Many grants and DAOs have adopted a milestone delivery model, but it’s often challenging to accurately assess the time needed for each milestone in advance, especially for startups that require technological breakthroughs. Therefore, these grants and DAOs (which we can refer to as investors) usually adopt relatively lenient time constraints. This is very friendly to the deliverers but brings two negative effects:
- Project parties anticipate that a delayed delivery is not a significant issue and will prioritize it lower, leading to what is essentially “slacking off”.
- It increases the difficulty of milestone management for investors.
Conversely, if we set stricter time constraints, the best strategy for project parties facing technical difficulties that require delays to overcome is to rush the work at the expense of project quality. Due to information asymmetry, investors are not clear about what happened, ultimately harming both investors and project parties. This problem has been longstanding, but the asymmetry of information and irrational voting in the web3 environment exacerbate its disadvantages, especially when the deliverables involve hard-to-verify market components.
A study by AER in 2016, “Breakthroughs, Deadlines, and Self-Reported Progress: Contracting for Multistage Projects”, investigated this issue and proposed a solution involving soft deadlines and self-reporting.
Its principle is roughly as follows:
- If project parties anticipate a delay, they can report progress to investors and apply for an extension.
- Investors evaluate this report and decide whether to extend the observation period.
- During the observation period, the countdown to the milestone is paused, and investors have a certain probability of canceling the contract during this period.
- If the project party still fails to complete the delivery after the observation period, the investor cancels the contract; otherwise, the process moves to the next milestone.
If the project party cannot complete the first milestone on time, the risk of failure brought by hastily reducing product quality to meet the deadline is far greater than the risk of cancellation due to delay. Especially when the next milestone involves the market, the project party needs to complete the product and explore the market within the original milestone time, undoubtedly significantly increasing the difficulty.
Ultimately, soft deadlines increase the constraints on the project parties. Whether during the milestone period or the observation period, project parties will complete the milestones as high quality as possible and report their progress truthfully, while also avoiding losses to investors and project parties due to unforeseen circumstances.