Retroactive Funding (RetroPGF)

Funds are distributed retroactively based on the demonstrated impact a project has already had on the ecosystem, rather than its future potential. This shifts the focus from speculative promises to verifiable utility. Key principles include:

• Impact Verification: Assessing tangible contributions like infrastructure, tooling, or educational content.
• Meritocratic Distribution: Rewards are proportional to the community-perceived value delivered.
• Example: The Ethereum ecosystem's Optimism Collective has distributed over $100 million across three rounds to fund developers, educators, and toolmakers.

Funding decisions are made by a decentralized cohort of badgeholders or voters who are trusted community members. This process, often called citizens' house voting, aims to align incentives with the network's long-term health.

• Badgeholder Selection: Voters are typically selected based on their proven contributions or stake in the ecosystem.
• Quadratic Funding: Some implementations use quadratic voting to reduce the influence of large stakeholders and amplify community sentiment.
• Transparency: All proposals, votes, and fund allocations are recorded on-chain for public audit.

RetroPGF operates in discrete, recurring rounds, creating a predictable rhythm for contributors and the treasury.

• Periodic Evaluation: Projects are assessed at the end of a defined period (e.g., quarterly or annually).
• Treasury Management: Funds are often drawn from a protocol's treasury or a dedicated public goods fund sustained by network revenue (like sequencer fees on L2s).
• Iterative Design: Each round incorporates learnings from previous ones, refining voting mechanisms and impact metrics.

A core challenge is quantifying the often-intangible value of public goods. Systems rely on a combination of qualitative assessment and quantitative proxies.

• Proxies for Value: Metrics might include usage statistics (contract calls, DAUs), dependency graphs (libraries used by other projects), or educational reach.
• Attribution Problem: Determining the specific value a single project contributed within a complex, interdependent ecosystem.
• Tooling: Emerging tools like Hypercerts provide a framework for representing and tracking impact claims.

RetroPGF fundamentally inverts the standard model for financing public goods.

• Traditional Grants: Prospective, gatekept. Funds are allocated by a foundation or committee based on proposals and promises.
• RetroPGF: Retrospective, meritocratic. Funds are allocated by a decentralized community based on proven results.
• Key Advantage: Reduces overhead from grant writing and proposal evaluation, and directly incentivizes the creation of actually useful outcomes.

RetroPGF exists within a broader landscape of decentralized funding mechanisms.

• Gitcoin Grants: A pioneering platform using Quadratic Funding for matching donations to public goods.
• Protocol Guild: A collective that automatically allocates a portion of protocol revenue to core Ethereum contributors.
• Moloch DAOs: Grant-giving DAOs that popularized the concept of rage-quitting if members disagree with funding decisions.
• Futarchy: A proposed governance model where markets are used to predict and fund optimal outcomes.

RetroPGF operates on the principle of retrospective reward. Instead of funding proposals for future work, it identifies and funds work that has already proven valuable to the ecosystem. This is typically managed through a decentralized voting process where a curated group of badgeholders or community members assess contributions and allocate funds from a shared treasury. The process inverts traditional grant models by rewarding proven impact.

By de-risking the funding model for public goods, RetroPGF creates sustainable incentives for builders. Developers can focus on creating genuine utility without the overhead of constant grant writing or token speculation. This aligns long-term ecosystem health with contributor rewards, fostering a positive-sum environment where valuable work is reliably compensated after the fact.

The model faces significant challenges, primarily around subjective valuation and voter coordination. Determining the 'value' of a public good is inherently qualitative, leading to potential disputes. Other critiques include:

• Voter fatigue from evaluating numerous projects.
• Sybil attacks and collusion in voting processes.
• The funding gap where projects need capital upfront before retroactive rewards are possible.

RetroPGF exists within a spectrum of ecosystem funding mechanisms. Key related models include:

• Proactive Grants: Traditional grants for proposed future work (e.g., Ethereum Foundation grants).
• Protocol Revenue Sharing: Direct distribution of protocol fees to contributors (e.g., fee switch mechanisms).
• Quadratic Funding: A matching model that amplifies community donations (used by Gitcoin). RetroPGF is often combined with these models to create a more complete funding stack.

The future of RetroPGF involves increasing automation and objectivity through Data-Driven Evaluation. This includes using on-chain metrics (like contract calls, TVL impact, dependency usage) and off-chain analytics to inform voting. Experiments with futarchy (decision markets) and decentralized identifier (DID) systems aim to improve the quality of assessments and reduce governance overhead for funding public goods.

The core challenge is quantifying the impact and value of public goods, which are often non-financial and diffuse. Unlike a market price, value is determined by a voter jury or decentralized committee, introducing subjectivity. Key questions include:

• How to compare the value of a developer tool versus an educational resource?
• How to account for long-term, indirect impact versus immediate utility?
• How to prevent voter collusion or popularity contests?

Preventing Sybil attacks—where a single entity creates multiple identities to gain disproportionate voting power—is critical. Projects like Optimism's RetroPGF use identity attestation and reputation systems (e.g., Gitcoin Passport) to mitigate this. Other allocation challenges include:

• Determining the optimal funding round cadence and total budget.
• Ensuring fair distribution between large infrastructure projects and smaller community efforts.
• Avoiding the centralization of funding to a few well-known entities.

Designing a sustainable governance model for voters is complex. Voters must be knowledgeable, aligned with the network's long-term health, and resistant to bribery. Common models include:

• Badgeholder systems: Trusted community members are selected as voters.
• Futarchy: Using prediction markets to inform funding decisions.
• Delegation: Allowing token holders to delegate voting power to experts. Poor design can lead to voter apathy, low-quality signaling, or governance capture.

RetroPGF creates a retrospective reward system, which does not provide upfront capital for builders. This can lead to funding uncertainty and may not support long-term project roadmaps. Key sustainability issues are:

• Creating a reliable revenue source for the funding pool (e.g., sequencer fees, treasury allocations).
• Risk of creating clientelism, where projects optimize for retroactive rewards rather than organic utility.
• The challenge of transitioning projects from retroactive grants to sustainable business models.

Clearly defining what constitutes a public good eligible for funding is non-trivial. Disputes often arise over:

• Excludability: Should profitable projects that also provide public benefit be eligible?
• Project Scope: Does work on a competing chain count as a public good for this ecosystem?
• Funding Recipients: Should funding go to individual contributors, project treasuries, or DAOs? Poorly defined eligibility criteria can lead to community conflict and misallocation of resources.

Assessing long-term impact is inherently difficult within the timeframe of a funding round. A tool's true value may only become apparent years later. This leads to a bias towards funding:

• Projects with immediate, measurable outputs over foundational research.
• Visible consumer applications over critical but less-seen infrastructure (the plumbing).
• Work that is easy to describe and attribute versus collaborative, multi-contributor efforts. This measurement problem is fundamental to the public goods funding dilemma.

A public good is a resource that is non-excludable (no one can be prevented from using it) and non-rivalrous (one person's use does not diminish another's). In web3, this includes core infrastructure like protocols, client software, developer tools, and educational content. The classic economic problem is that public goods are underfunded by the market, as creators cannot easily capture value, leading to the need for mechanisms like RetroPGF.

A funding mechanism for Ethereum core protocol developers. It is a vesting contract that holds tokens donated by Ethereum-based projects (like L2s). Guild members (active core contributors) receive a proportional share of the vested tokens over time. It is retrospective in spirit, rewarding sustained past contributions, but operates as a continuous stream of funding rather than discrete rounds.

A framework for decentralized autonomous organizations (DAOs) focused on pooling capital and making collective funding decisions. Many grant DAOs use the Moloch v2 or v3 framework to manage funds for ecosystem growth. While they can fund public goods, their process is typically proposal-based and prospective. RetroPGF can be seen as a specific, optimized voting mechanism that could be deployed within a DAO structure.

A governance mechanism where decisions are made based on prediction markets. In theory, a futarchy for public goods could involve markets that predict which projects will create the most future value, with funding allocated accordingly. This contrasts with RetroPGF's reliance on human judgment (voting) to assess past impact. It represents an alternative, more market-driven approach to the same problem of value assessment.