Why Your Digital City Needs a Protocol for Public Goods

Non-excludable goods like block explorers and RPC nodes are exploited by all but funded by few. This creates systemic fragility and centralization risk.

• Key Benefit 1: Protocol-level funding mechanisms (e.g., retroactive public goods funding, protocol revenue splits) align economic incentives with usage.
• Key Benefit 2: Transparent on-chain allocation eliminates political capture, ensuring funds flow to the most critical infrastructure, not the loudest voices.

Bootstrapping a new public good requires navigating a maze of DAO proposals, grant applications, and community signaling. This wastes ~6-18 months of developer time.

• Key Benefit 1: Automated, credibly neutral frameworks like Optimism's RetroPGF or Gitcoin Grants provide predictable funding rails.
• Key Benefit 2: Standardized on-chain primitives for contribution and valuation turn public goods into composable, investable assets, attracting capital from protocols like Aave and Compound.

Core infrastructure—like Ethereum's core devs, MEV research, or cross-chain security—lacks sustainable funding, pushing talent towards extractive DeFi apps.

• Key Benefit 1: A protocol creates a permanent, vested interest in the network's health, similar to how Lido's LDO token aligns stakers.
• Key Benefit 2: It enables positive-sum games where protocols like Uniswap and Arbitrum co-fund the infrastructure they all depend on, boosting the entire ecosystem's TVL and resilience.

The classic economic failure where users benefit without contributing, starving the system of resources. Without a mechanism to capture value from usage, infrastructure decays.

• Tragedy of the Commons: Unchecked consumption leads to resource depletion (e.g., congested block space, underfunded R&D).
• Vitalik's Quadratic Funding: A mechanism to optimally allocate capital, but requires sybil-resistance and a source of funds.
• Solution: Protocol-owned revenue streams (e.g., sequencer fees, MEV redirection) that fund development autonomously.

When token-weighted voting leads to control by a few large holders, subverting the protocol's mission for private gain.

• MakerDAO Pre-ESG: Early governance skewed towards financial maximization over public good stability.
• Curve Wars: VeTokenomics created a meta-game for directing emissions, not necessarily optimal public goods funding.
• Solution: Futarchy (prediction market-based governance), conviction voting, or non-financial soulbound reputation (like Gitcoin Passport).

Even with funding, capital is often misallocated due to poor information, hype cycles, or poor incentive design.

• Grant Committee Inefficiency: Slow, subjective, and prone to insider bias. MolochDAO pioneered a model but faces scaling issues.
• RetroPGF Pitfalls: Optimism's experiment shows challenges in measuring impact and preventing collusion.
• Solution: Algorithmic retroactive funding with verifiable on-chain metrics, and Hats Protocol-style modular roles for execution accountability.

A public goods protocol that cannot adapt to new threats or opportunities becomes a legacy liability. This is a failure of on-chain upgradeability.

• Ethereum's Hard Fork Process: Social consensus is slow but robust. For a funding protocol, speed may be critical.
• Uniswap Governance Slowdown: Delegated voting and low participation can stall essential upgrades.
• Solution: Constitutional DAOs with clear amendment procedures, or zk-rollup-based L2s that can fork and iterate rapidly without fracturing the community.

Attackers create many fake identities to manipulate funding mechanisms like Quadratic Funding, draining resources to themselves.

• Gitcoin Grants' Constant Battle: Relies on a continuously updated sybil defense stack (Passport, BrightID).
• Cost of Attack: Often lower than the potential payout, creating a persistent economic vulnerability.
• Solution: Zero-Knowledge Proofs of Personhood (Worldcoin, Iden3), proof-of-humanity systems, and social graph analysis.

A successful, large-scale public goods treasury becomes a high-profile target for securities regulators and tax authorities.

• The Howey Test for Grants: Could disbursing funds be seen as an investment contract? Aragon and other DAOs face this ambiguity.
• OFAC Compliance: Sanctioned entities could theoretically receive funds, creating legal risk for contributors.
• Solution: Legal Wrapper DAOs (like Kleros or LAO), zk-proofs for regulatory compliance (without exposing all data), and proactive policy engagement.