Vitalik Buterin (Ethereum Co-founder) – Funding public goods algorithms and mechanisms (Nov 2021)

Chapters

Abstract

Public Goods in Blockchain Communities: A Comprehensive Approach to Sustainable Development

Introduction: The Vital Role of Public Goods in Blockchain Ecosystems

In the rapidly evolving world of blockchain and cryptocurrencies, public goods emerge as a pivotal element for the survival and prosperity of blockchain communities. This article, drawing insights from blockchain expert Vitalik Buterin and various initiatives like Gitcoin Grants, delves into the intricacies of funding public goods within these digital ecosystems. The discussion spans the importance of such goods, funding challenges and mechanisms, and the potential long-term impacts on the Ethereum ecosystem and beyond.

1. The Critical Importance of Public Goods in Blockchain Communities

Public goods, including open-source client code, protocol research, documentation, and community building, form the backbone of blockchain communities. Their open and communal nature benefits every participant, underpinning the functionality and growth of these digital networks. The long-term sustainability of blockchain ecosystems relies heavily on the continuous support and development of these public goods.

2. Complexities in Funding Public Goods

Funding these vital resources is fraught with challenges, encapsulated in two key questions: the source of funding and the mechanism for fund allocation. Traditional methods like individual and corporate donations often fall short or risk centralizing control. Innovative approaches, such as ongoing issuance, redirected fees, and quadratic funding, are being explored to establish a sustainable funding model. Notably, Buterin advocates for funds to originate from applications and protocols, broadening the funding base beyond traditional donors.

3. Exploring Diverse Funding Sources and Mechanisms

Various mechanisms have been implemented or proposed for the effective allocation of these funds. The Ethereum Foundation Grants Committee, Moloch DAO, and experiments like Bitcoin Grants reflect the diverse approaches being tested in the field. These initiatives aim to democratize the funding process, ensuring equitable distribution and addressing governance challenges inherent in funding public goods.

4. Gitcoin Grants: A Community-Driven Funding Platform

Gitcoin Grants stands out as a beacon in this landscape, offering a quadratic funding mechanism that amplifies the impact of individual contributions. This approach democratizes funding, ensuring that projects with broad community support receive the most funding. This mechanism represents a significant shift towards a more inclusive and participatory model of funding public goods.

5. Retroactive Funding: A Forward-Thinking Solution

Retroactive funding emerges as a novel concept, rewarding projects based on their past contributions and impacts. This approach significantly reduces risk for contributors and ensures that funding is directed towards projects that have already demonstrated their value. It represents a paradigm shift in how we think about funding public goods, focusing on proven impact rather than speculative potential.

6. Scaling and Sustaining Public Goods Funding

The scaling of these funding mechanisms presents its own set of challenges, particularly in terms of governance, participation, and sustainability. Involving successful applications and Layer 2 protocols in the funding process could provide a robust solution, leveraging their revenue streams to support public goods. Additionally, innovative governance models, such as quadratic funding, can help ensure equitable and efficient fund distribution.

7. The Broader Impact on Ecosystem Development

As these funding mechanisms mature, they have the potential to catalyze the development of dynamic ecosystems. This includes fostering specialized infrastructure, tools, services, and collaborations among various stakeholders. In the long term, these developments can significantly contribute to a more sustainable and impactful public goods funding landscape.

8. Measuring Impact and Accountability

A major challenge in this domain is measuring the impact of funding mechanisms. Given the diverse nature of public goods and the difficulty in attributing outcomes to specific initiatives, developing metrics and frameworks for impact assessment is crucial. These efforts are vital for enhancing the transparency and accountability of funding mechanisms.

9. Retro Funding Challenges and Innovations

Buterin has pointed out challenges in the current badge holder system for retro funding, such as the impractical expectation for badge holders to evaluate every project. Future adaptations could include a two-level system or delegation to specialists, offering a more sustainable and efficient approach to retroactive funding.

10. Retro Public Goods Funding vs. Prizes

It’s important to distinguish between retro public goods funding and prizes. While prizes are specific to categories with defined goals, retroactive public goods funding is more generic, rewarding any impactful project. This approach captures a broader range of valuable projects that may not fit into specific categories, but it also introduces complex governance challenges.

A Forward-Looking Perspective on Funding Public Goods

In conclusion, funding public goods is crucial for the growth and sustainability of blockchain ecosystems like Ethereum. The collective support from the community for such projects fosters innovation and long-term growth. As these funding mechanisms evolve, they hold the potential to drive transformative changes and contribute significantly to the development of a more vibrant and impactful digital world. The insights from Buterin and initiatives like Gitcoin Grants illuminate the path forward, highlighting the need for innovative, inclusive, and sustainable solutions in funding public goods.

Supplemental Information Update

Funding Public Goods in Blockchain Communities: Vitalik Buterin’s Perspective:

– Funding Sources: Buterin emphasizes the need for long-term and systematic funding solutions, suggesting that funding should come from applications and protocols, not just individuals and companies.

– Retroactive Funding: Buterin proposes retroactive funding as a way to avoid the challenges of making predictions and allow for the funding of long-shot projects that ultimately succeed.

– Retroactive Funding Challenges: Buterin acknowledges challenges with the current badge holder system for retro funding and suggests a two-level system or delegation to specialists as potential solutions.

– Retro Public Goods Funding vs. Prizes: Buterin highlights the distinction between retro public goods funding and prizes, emphasizing that the former is more generic and captures a broader range of valuable projects.

Sustainable Public Goods Funding in Ethereum:

– Systematization and Collaboration: Buterin calls for a systematic approach to public goods funding, involving collaboration between funding mechanisms across different ecosystems.

– Scaling Challenges: Buterin discusses challenges in scaling funding projects, including securing more funding and addressing governance issues. He suggests that Layer 2 protocols and successful blockchains can generate significant fees that can contribute to public goods funding.

– Quadratic Funding and Governance: Buterin discusses quadratic funding as a democratic mechanism for scaling funding and addresses the need for governance scaling to handle decision-making in larger funding mechanisms.

Challenges and Opportunities in Retroactive Public Goods Funding:

– Retro Funding Challenges: Buterin identifies the current badge holder system’s expectation for every badge holder to have an opinion about every project as unsustainable. He suggests a two-level system or delegation to specialists as potential solutions.

– Retro Funding for Long-Term Projects: Buterin suggests the applicability of retroactive public goods funding to long-term projects but acknowledges the need for confidence in the longevity of the retroactive funding ecosystem.

– Retro Funding vs. Prizes: Buterin contrasts retroactive public goods funding with prizes, highlighting the former’s more generic nature and its ability to capture a broader range of valuable projects. He also acknowledges the higher governance challenges associated with retroactive public goods funding due to its open-ended nature.

Notes by: Rogue_Atom