Public Goods Funding

Funding mechanisms that move beyond simple token voting (one-token-one-vote) to incorporate diverse signals and prevent whale dominance. This includes:

• Conviction Voting: Support accumulates over time a user holds a vote.
• Peer-to-Peer Matching: Donors can match each other's contributions.
• Impact Certificates: Tokenized proof of a project's measurable outcomes. These methods aim for more nuanced, equitable, and effective capital allocation.

A dedicated pool of capital, often generated through protocol revenue (e.g., fees, seigniorage), that is autonomously or democratically governed to fund public goods essential to the ecosystem's long-term health.

• Source: Can be funded via a portion of block rewards, transaction fees, or token issuance.
• Governance: Allocation is typically managed by token holder votes or specialized committees.
• Purpose: Funds core development, security audits, research, and community initiatives.

The core economic challenge that public goods funding mechanisms aim to solve. It describes a situation where individuals can benefit from a resource (non-excludability) without contributing to its cost, leading to systematic underfunding.

• Blockchain Example: Everyone benefits from a secure network and robust infrastructure, but no single user has sufficient incentive to pay for its full development.
• Solution: Mechanisms like quadratic funding create economic incentives that align individual contributions with collective benefit.

The two defining economic properties of a pure public good. Understanding these is key to identifying what should be funded.

• Non-Excludable: It is impossible or extremely costly to prevent non-payers from using the good (e.g., open-source code, protocol security).
• Non-Rivalrous: One person's use does not diminish another's ability to use it (e.g., a blockchain's consensus rules). Most digital infrastructure in web3 exhibits these properties, creating a strong case for collective funding.

A results-based funding model pioneered by Optimism that rewards projects after they have demonstrated proven value to the ecosystem. Funds are allocated through a multi-round process involving community voting. This aligns incentives by funding what is useful, not just what is proposed.

• Key Principle: "Impact = Profit" – rewards are proportional to proven impact.
• Process: Projects apply, community reviewers assess impact, token holders vote on allocations.
• Example: Optimism's RetroPGF rounds have distributed tens of millions of OP tokens to developers, educators, and toolmakers.

A decentralized crowdfunding platform that uses quadratic funding to allocate matching funds from a pool. This mechanism amplifies the number of contributors, not just the amount contributed, favoring projects with broad community support.

• Mechanism: Individual donations are matched from a central pool; the matching formula squares the sum of square roots of contributions.
• Purpose: Efficiently signals community preference and funds a wide array of open-source software, community projects, and advocacy.
• Scale: Has facilitated over $50 million in funding for thousands of projects across multiple rounds.

Direct funding from a blockchain protocol's native treasury, often managed by a DAO or foundation. This is a proactive, grant-based approach to sponsor development deemed critical for the ecosystem's growth.

• Source: Funded by protocol revenue, token reserves, or ecosystem funds.
• Governance: Grant committees or token-holder votes decide on allocations.
• Examples: Uniswap Grants Program, Aave Grants DAO, and the Ethereum Foundation all provide grants to developers, researchers, and community builders.

A mechanism that redirects a portion of Maximal Extractable Value (MEV) profits toward public goods. Through Proposer-Builder Separation (PBS), block builders can bid for the right to construct a block, and a share of this bid can be committed to a public goods fund.

• Flow: Builders bid → Winning bid's value is split between the block proposer and a designated recipient (e.g., a grants DAO).
• Implementation: Used by Ethereum after The Merge, with projects like Flashbots operating relay services.
• Potential: Creates a sustainable, protocol-native revenue stream aligned with network usage.

A niche but influential model where a percentage of secondary sales for on-chain generative art is automatically directed to the artist and/or a curated arts fund. This creates a sustainable funding loop for digital art as a public/cultural good.

• Mechanism: Smart contracts enforce a royalty fee (e.g., 5-10%) on all secondary market sales.
• Platform: Art Blocks curates generative art projects and has directed millions in royalties to artists.
• Concept: Demonstrates how programmable money and NFTs can create new patronage models for cultural goods.

A decentralized application implementing quadratic funding on a continuous, round-less basis. It uses a MACI (Minimal Anti-Collusion Infrastructure) to prevent sybil attacks and collusion in the voting process, making it suitable for smaller, frequent funding rounds.

• Difference from Gitcoin: Operates on a continuous model rather than discrete rounds, with heavier emphasis on anti-collusion.
• Tech Stack: Built on Ethereum, using zk-SNARKs via MACI to preserve voter privacy and prevent fraud.
• Use Case: Ideal for community-driven ecosystems needing frequent, trust-minimized distribution of smaller grants.

A core economic challenge where individuals benefit from a resource without contributing to its cost, disincentivizing funding. In blockchain, this manifests when projects use open-source code, protocols, or security without supporting their development.

• Example: A new Layer 2 benefits from Ethereum's battle-tested client software but contributes nothing to its maintenance.
• Impact: Can lead to under-provisioning of critical infrastructure, creating systemic risk.

A central debate on the timing of capital allocation.

• Retroactive Funding (Results-Based): Rewards proven, valuable work after the fact (e.g., Optimism's RetroPGF rounds). Reduces risk for funders but may leave builders undercapitalized during development.
• Proactive Funding (Grant-Based): Provides capital upfront based on proposals (e.g., Gitcoin Grants, ecosystem DAOs). Fuels innovation but carries higher risk of funding projects that fail to deliver measurable value.

Quantifying the value of a public good is inherently difficult, making fair fund allocation a major challenge.

• Key Questions: How do you measure the impact of a developer tool, educational content, or core protocol research?
• Current Methods: Include qualitative voting (e.g., Gitcoin's Quadratic Funding), expert panels, and heuristic metrics like usage stats or dependency graphs.
• Risk: Subjective or flawed metrics can lead to misallocation, favoritism, or funding "popular" over "essential" work.

Creating a perpetual, non-dilutive funding source is critical for long-term ecosystem health.

• The Challenge: Reliance on one-off donations or token treasury grants is not scalable or predictable.
• Emerging Models:
  • Protocol-Owned Revenue: Directing a portion of network fees (e.g., transaction fees, MEV) to a public goods fund.
  • Token-Engineered Mechanisms: Using mechanisms like bonding curves or LP fees to generate continuous funding streams.
• Goal: Align the success of the ecosystem with the funding of its foundational goods.

Deciding what to fund and how much requires complex collective decision-making, which introduces friction and cost.

• Governance Burden: DAOs and funding committees spend significant time evaluating proposals, voting, and executing payments.
• Sybil Attacks & Collusion: Systems like Quadratic Funding must defend against users creating multiple identities (Sybils) or colluding to manipulate vote outcomes and extract funds.
• Trade-off: Increasing decentralization in funding decisions often increases administrative complexity and vulnerability to attack.

A tension exists between funding immediately useful tools and foundational, long-term research.

• Horizon 1 (Applied): Development of immediate-use tools, dApps, and integrations. Easier to fund due to visible, short-term impact.
• Horizon 2+ (Basic Research): Foundational cryptography, novel consensus mechanisms, or new virtual machines. High risk, long time horizons, and difficult to evaluate, leading to chronic underfunding despite being the source of future breakthroughs.

A funding model pioneered by Optimism's RetroPGF that rewards projects after they have demonstrated proven value to the ecosystem. This solves the 'funding prediction' problem by paying for outputs, not speculative promises.

• Process: Independent badgeholders assess and vote on the impact of past work.
• Advantage: Aligns incentives with tangible outcomes and reduces the risk of funding ideas that fail to deliver.

A DAO-controlled treasury, often funded by protocol revenue (e.g., fees) or token issuance, used to fund ecosystem development and public goods. This creates a sustainable, on-chain funding source independent of traditional venture capital.

• Examples: Uniswap Grants Program is funded by the Uniswap DAO treasury. Optimism's RetroPGF is funded by sequencer revenue and token allocations.
• Governance: Fund allocation is typically managed via tokenholder voting on grant proposals.

A core economic challenge in public goods funding where individuals benefit from a resource without contributing to its cost, leading to underfunding. Blockchain mechanisms aim to mitigate this.

• Traditional Example: Everyone uses open-source software, but few pay for its development.
• Crypto Solutions: Quadratic Funding encourages small contributions. RetroPGF rewards builders directly. Protocol treasuries create aligned funding pools.

A tokenized claim or attestation that represents a verifiable contribution to a public good. These can be used to track, verify, and potentially trade proof of impact, creating a data layer for retroactive funding systems.

• Function: Acts as a non-financial record for contributions like code commits, educational content, or community moderation.
• Goal: To make impact legible and auditable, providing clear signals for funding algorithms and voters.