amazing projects, but without a way to predict outcomes, every proposal becomes a gamble.

The under explored solution? **Actively increasing revenue flowing back through smarter allocation mechanisms.**

# Solution

**Conditional Funding Markets (CFMs)** use prediction markets to evaluate proposals *before* funding is allocated. Instead of relying on token votes, CFMs harness the wisdom of markets to estimate the impact of proposals, with forecasters putting real money behind their predictions.

### How CFMs Work

1. **Nouns sets a goal:** This could be any objective related to revenue generation such as creating new revenue streams, generating returns from managing the treasury, or increasing average auction revenue. 
2. **Teams submit proposals:** Teams from across the ecosystem submit proposals to achieve the objective. 
3. **Markets predict impact:** Traders buy/sell shares based on which proposal they think will best achieve the goal. 
4. **Best prediction wins:** The proposal that the market estimates will have the highest impact gets funded. 
5. **Accountability built-in:** Traders who were wrong lose money, while those who were right profit. 

## Why CFMs Make Sense for Nouns

At its core, Nouns DAO exists to allocate treasury resources effectively. We've all seen the challenges: which proposals deserve funding? How much? Are incentives aligned?

Remember the recent **OneKey Hardware Wallet and Burner Wallet proposals**? Instead of debating on the forum, imagine if both proposals were evaluated based on the market's estimate of how much revenue they would return to the DAO. 

This applies to numerous proposals. **Treasury Management proposals** including [818](https://www.nouns.camp/proposals/818) (Stake 1000 mETH) could be evaluated based on the estimated returns generated. **Larger scale proposals** such as [557](https://www.nouns.com/vote/557) (Nouns Deli), [450](https://www.nouns.com/vote/450) (Nounish Coffee Shop) or [757](https://www.nouns.com/vote/757) (Nounish Landmark at Art City) could be evaluated based on their revenue or the average increase to Nouns auction revenue. 

Whatever objective, CFMs ensure every dollar or ETH spent has a **measurable, predicted return.**

# Results from Early Adopters

**Optimism.** Butter launched the first CFM with Optimism in March which showed promising results. According to [OSO's dashboard,](https://app.hex.tech/00bffd76-9d33-4243-8e7e-9add359f25c7/app/S7-Futarchy-Measurement-030DNMOaixoVzLqVIZ5YCB/latest) futarchy generated $61.50 in TVL per OP spent, compared to $0.28 per OP spent from the Grants Council. That's a **219x improvement** in capital efficiency.

![](https://i.imgur.com/ywkfGGJ.png "Optimism CFM impact")

Uniswap Foundation. In July, Uniswap used a CFM to allocate $100k for growing Unichain, selecting Morpho based on market predictions rather than committee decisions. After 30 days, [Morpho’s TVL increased by $96M](https://app.hex.tech/0198aeda-0722-7003-9a6c-9035b6176164/app/CFM-experiment-report-030lejTeJf3zBQlcFp0v6L/latest) which represents $960 in TVL gain per $1 spent.  

![](https://i.imgur.com/73Qc1h8.png "Unichain CFM impact")

These are the types of measurable results a Nouns Revenue Growth CFM would be capable of producing.

# CFMs vs Status Quo

Compared to votes, where wrong decisions face limited consequences, CFMs enable a fundamentally different approach to capital allocation. Here’s how CFMs compare to the status quo.

| Feature                       | Traditional funding (e.g. token votes or committees)                                                                                     | Conditional Funding Markets (CFMs)                                        |
| ----------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- |
| Performance-driven decisions  | While proposals can include KPIs, decisions are often based on discretion, politics, or popularity                                       | Markets forecast which proposals are expected to deliver the best outcome |
| Responsive to new information | Voters or committee members often lack time, context, or incentives to be properly informed – especially as the number of proposals grow | Markets update continuously as new data or beliefs emerge                 |
| Accountability if wrong       | Decision makers face no direct consequences if they are wrong                                                                            | Traders lose capital when they make incorrect forecasts                   |

# Two-Part Plan 

## Part 1: Building the Infrastructure (This Proposal)

Before Nouns can use CFMs, we need to build an adapter so the Nouns treasury can directly fund CFMs. All contracts developed will be open sourced. This development grant funds the following:

- **Permissionless Crowdfunding Module:** Allows Nouns DAO to deposit directly into CFMs 
- **Security Audit:** Ensures the module has been reviewed by a third-party 
- **Safeguard Mechanism:** Optional controls to prevent edge-case scenarios while maintaining decentralization 

### Implementation

**1. Scoping & design** - Finalize design, development and deployment of crowdfunding module contracts. **2. Development** - Build smart contracts for the vault and make UI adjustments.
3. **Testing & audit** - Run internal tests and receive a third-party audit.
4. **Mainnet deployment & docs** - Deploy contracts and publish documentation.

### Safeguard mechanism

Beyond smart contract risk, a permissionless vault risks misallocating funds due to price volatility, oracle failures, or other distorted inputs. 

Introducing a safeguard mitigates these risks. While the exact mechanism will be scoped during the initial phase, an example could be a timelock before funds are distributed where a community multisig could veto the decision.

Butter sees developing a safeguard as an important feature. However, it increases the resources required and Nouns may prefer a fully permissionless mechanism, so the safeguard has been included as a separate line item in the budget.

### Timeline

**Baseline:** 2-3 months to deploy the new vault contracts. **Potential delays:** audit findings (+2-4 wks) or extra safeguard R&D (+\~2 wks) 

### Budget

**Total Request:** $90,000

**Breakdown:**

- Crowdfunding module design, development, and deployment: $50,000 
- Safeguard mechanism: research, design, development, and deployment $20,000 
- Independent security audit: $20,000 

## Part 2: Launching Nouns' First Revenue CFM (Follow-up Proposal)

Once the crowdfunding module is built, a follow up proposal will be made to fund the first Nouns Revenue Growth CFM.

# Why Now

Every month without CFMs is potentially millions in suboptimal allocations. By passing this proposal, Nouns can:

- **Transform the Break Even conversation** from cutting costs to growing revenue 
- **Proactively set objectives** to fund the next wave of Nounish builders 
- **Lead the next evolution** of on-chain governance, just like Nouns always has 

Imagine a Nouns where every proposal comes with a prediction, every experiment has accountability, and every ETH spent has a purpose. That's the future CFMs enable.

# Resources

**Core docs:**

- [Conditional Funding Markets | One-Pager](https://www.notion.so/14457e47719380b7acccfd9768db6afe?pvs=21) - Overview of mechanism & benefits   
- [Butter App & Docs](https://app.butter.markets/) - Live markets and technical docs 

**Recent media:**

- [Prediction Markets Spaces with EF](https://x.com/jchaskin22/status/1944024815515357587) - Discussion with Robin Hanson, Ethereum Foundation, and app builders    
- [Conditional Funding Markets with Optimism, Ethereum, Allo Capital, Butter](https://x.com/i/broadcasts/1LyGBWovlyPJN) - Intro to the first Unichain CFM    
- [Better Decisions with Butter](https://writing.lavavc.io/p/better-decisions-with-butter) - Why CFMs will change how allocate is allocated

Outcome: DEFEATED