Problem
Ethereum as an onchain economy needs to solve its own public goods problem. Specifically, if a project or open source repo provides a value of $10 to 10 revenue generating organizations but requires $60 for its upkeep, it ends up getting underfunded despite a positive expected value of $40 to the ecosystem as a whole. No individual picking up the entire bill of $60 makes sense, but at the same time if the ecosystem supported the project everyone benefits more than if it was unsupported.
As we start to see the launch of more L2s and EVM based alt L1s, solving this coordination failure becomes paramount. If they each pay their share for ecosystem goods that make everyone better off, it starts a flywheel effect where more institutions join the party, solidifying Ethereum network effects and dominance.
Vitalik has written on the general direction for solving these issues. He proposes working on credibly neutral funding mechanisms that have
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mandatory indirection without specific people or institutions written into the mechanism itself (a feature that grant making bodies lack)
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Open source and verifiable execution (such as quadratic funding)
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Keeping it simple with minimal changes (like protocol guild)
We propose a domain around this theme both as a way of bringing together the small space of funding mechanism builders and also to create an incentive for more to join this niche. Eventually, we want all revenue generating organizations in Ethereum or EVM to put money into credibly neutral funding mechanisms that can auto-allocate to the network goods they depend on and that bring them a +EV
Why Now?
Gitcoin has shifted strategy, from relying upon mechanism builders in its grant rounds to leveraging the funding mechanism across the ecosystem. For this strategy to work, we need to incentivize good funding mechanisms that can be deployed across the various domains . So at a simple level, this domain will bring all mechanism builders onto one page and show the ecosystem the availability of various allocation mechanisms they can use for their specific domain.
In the recent GreenPill podcast, Vitalik mentioned that there is room for 5-8 credibly neutral funding mechanisms to support Ethereum’s growth. Thus far, we only have 3 piloted at scale: QF, RetroPGF, and Guilds. We need to dramatically accelerate the pace at which we build out such mechanisms to supercharge the Ethereum ecosystem. With Octant kickstarting its Ethereum Sustainability Fund & other proposals to route validator rewards towards such mechanisms, we need to grow the space so that it is already battle tested before we can entrust larger amounts to them.
This proposal will be a domain
- Restricted to those who build funding infrastructure only
- Amounts will be distributed at end of 6 month period instead of beginning
Allocations to each team will depend on actual value flowing through mechanisms, incentivizing adoption of their tech stack instead of rewarding those who simply build tech or can better discipline their community
Why GG24?
Gitcoin has adopted a new role in the ecosystem: rather than competing with other mechanisms, it seeks to become a schelling point bringing all mechanisms together This domain would formalize the process by getting mechanism builders (such as gardens, hypercerts, butter, etc) into one domain.
Simultaneously, as the allocation mechanism depends on actual business metrics (specifically, how much money has been entrusted for streaming through your protocol) it would incentivize actual adoption over simply building new mechanisms that may not receive any actual usage.
By proposing this formally as a GG24 domain, we hope to also gauge organic interest in the niche of building funding mechanisms.
Satisfaction Test
The money given under this domain will only be distributed after 6 months. The only criteria will be actual usage of the funding mechanism, ie, how much funding has been distributed through it? So we have a quantitative measure to show success in 6 months, that is, how many of the funding mechanism builders that applied under this domain actually had use in the 6 month period and in what amounts?
As a general note, retro funding works better when expectations are communicated much in advance, giving teams time to align around achieving them before funding is distributed. We would measure genuine impact through emergence of funding mechanisms that can be credibly recommended for GG25 as they have proven their stripes in this round.
Overall, we want more of the Ethereum ecosystem to move from grant allocations or committees towards credibly neutral funding mechanisms. We can measure whether the Ethereum community is glad we funded this domain based on whether we start to see more adoption of this infra vs the regular grant making bodies at foundations deciding the teams that get funded and for how much.
Implementation
This domain is open to only those who are building or have deployed credibly neutral funding infrastructure. The actual allocation of funding to these domain builders would depend on total value that has flowed through their mechanism with a quadratic instead of proportional distribution.
Devansh Mehta is an expert in this area who will run this domain and ensure high quality applications. While we eventually eventually want to move to a version of streamed funding (such as superfluid) based on metrics achieved over time like funding flowing through the mechanism, for GG24 the following process will be followed;
- Accept applications until a cut off date
- Domain experts approve or reject applications
- Deployment period starts where successful applicants are encouraged to get as much funding flowing through their onchain mechanism as possible
- At end of deployment period, domain experts review amount flowing through the mechanisms of various applicants and disqualify those engaging in wash trading or other unethical behavior
- The overall funding in this pot is then distributed based on quadratic division of amount that was allocated via these mechanisms. For example, if drips is used to distribute $100,000 and hypercerts $25,000 in the 6 month period, we will not use a proportional 3:1 split for the funding pot but instead a quadratic split. If a mechanism is approved into the round but does not get any business testing it, they receive 0 funds from the pot.
There may be sub rounds for applicants. For example, while hypercerts as a whole might apply under the domain, there are many teams working on hypercerts. So the hypercerts team might pass on revenue earned to those builders depending on value flowing through their platform.