### Background

Kusama faces a number of challenges when it comes to driving ecosystem innovation, spending its treasury effectively whilst moving towards models where ROI of spend can be attributed more directly to on-chain adoption.   

Even though the treasury may control millions when valued in fiat terms, its actual spending power is constrained by the requirement of funded teams to sell KSM for working capital, which creates sell pressure, thus reducing the available capital over time. 

There is therefore a chicken and egg situation - innovative concepts are necessarily abstract initially, but with current majority rule based governance experimental endeavours are not easily, or sustainably funded. 

Without driving innovation, the value proposition of the network falters, which will over time lead to a re-pricing of the network - and a subsequent fall in the value of the token, and its associated treasury. 

Existing approaches from investors focus on single, large ticket financing - taking stake in a network at one point in time, ordinarily ahead of launch, which is often not the best structure for growing a highly complex and interdependent network. Given the highly volatile and organic development of public blockchains and market cycles, it makes more sense to have access to a draw-down facility that can be tapped as and when it is required, ensuring tokens are sold at optimal moments.   

### Kusama innovation bounty

Via paraNotes, we can create an efficient, transparent and fluid crypto native financing structure focused on the driving innovation and adoption of next generation, interoperable blockchains such as Kusama. 

Flexible financing, enables decentralised teams building a new generation of on-chain governed blockchains to access pre-agreed stable-coin denominated funding as and when it is needed, rather than in one lump sum, allowing for more tactical, strategic and adaptable spending. 

External capital partners provide this funding through governance mandated agreements with a blockchain treasury - a process mediated by a team such as Decent Partners. 

Deployed funds are accessible to groups with a track record of driving network innovation. 

This capital forms the foundation of a patronage based model, with external partners able to co-finance projects alongside the initial innovation funding, diversifying risk over time and driving adoption of the underlying technology - and core network value accrual. 

### How a paranote works

ParaNotes are coordinated by an Innovation Council. 

A spending proposal is submitted to a treasury requesting some amount of tokens.

Upon approval, these tokens are delegated from the main treasury account to a bounty account on the blockchain, with funds stewarded by the council. 

At their discretion across a predetermined agreement period, this council can sell the assigned tokens to investors, allowing them to time market conditions in a favourable way based on the current liquidity of the tokens at a 7/14/30 day TWAP. 

In return, investors send stablecoins to the bounty account - these funds are then used to finance projects that will drive adoption of the underlying blockchain and accrue value to the network. 

### Questions

One question that has come up is one of oversight - and accountability - e.g. what if the DAO decides to recall delegated funds from the bounty, after some USDT etc has been sent.

Currently legal agreements between a W3F and funding partner give some assurances - whereas in a fully on-chain model, the will of the community trumps all off-chain agreements.

High level [discussion document here](https://docs.google.com/document/d/1E39XsXMa_Syk5dXj9GX9wupwxwRFJAMB5qFg4Os9O0Q/edit#) including initial scope. 

Formalised Bounty proposal to follow. 


- Kusama wants to drive innovation and adoption of their blockchain.
- They have a treasury that controls a lot of money, but they have to sell some of it to fund projects, which reduces the available money over time.
- They want to find a better way to fund projects and drive innovation.
- They are considering a system called ParaNotes, where external partners provide funding in stablecoins and the funds are used to finance projects.
- There are still questions about oversight and accountability in this system.

#2476 Discussion: Launching the Kusama Innovation bounty with external financing partners through a ParaNote structure