*(view and comment directly on full proposal [here](https://docs.google.com/document/d/1JYzGLXJbrDHMzH0KFwojhhXwP9pvBQA5i94xpqnR2tI/edit#heading=h.w42ka09wf9ko)).*

**Network services:** [Decent Partners](https://decent.partners) ([Subscan](https://kusama.subscan.io/account/FvrbaMus8iASyrQYkajQWDxsYvG5gb72PFPuvy8TvkFFVGn)) w/ [VacuumLabs](https://vacuumlabs.com)

**Contact**: @lightbulbwelsh:decent.modular.im (element)

**Date**: January 2023

**Short description:** ParaNotes recompose existing and underutilised ecosystem resources to create a novel process, mechanism and product that utilises novel forms of ecosystem native collateral to align the long term interests of on-chain collectives, parachains and public treasuries, building shared value together.

**Requested KSM:** 11,706 KSM
**Budget:** [View spreadsheet](https://docs.google.com/spreadsheets/d/1YQJtf-4MROq0Yk4tLXmm_CT8jTuP7-PigcAaRtF2nII/edit#gid=0).

## Introducing ParaNotes

ParaNotes aim to introduce a new grass-roots and fully on-chain mechanism, process and product that aims to align the long term incentives of:

- An on-chain collective looking to get funding from treasury to develop activities and initiatives that drive a parachain use case. 
- A parachain/thread that has secured a slot and has empty blockspace, some price discovery and a highly illiquid token.
- Relay (system) chain with funding for projects, but currently no stake in the projects it funds.

You can think of a ParaNote a little like a mortgage for a self-build home - the NFTs and associated media are the plans for the house, the parachain tokens representing a pledge of blockspace are the deposit and Kusama/Polkadot is the bank.

ParaNotes are principally coordinated by collectives based on the Polkadot system chain structured as a shokunin style optimistic time delayed pure proxy.
These network agents set a vision, assemble required talent and negotiate proposals that are voted on by the governance of their respective parachain and public treasuries respectively utilising XCM and the bridge hub that will connect KSM to DOT. 

Rather than just requesting a grant from the treasury, the collective structures a ParaNote - a convertible asset backed loan (similar to a convertible note).

Collateral is made up of their concept (represented as upgradeable NFTs) and some illiquid parachain tokens which have some nominal value reflecting unused blockspace. 

When a ParaNote is created a derivative token is created with 1 KSM = 1 Parachain token. 

If KAB price moves positively compared to KSM, then KSM holders get a good deal and vice versa. 

The convertible aspect of the instrument enables a ParaNote to be converted by relay governance, with the collateral diversifying the treasury and forming a new model of network native value accrual. 

In return, the collective’s ongoing funding is secured in a manner similar to The Fellowship or the Kappa Sigma Mu society, with treasury funding hardwired into the protocol through a runtime upgrade.

In this way, we establish a fully on-chain governed and mandated development pathway for ecosystem teams that demonstrate success over three stages:

1. Public (Gov2) grant proposals - initial work
2. ParaNotes - more focused development 
3. Hard wired support - unlocking sustained funding 

ParaNotes offer a chance to address the issue of which teams and projects can/can’t request and receive treasury funding using a fully on-chain process that remains open and flexible but definitive in its ability to establish via on-chain governance the will of the protocol. 

In the same way the Web3 set out to morph DOT from a security to software, so the ParaNote process can aid us to make clear the current political state of parachains, establishing objectively via on-chain governance whether a parachain is a system, common good or free market design - or indeed part of a new class we call Network Public Parachains (NPP). 

Given current industry headwinds, we believe ParaNotes can demonstrate that a more rational, and regenerative crypto economy is possible, allocating resources already within the ecosystem more efficiently and providing more focused onramps for external capital into projects that are designed to create real world impact through the development, implementation and scaleup of [network] public services. 



- ParaNotes is a new process that uses different resources to help different groups work together.
- It helps on-chain collectives, parachains, and public treasuries align their interests.
- ParaNotes are like a mortgage for a self-build home, where NFTs and tokens are used as collateral.
- The process is fully on-chain and governed by the protocol.
- It aims to allocate resources more efficiently and bring in external capital for projects that create real-world impact.

ParaNotes - a dynamic and fully on-chain mechanism for kickstarting collectives, driving adoption of parachain blockspace and diversifying public treasuries.  

#2062 ParaNotes - a dynamic and fully on-chain mechanism for kickstarting collectives, driving adoption of parachain blockspace and diversifying public treasuries.