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Creating financial models and incentive structures that ensure the long-term sustainability and equitable growth of the Meta-Layer ecosystem.
A peek at recent conversation in DP17 - Financial Sustainability. Join to read the full history and post.
Join workgroup →Melanie Bielefeld sent these notes on DP17 by email:
You've covered most of the territory of problem / possible solutions.
I invite you to consider two things
- Consider a dual entity structure where a for profit endeavor funds the public or semi private/public organization. Clean energy profits, daily games ("Wordle"), data center fees, whatever legitimate businesses people turn to in hard times, etc.
- You may have done this a million times. However, it's worth repeating. Take a step back away from problem/solution dynamics for a minute and view/review the concept as a living system. How does energy flow through the system?
Daveed's reply to Melanie Bielefeld, sent by email:
Hi Melanie,
Thank you. Your second point stayed with me: stepping back from problem and solution to ask how energy flows through the system is a different question from the one DP17 mostly asks, and a useful one.
I checked whether the chapter already covers a hybrid structure. It doesn't, quite. It lists commercial services run by the same organization, and its open questions mention hybrids of grants, fees and commons funding, but nothing about a separate for-profit entity funding the steward. So I've made two proposals.
In DP17, below the sentence "Sustainability comes from blended, deliberately structured funding: a stable base…", I've proposed:
"One deliberate structure is a dual-entity model, in which a for-profit affiliate runs legitimate businesses, such as clean energy, daily games, or data-center services, and directs part of its surplus to the public or semi-public organization that stewards the meta-layer. This can give maintenance and assurance a stable base that does not depend on grants. The relationship must be disclosed: the share of surplus committed, how long the commitment runs, and what the affiliate can and cannot influence. The affiliate's own revenue must respect the boundaries in 6.5, and control of funding must not become control of governance (5.11.4)."
You can see the spot here: https://book.desirableproperties.org/viewer/dp17?discuss=1&canopiOpen=1&canopiMsg=ed154f7d-0829-4df3-a229-6e1be516a06b&canopiPageId=book_desirableproperties_org_viewer_dp17
In DP17, below the sentence "This includes inflows, outflows, and internal transfers between functions…", I've proposed:
"Money is only one of the flows that keep the system alive. Viewed as a living system, the meta-layer also runs on contributor time, attention, trust, and care. Sustainability review should trace where these enter, where they turn into value, where they return to communities, and where they leak or pool. A flow that is steadily drawn down without being replenished, such as volunteer moderation or maintainer goodwill, is a sustainability risk even when the budget balances."
You can see the spot here: https://book.desirableproperties.org/viewer/dp17?discuss=1&canopiOpen=1&canopiMsg=390a2446-e633-48b9-b2b4-1b282903219c&canopiPageId=book_desirableproperties_org_viewer_dp17
Both will show up in the chapter's discussion once they are posted, and you can comment on them or refine them there.
Two things I left out of the text. I didn't name which businesses the affiliate should run beyond your examples; that is a choice for the workgroup. And I added safeguards so the for-profit side can't fund itself through the kinds of revenue the chapter rules out, or turn funding into control. If that feels like it dilutes your idea, tell me.
It helped. Thank you for making the time.
With thanks,
Daveed
Melanie Bielefeld sent these notes on DP17 by email:
Beautiful reflections - keeping safety at the center of the DP.
A dual entity can be a nonprofit with a for profit entity or vice versa.
But much easier if nonprofit is the owner of the for profit. Here's a few rules:
Key Rules and Limitations on Revenue
- No Hard Ceiling on Earnings: A for-profit subsidiary can make as much money as the market allows. The IRS does not cap the gross or net income of a for-profit company owned by a nonprofit. [1, 2]
- The "Primary Purpose" Test (Substantial Test): While the for-profit can earn unlimited revenue, the parent nonprofit must still be primarily operated for its exempt, charitable purpose. If the nonprofit spends the vast majority of its time, energy, and resources running or managing the for-profit business rather than its charitable mission, the IRS can challenge or revoke the nonprofit's tax-exempt status.
- Unrelated Business Income Tax (UBIT): If the for-profit generates income from an activity that is unrelated to the nonprofit’s core tax-exempt mission, that income is subject to regular corporate income taxes (known as UBIT) when distributed or processed through certain structures. [1, 2]
- Dividends and Distributions: The for-profit company cannot just hand over cash informally. It distributes its earnings to the parent nonprofit only in the form of dividends. [1]
- The Non-Distribution Constraint: Once the money reaches the nonprofit parent, those funds belong to the public trust. They cannot be distributed as profit shares or bonuses to individual board members, founders, or private shareholders. Every dollar must be reinvested back into the nonprofit's tax-exempt mission or operations. [1, 2, 3]
- Strict Corporate Separation: To protect the nonprofit's tax-exempt status, the for-profit and nonprofit must maintain strict legal, financial, and operational boundaries (separate bank accounts, separate boards or distinct governance, arm's-length transactions, and proper record-keeping). If the lines blur, the IRS can "attribute" the for-profit's activities or debts directly to the nonprofit. [1, 2]
Daveed's reply to Melanie Bielefeld, sent by email:
Hi Melanie,
Thank you for the follow-up on how a dual entity should be structured. The rule that the nonprofit owns the for-profit, and that money reaches the steward only as formal distributions, is clearer than what the chapter had.
I've added it as a proposal, credited to you:
In DP17, below the sentence "This includes inflows, outflows, and internal transfers between…", I've proposed: "Where a dual-entity model is used, it is simplest when the nonprofit steward owns the for-profit affiliate. The affiliate's earnings reach the steward only as formal distributions; funds that arrive are reinvested in the mission, never paid out as profit shares or bonuses; the two entities keep separate accounts, separate governance, and arm's-length dealings; and the steward stays primarily occupied with its mission rather than with running the business."
It will show up in the chapter's discussion, and you can comment on or refine it there.
With thanks, Daveed
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