Catalyst Fund14 DeFi Proposals Evaluation - Process and Result

Governance Project Catalyst
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Background

Project Catalyst has been successfully helping teams to bootstrap building on Cardano, and both DeltaDeFi and SIDAN Lab started this way! That being said, as community member we know that Catalyst has been flooded with low-quality proposals. In response to the voting representatives experiment, some time has been spent reviewing the DeFi-related categories:

  • DeFi, DEX, Stablecoin, Payments, Tokenization, Financial Services.

The central philosophy of evaluation conducted here is based on the current internal perspective of Cardano vision we have been articulating in SIDAN Lab:

Use Cardano blockchain to solve real problems and create real value for community, eventually forming a sustainable circular economy where all participants can build on / use Cardano with highly aligned incentives without risking the protocol moving towards inactivity.

With background in traditional finance and understanding of DeFi across Cardano and outside of Cardano, the evaluation could be seen as representing the practical view on the overlapping area of traditional industry and Cardano ethos.

Given the angle of evaluation, the approval rate is incredibly low since proposals crafted purely from industry and Cardano perspectives would not satisfy some of the criteria.

You can use the evaluation results in different flavours, either fully accepting the very limited recommendation list, or look into the steps where the evaluation has been conducted adding twists to arrive at your own opinion.

The Review Process

DeFi is arguably the best category indeed to push blockchain adoption, since financial interaction is the foundation of a blockchain ecosystem. Given the adoption-heavy element, the startup mentality of idea evaluation is adapted here - the evaluation of a proposal here is significantly leaned towards problem-solution evaluation. Indeed most proposals are filtered out at problem statement screening in first step.

1. Problem Statement Screening

All proposals will start with initial screening. In this stage, proposals are quickly screened mostly based on the problem statement itself. The problem statements are evaluated against the Cardano vision. All problem statements that imply a clear pathway of helping Cardano move towards the sustainable economy will pass this check.

Also note that heuristics, where overall impact from all subsequent evaluation criteria, are affecting the evaluation results. For all the cases feeling marginal, they are rewarded a pass for further evaluation.

There are several ways to miss this screening, and below are some common reasons for not passing:

Not for now

Some potential good problem statements, but minimal impact on executing now without solving bottleneck, examples:

Heavily duplicated ideas

Re-implementing what’s existing on Cardano without clear indication of what’s different, examples:

Category misalignment

Most DeFi related proposal should not in the developer category, examples:

Non-Cardano

Midnight proposals without explanation of bounding to Cardano community, examples:

Irrelevancy

Problem statements implying shallow understanding of Cardano culture and how the technology works, examples:

2. Ladder Evaluation

We have about 14.3% proposals left (23 out of 138) after the first phase of evaluation. The remaining proposals will be evaluated across 5 factors:

  • Problem Urgency
  • Problem Solution Fit
  • Problem Team Fit
  • Feasibility
  • Value for Money

There will be 3 levels of evaluation result, each applying a discount factor (DF) to the score, starting from 100.

  • High (100% DF)
  • Medium (75% DF)
  • Low (50% DF)

Final scores will be calculated and proposals can be ranked with their evaluation result. The passing line is defined at 40, which means at max 3 mediums and 2 highs. A strong proposal is defined as ≄50, which means at max 2 mediums and 3 highs.

Ladder Review Factors

The evaluation criteria is indeed chosen with a ladder design in mind. If a proposal aces below areas, it means the proposal is solving the problem that our community in dire need, correctly, by a credible team, which has no obvious blockers, and community is likely to benefit eventually in financial terms. Which means our community money is spent on the correct edges.

Problem Urgency

How big a problem / how urgent the problem is to Cardano community

This review factor further introduces priority evaluation on problem statements, further distilling the areas of focus by their quality in alignment with the pre-defined Cardano vision. Top-rated proposals are in the category of “if we solve this problem fast enough, we have a good chance of moving the community towards a self-sustainable economy”.

1 - High alignment with Cardano vision with high urgency
2 - High alignment with Cardano vision with low urgency
3 - Low alignment with Cardano vision

Problem Solution Fit

Whether the solution can effectively solve the problem.

Most filtered proposals have high alignment between the problem statement and solution. One special case, for the proposal Revolut Tokeo Mercuryo – Onboarding via 60M Revolut Users, has demonstrated a problem-solution unfit. While onramp remains a huge immediate problem to be solved, the solution appears to serve as a one-off solution by using treasury to subsidize users’ onramp, which looks more like marketing funding for involved companies rather than improving onboarding for the wider community.

1 - Solution is precisely & efficiently solving the problem
2 - Solution partly solves the problem with rooms for enhancement
3 - High irrelevance between the solution and the problem

Problem Team Fit

Whether the team has a track record of delivering and proven the subject matter expertise of the nature of proposal

In this evaluation, the score will be discounted for having a team that has over-diluted activities across the past (not focused on the proposed area) and a history of under-delivering.

1 - Verifiable track record and high relevancy
2 - Verifiable relevant expertise without track record (promising newcomers)
3 - Team with unverifiable expertise or with low relevancy

Feasibility

Whether the project can be implemented without significant delay.

This is checked against any identifiable technical and legal blockers. In this review, only 1 proposal is identified has material technical risks - Bifrost: Bitcoin-Cardano bridge secured by Cardano SPOs. The rest stablecoin and RWA-related proposals have historically proven high risk of incompletion due to legal blockers and classified as low feasibility.

1 - High feasibility without identifiable unmanageable blockers
2 - High feasibility with possible blockers
3 - Unlikely to be implemented on time / high risk of non-delivery

Value for Money

Whether the proposal outcomes worth the community money spent

The budget request is evaluated in this factor. Top rated proposals, if executed adequately, could provide massive value to community. One example would be same the Bifrost proposal, upon completion we would have the true bridgeless BTC on Cardano, fully unlocking Cardano as BTC DeFi layer narratives.

1 - Clear pathway to produce value at least 5x value the treasury spent
2 - Clear pathway to produce equivalent value of the treasury spent
3 - Unclear pathway to create equivalent value / the proposal should not seek catalyst money for implementation

Result

Overall Review Comments

  • Most proposals don’t give sufficient thought to how solving the problems could help community thrive
  • Most proposals fail to provide sufficient hints of team capability
  • That being said, it is appreciated that all proposers take the time to bring all ideas into the public!
Title Proposer Category Budget Request
Cardano DeFi Made Simple: Open Video Series & Learning Hub Cardano With Paul Cardano Open: Ecosystem ₳ 48,000
KnightSafe: Stablecoin Vault with Staking & DEX Access KS LABS LIMITED Cardano Use Cases: Concepts ₳ 100,000
The First Cardano-Native CTI (Crypto Traded Index) Token Lionel Rebibo Cardano Use Cases: Concepts ₳ 85,000
TexStream: Real-Time Multi-DEX Price & Pool Data Tran Huy Hiep Cardano Open: Developers ₳ 81,187
Bifrost: Bitcoin-Cardano bridge secured by Cardano SPOs Matteo Coppola (FluidTokens) Cardano Use Cases: Partners & Products ₳ 739,000
Strike Finance <> Bodega Market: Predection Market Perps Shan Yu Zhang Cardano Use Cases: Partners & Products ₳ 506,000
VESPR x DexHunter: Stable-Swaps Aggregation :currency_exchange: VESPR Wallet Cardano Use Cases: Partners & Products ₳ 250,000

The overall statistics

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Full evaluation spreadsheet - Hinson F14 Review [PUBLIC] - Google Sheets

Appendix

How unbiased/comprehensive is the evaluation?

While I am genuinely motivated to help community spend more wisely, I don’t believe I’m ultimately responsible for interpreting each proposal precisely, where responsibility should be borne by proposers. If you believe I have misjudged anything above and think I have material influence on affecting votes, I’d welcome all comments and conversation to edit the evaluation above.

Why not review ecosystem/developer category?

Yes we do have expertise in building community and tools for Cardano devs. No surprise that we have participated heavily in the ecosystem and developer categories in F14 as well. However, as our first attempt to evaluate proposals from community points of views we want to choose a least-conflict-of-interest area as a start. If community found the above evaluation useful, I am more than happy to conduct an evaluation across the ecosystem and developer categories as well.

10 Likes
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This is great and directional as well as constructive work. thank you for this.

4 Likes
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Would be good to stress that the list “below are some common reasons for not passing”

2 Likes
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This is really good work. First time I’ve seen a commercially focused approach on approaching Catalyst evaluation that feels like it could actually start turning this into something that Y combinator might do. It would be great to see this approach get some traction so we can move beyond the initial naive “throw enough at the wall and some will stick” approach, which to be fair was appropriate in the early stages of Cardano’s evolution.

Catalyst would definitely benefit from tighter evaluation, with a laser focus on what will move the ecosystem forward against a clear set of strategic objectives (e.g. Cardano Roadmap managed by Intersect). As you say these should almost certainly be DeFi and DeFi adjacent at this point.

In addition there should be a minimal set of supporting functions that can help nascent startups to hit the ground running. If you receive funding there should be an obligation to open source, and participate to share learning and knowledge.

Lastly Catalyst applicants should have some skin in the game, and some form of value which is at risk. Minimally this should be a reputation score, perhaps linked to a DID as part of the application process.

2 Likes
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Yes definitely, there has been quite a lot of inspiration taken from YC, as I have just attended a YC hackathon with Jingles last month.

It is indeed a good suggestion to run such thing, so for me personally I would first accumulate more community insights and experience by launching DeltaDeFi and posting more frequently this kind of analysis. So we would have a better sense of how to do it right.

Likewise for support functions, guess we will know what’s the hurdle more and more in the process of building DeltaDeFi.

3 Likes
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Thanks for taking the time to do this. If possible, I’d like to understand a little better why you think Concentrated Liquidity Pools On Cardano are irrelevant.

One of the major issues on Cardano right now is the ability to swap between ada and stablecoins easily and without high slippage and the current norm of using constant product AMM pools will never be sufficient regardless of the amount of liquidity we add to them. These pools assume we know nothing about the actual price of the 2 assets in them, a bad assumption when it comes to stablecoins paired with the base asset of a blockchain like ada, because we have huge off-chain markets on exchanges like Coinbase that tell us a lot about the actual price.

In order to solve this issue we need tools like concentrated liquidity that allow us to use the knowledge we have from off chain markets to make better use of our liquidity and reduce slippage, like many other chains have done before us. While it doesn’t have to be concentrated liquidity, it could be order books or oracle based market makers or some other tool, I still find this proposal to be quite relevant at the moment. I’m interested in hearing your thoughts.

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The main reason I consider this irrelevant is that I genuinely believe AMM does not fit UTxO architecture that much and we get a much lower bottleneck compared to other blockchains, namely our trading volume is 1/100 of all other major L1s’ AMM DEXes.

Also from our history, we “solved” the AMM already with 10+ DEXes offering similar service. Working on a better AMM DEX does not solve any additional meaningful problems. For slippage issue you mentioned, the root cause is amount of liquidity, but not optimizing liquidity, which would fall into “Not for now” as well.

2 Likes
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Thanks for the response, agree to disagree on the root cause of slippage being the amount of liquidity and not optimizing liquidity. The current yield for stable/ada pairs is abysmal because of how inefficient the liquidity is, if you fix that you create incentive for more liquidity to be added.

Stablecoins benefit disproportionately from smarter, more capital efficient swap liquidity. While it doesn’t have to be concentrated liquidity specifically, I think anyone building something that does the job better than constant product AMM, which seems to be all we build, is solving a meaningful problem.

1 Like
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Yes definitely we can agree to disagree on it. And I deeply appreciate you asking for clarification on what you doubt about, that’s how other community member reading our discussion get both perspectives.

I have another understanding of liquidity, which I don’t conceal that Im deeply biased - order book model DEXes create much better capital efficiency and it aligns with Cardano tech more natively. That is also the core reason why we building DeltaDeFi.

2 Likes