Funding the Commons | Retroactive Public Goods Funding Experiment 1

[Music] [Applause] welcome back to the funding the commons virtual summit for those of you just joining us this event is centered on new models of public goods funding you can add your questions for the speakers in the ethglobal.tv chat and we can continue to discuss these issues and projects in the telegram channel also linked in the chat we'll be kicking off this session with the talk by carl floresh carl is a crypto economist and scalability expert he's currently cto of optimism and previously an ethereum foundation core researcher carl will be describing a very interesting experiment discussing the mechanisms results and learnings of optimism's first retroactive public goods award welcome carl why hello all right well let's get going as as was stated earlier i am carl and let's start talking about retroactive public goods funding we just did some really cool experimentation and yeah let's let's let's dive right in okay so optimistic ethereum retroactive public goods funding experiments so optimistic ethereum is a layer two scaling solution it's basically ethereum on layer two but there's a side of scaling ethereum that doesn't just correspond to the you know nitty-gritty implementation it actually has more to do with the incentives and the value that is being generated on that network and where that value is going is it going to build public goods software so okay optimism pbc i work at optimism ppc ppc stands for public benefit corporation and what that means is instead of just being a normal corporation we have a public charter and that charter is to enshrine fair access to public goods on the internet using open source software that means that we are building open source software so that public goods are built in perpetuity on the internet so that we have good public infrastructure that we can use as internet citizens metaverse citizens okay so table of contents we got a lot of a lot to cover so i gotta go fast however start off with the public goods problem so what is what what are we trying to do what is a public good why are we not getting it funded then how we can solve that which is retroactive public goods funding and finally we'll talk about an actual experiment that we did last month where we gave away 1 million dollars to fund public goods retroactively we'll talk about what that means so first what's a public good let's use the example of open source software as that's a classic quote public good so a good it is a good a thing that is one non-excludable that means that if i share my open source software with the world then everyone has access to it it's not exclusive right and additionally it's non-rival risk that means that if someone reads and understands the code that i write it doesn't exclude someone else or it doesn't mean that someone else can't also read that same code and get the same you know spark from it unlike an apple right where you eat the apple and no one else can eat that apple that would be a private good for context the problem is that there's no business model for public goods why well it's because there's no way to monetize a public good traditionally through for instance holding it back so that someone you know i'm selling you a starbucks coffee and you know you give me money i give you the starbucks coffee that doesn't quite work in this area in open source software as we all know and so no business model means no investors and oftentimes means no stake in the game and you also don't get a big payout no exit no there's no there's no driving force that is monetary that expresses the actual value that people are creating which is a big problem and guess why this is a really big problem for us well ethereum core infrastructure is all open source and so there is not nearly enough investment in ethereum core infrastructure when compared to other parts of the ethereum ecosystem and so that is why this issue is so close to our hearts but it is not just an issue for ethereum core infrastructure it is an issue for public goods on the internet generally very bad very sad okay so no business model bum-bum let's let's knock it out the park we we can add a business model to retroact and then that business model is using retroactive public goods funding so let's talk about what that means right we're on next section so a few months ago vitalik kind of was like hmm there's this retroactive public goods funding idea that i've been you know pondering a bit and then it's just oh it's it's it's infected my brain it's infected i think a number of other and other brains as well it's it's a quite infectious meme but before we define what retroactive public goods funding is let's define what it is not so it is not a traditional grants program what is what does a traditional grants program really do well okay a traditional grants program they have some ecosystem let's say a public park right there they're trying to they're trying to make their park the best park it can possibly be right you know oh man gosh this is this park is going up and to the right and so then we've got these builders and these builders they're like oh yeah i like this public park i want to build for this public park and they will propose ideas to the grants giving organization they'll say hey i want to build a slide or hey i want to build a swing set and the grands giving organization will you know think real hard and then pick one that it wants to fund right they are making a decision about what is best for the park okay so they pick out the the slide is best for the park send some money the builder uses that money to you know build the slide and boom now we've got a slide oh okay okay but what happens if the slide is not actually what people want right no one's using the slide how did the grants giving organization really know how to design kind of centrally design the park this ecosystem that is much more of an emergent and and you know natural phenomenon it's it's it's just a really hard problem and so the the grands giving org is trying to do the right thing but you know maybe the sl maybe the swing is what everyone really wanted how would they know and so we get the sad you know sad outcome okay so what's wrong with this picture right what's what can we do a little bit better well the grants giving organization is making judgments about how to invest money right how to where to put uh what public goods are actually required this is not necessarily the best thing that the grants giving organization is you know suited for let's flip that on its head instead let's replace the grants giving organization with something we call the results oracle so the results oracle instead of funding future work what it does is it it instead funds past contributions things that have already happened people that have already built great things that have demonstrated their value to the community instead give money back to those people retroactively right that's it so the way that this works high level is the results oracle of course needs a goal the goal can be very simple in fact it probably should be make the ecosystem the best most vibrant most attractive place possible that's a great goal and then you say okay the results oracle will measure the progress towards that goal we got the builders just like before but instead of the results oracle giving these pro proactive funding the builders just start building they start creating their you know open source projects or you know their tools or whatever it is right and we get closer to to that really incredible goal of you know having this vibrant and vibrant ecosystem then the results oracle says okay okay we've definitely gotten closer to that goal let's pay out the people who got us there right who actually contributed to our mission and those people get paid out and this process repeats the builders build what they think is going to add the most value on their own accord we get closer to the goal and the results oracle pays out the contributions that is at a core the big flip that happens between proactive funding and retroactive public goods funding so let's look at that more more generally so we've got the proactive side and the retroactive side and the proactive side is deciding what needs to be built and then top down dictating what it what needs to be built as opposed to the retroactive side we've got the builders and the con you know community members deciding what needs to be built and that kind of percolating up to the results oracle which then funds those builders and rewards them for their great contributions so proactive top down retroactive bottom up okay simple but now this begs the question if everyone's getting paid after they've built something how do they get paid while they're building it good question well thankfully we've got markets that's a market opportunity folks how do they get funding to bootstrap their venture well something uh venture capital maybe anyway well just as big incentives sorry big exits incentivize investment in startups we have retroactive rewards incentivize investment in public goods and this investment can be targeted and smart and intelligent so not not top down like a like a grants giving organization so we've actually created a multi-sided marketplace where the results oracle and developers exist but also investors developers get an idea pitch it to their investors the investors invest gives them give some money the developers implement the idea and the results oracle pays out everyone who is involved right this is literally how things get built all the time and we're just trying to do the same thing for public goods okay and of course we get great market dynamics where poor projects or or investors are weeded out and you know i i we we love everyone but they but you know anyway we'll we'll give them consolation prizes participation trophies okay um so proactive versus retroactive we've got the complete picture where the investors right down here are actually providing the seed funding that ends up creating a situation where the re the results oracle is able to give a uh reward or an exit to the open source public good startup so from idea right the developer investors resorts oracle to exit we've recorded the projects and we build a healthy ecosystem hallelujah right you know no business model get out of here um and you know we scale ethereum because all of these are public goods and and and great oh but wait a second wait a second you know it's not that easy it's not that easy um the results organ is non-trivial to implement so we're gonna have to perform some experiments to figure out how do we actually determine what projects have made a significant contribution and the best way to do that is through experimentation what do we do well experiment number one we last month gave away one million dollars to fund public goods retroactively we did this by electing 24 badge holders and all those badge holders would distribute determine who to give the money to no notably this one million dollars comes from the profits that optimism pbc creates because guess what optimism ppc has we've said we are not going to take any profits we are going to invest all of our profits in public goods boom so why badge holders what is the badge holder a badge holder is not a token holder right badge holder you can't transfer your badge you're just stuck with it the reason why we're just we're doing these badges is because we want to innovate in governance right we want to come up with a system that really effectively distributes stoke these these uh the these retroactive rewards so there were three phases to the experiment first phase nominations then we had a voting phase and then payments and so let's go over each one of them before we even started the project the project we created a badge holder manual which is essentially a you know a constitution that the badge holders would follow to retroactively you know to to to do their voting right this is their kind of terms of service some sense the highlights were first we need to fund public goods it's pretty pretty self-evident secondly we need to fund them retroactively this is self-evident however it is non-trivial as we found out thirdly it starts with optimistic ethereum but we expand outwards now notably what people the first question we got asked was oh optimistic ethereum what about ethereum public goods well the whole point of optimistic ethereum is that it is one-to-one with ethereum right it is it is ethereum we're trying to merge as much as possible so fund ethereum public goods well that's optimistic ethereum public goods these are one in the same so that is kind of how that works now notably also we wanted to make sure that badge holders did not vote with any conflicts of interest right that is that is critical and also non-trivial and also all communication would be publicly viewable that means that all communication was done in discord public discord in twitter public twitter obviously and also in public calls which we had two of them which we actually didn't plan up ahead but we'll talk about all of these things momentarily so first off let's talk about nominations this happened about you know i think a month and two weeks ago something like that okay phase one nominations first three week long process this is majority of the the time was spent on nominations we got some really really good nominations with a lot of detail thoughts of shout out to all the community members who provided these nominations that was awesome in fact we got so many nominations that we broke the quadratic dot co by the way great you know shout out to bitcoin for funding it for making that site um website so we had to you know fix it we got 78 nominations that were really quality we had to weed out you know around around 20 of them conflicts of interest well almost immediately one of the hypotheses we wanted to test was okay what are we going to do about these conflicts of interest okay we have 24 badge holders what are we going to do well i said hey i want to nominate proto and proto was like hey no thanks i'm a batch holder let's keep this simple let's you know i do too much with optimistic ethereum already like i don't know i don't know it just seems weird and light client was just like okay i don't want to i don't want to vote for any badge holders because i don't want either to even be a you know the sense a sense that this the badge uh the badge holders would have a conflict of interest so i thought that all of these you know this was extremely interesting to me and it was also interesting that at the end of the day someone nominated not me i said i didn't do the nomination anymore but someone nominated proto the machine um and so proto actually did end up getting three uh 3k worth of uh publications funding so you know how do you how do you how do you not fund a pineapple um but anyway pretty funny that we had a batch holder say i don't want to be funded and they got funding anyway um that's that was a very interesting learning but the higher meta learning is that fairness is key right we need to establish this is like literal like governmental issues that we are having we need to be building fair governance systems that is critical because these are going to be what we use in the future as we use the internet we want a fair governance system on the internet so anyway round two phase two votes so it was one week long process everyone procrastinated to the last few days but the cool thing was like clients yet again superstar organized a public call to go through the nominations we were not going to have any public calls however if they happened not naturally we weren't going to stop any of them so we had this public call we went through every single project nomination pretty pretty awesome and one of the most interesting results is that it was really hard to avoid funding projects proactively because when you think about it you're like oh i i love this project i want to see it grow i want to see you know see it evolve it totally needs funding and you're like wait a second okay no we were catching ourselves in this call saying hey no no that doesn't sound very retroactive like you don't want to see that project grow the important thing is not seeing that project grow the important thing is establishing the second order incentives that say if i build valuable projects valuable public goods i will be rewarded once they are complete right we're not trying to be a grants program again we need to make sure that that separation of concerns is tightly delineated so that people know that they can expect their funding when they get it additionally the definition of public good got a little fuzzy so we ended up deciding that etherscan deserved a significant amount of public goods funding now etherscan is a for-profit closed-source project they're amazing people by the way but that's not like a traditional definition of public goods right we're talking open source software like it's a little weird so we started having to lean on an idea that that uh actually uh credit to to will seem and cal for figuring this out oh by the way i the i i don't think i'll have time for questions unfortunately um in case that's the thing but um okay the fairness ratio this thing called the fairness ratio basically it is impact over profit so what that means is the impact of a project divided by the profit that that project received so if in an example a for-profit company maybe they have 100 units of impact and a thousand units of profit that's a that's a that's a ratio really low ratio what we want to do is we want to target one for all projects we want value in and value out to be equal the amount of impact that you have is equal to the amount of profit that you have that is how we can decide whether or not you should receive public goods funding funding for the public good an open source project might get a 10 000 using units of impact but then only receive 100 units of profit so that's also out of balance right it's about maintaining fairness and balance so ideally we have a one-to-one ratio of impact to profit and that is going to be key so anyway we used that additionally we had some other issues with you know not super high quality projects being submitted like abracadabra santa claus of cincinnati that was not a not the best public goods project however we also had some great explanations from the badge holders on on why they voted that was huge and everyone voted so that is that is a big win in and of itself and so finally payment and retrospective we ended up funding a million dollars we funded a bunch of projects notably these projects were mostly technology projects that is because the badge holders were mostly technology focused that's an area of an improvement also we didn't really fund projects we had a very low variance we may actually want to increase that variance but pretty good job like these are awesome projects i'm very happy with how this went out resulted so some of the main takeaways one we got to minimize conflict of interest that is that is key additionally we probably want to improve this voting mechanism to to to make that variance a little bigger really reflect what projects provided uh what outsized value um and additionally we want some better project curation and you know we can't have these uh these abracadabra things probably unfortunately we also need a little more active participation we got some but it was really it was really good that we did but i think we we could do with more and finally we're hoping to get give a little more guidance on what how to think about funding public goods and this is just the beginning remember that the entire point is that second order effect of creating incentives to invest in public goods infrastructure so this is just the beginning i am sure that with the infrastructure and that we are building we will end up be funding millions of dollars every day in public goods and i'm i'm extremely excited about that so you know let's scale ethereum let's align humanities incentives make things fair and equitable so if you build value you get value and love notice no borders stay optimistic y'all you know that's it thanks carl for sharing your experiments results and giving us an overview of the market dynamics and governance issues relevant to retroactive public goods funding ecosystems [Music] [Applause] [Music] you