Funding the Commons | Funding Public Goods Algorithms and Mechanisms

[Music] [Applause] [Music] our next feature speaker vitalik taran is a co-founder and inventor of ethereum and helps to lead the ethereum foundation he'll be talking about algorithms and mechanisms for funding public goods giving a view of the latest thinking around novel public funding experiments and exciting new projects in the ecosystem welcome thank you very much ever and uh it's so good to be here um so i will um today focus on um some public goods funding in the ethereum ecosystem and just some of the very specific um experiments and the specific warnings that the ethereum ecosystem has um had from its uh attempts to fund um attempts to fund public goods that the um that the ecosystem needs in order to survive and prosper and just see how some of those earnings might be applicable to all public goods funding in the future so blockchain communities are a very natural fit for public goods i'm interestingly enough um i say this is interesting because a lot of the early ideology of blockchains was is really focused on private goods it's focused on um things like creating really powerful and robust um individual property rights um creating markets creating systems for trade creating decentralized exchanges and similar things but public goods are actually hugely important to blockchain communities and so i'm just to give a few examples of this public goods that are critical for um things like the bitcoin community the ethereum community other blockchain communities to survive um open source client code is a very big one right so it's a connects to the ethereum network um he needs to have an ethereum client the ethereum client interprets the ethereum rules it needs to be able to process transactions quickly work needs to go on into making it up making the clients um upgrade into and support all of the latest protocol features that the community wants to add you need a whole lot of very hard work on optimization and to increase scalability like even ethereum blockchain itself it's uh the the gas element has increased by a factor of five since the yeah and the platform launched in 2015 i mean there's just a lot of work that um went into that and went into simultaneously making it safer um so open source client code is a public good um if you create a client um a piece of software that someone can use to connect to the network um then you like you basically have to make it open source because if you don't make it open source then people are not going to trust it and if you do make it open source then anyone can go and copy it so you either are offering it to the entire community or you're offering it to no one right so that's a classic example of public good protocol research the math cryptography analysis auditing everything that goes into actually creating um upgrades to the ethereum protocol 100 public good um documentation um things to help people understand what's going on into their in ethereum and things that help people um actually get into ethereum understand what the different parts of the ecosystem are up to how to use some different pieces of software also very much a public good and community building like just doing things like running meetups running um online events running um just uh running just doing all sorts of activities to help people in the community um link together and talk to each other there's definitely a private good components to that like if you run a meetup then you know theoretically you could charge for it and people would be willing to pay because they get like they wants to listen but there's also very large positive spillovers that happen as a result right like if someone does become like understanding their mucousness the better they're more likely to contribute and so if you just try to run all of that community building with a kind of private goods oriented mechanisms like making people pay to attend everything then you're going to end up getting much less community building work happening than um the amount that actually makes sense for the community so in blockchain communities public goods are hugely important and public goods are i think more importance if even than private goods so if public goods are so important then there's this next question right of how do we actually fund the public goods so the problem of funding public goods can be broken up into two major sub problems one sub problem is where does the money come from and the second sub problem is what mechanism decides who receives the money um so where does the money come from right um so in the crypto community in general i think there's four major sources um that we've seen one is individual donations there have been plenty of cases of individuals donating money to core developers individuals donating money to teams um this happens all the time um corporate donations are another one um so this could happen through corporations giving donations of money directly or it could also happen through corporations hiring employees um to work on uh public good projects so for example in the bitcoin community block stream hires bitcoin core devs in the ethereum community consensus for example has hired a lot of uh people that end up high doing accords core development work on ethereum um so this uh this also happens a lot and corporate donations are definitely more scalable than individual donations because like with individual donations you have this property right that like every dollar um donated uh public goods is a dollar that's sacrificed by one individual person and so either you need that one individual person to be very very altruistic or you need them to benefit personally by more than one dollar from the uh from that public good so the public good just has to be such a an amazing big deal that it made that it's in that one person's interest to support it with corporate donations like you get leverage right because the corporation is not one person's money the corporation is um is a lot of people's money uh the individual decision makers like it's not like they personally lose um ten thousand dollars if they give ten thousand dollars to some uh to some public good project the corporation even like benefits from social status in some way so it's a step up but still not sufficient and also if you rely on corporate donations then one of the big negative externalities you end up receiving is you often end up getting a lot of centralized control over the public goods which is something we want to avoid um one-time pre-mines and one-time pre-sales so ethereum is a a good example of this um basically in the initial issuance of ethereum um 11.9 million of those coins were pre-mined um so they were given to the people that um did a lot of the initial work in making ethereum um possible and also went into the ethereum foundation which is still using them to fund ongoing expenses today and then finally um ongoing issuance and uh redirected fees i'm still like z cash right zcash has ongoing issuance which gets sent currently to the z the z cash foundation and the electric coin company um and that process is you know continually iterated through like basically the same off chain governance that decides protocol upgrades um so these are the four sources right now right and i think they have their different strengths and weaknesses individual donations are like nice but they're also insufficient corporal donations are somewhat more sufficient but still not quite and if you rely on them too much you get centralized control one time pre-mines and pre-sales are nice in that you get an amount of money that's just directly dedicated to creating the public goods but it's only one time and ongoing issuance the problem with ongoing issuance is that you're basically um like giving money into a permanent thing and like that permanent thing like you have to think really hard about how it's governed and you have to think really hard to make sure that it that it's actually being governed well and deal with the risk of that governance being captured so public goods funding needs to be long-term and systematic right public goods are a very big and systematic problem they and they are our long-term problem therefore they need a long-term and systematic solution so this means that we need funding to come from not just that individuals and also not just companies because companies too can disappear but from applications and and or protocols so that is the first kind of part of the question right and when i say applications and or protocols like there's many possibilities it doesn't needs to be the ethereum protocol itself like it could be layer two protocols right like optimism for example is doing retroactive funding rounds for the ethereum ecosystem um like the unislopdow has funded us quite a few ethereum-wide public goods and so there's a lot um a lot of potential funding sources um that and i think at the kind of application and layer two protocol layer there is opportunity to be flexible that does not exist at layer one what mechanism decides the recipients um so one is a centralized small committee um so basically like the ethereum foundation grants committee um another possibility is quadratic funding so bitcoin has been doing some like quadratic funding recently um and then possibly there could be other mechanisms as well right so this is the question of giving a pool of money how does that pool of money actually get uh distributed um so moloch now was this some interesting experiments that's been happening in the in if you're ambulance for the last like i think at least three years now now basically it's a dow consisting of some major um like eth holders and ethereum contributors and they just like pull some of their money together that kind of assurance contract style um so it's this kind of collective individual donation and then they basically have a dow and that down votes on like where where the funding ends up actually going um so molotow has funded a lot of interesting things so definitely yeah it's funded some kind of like ecosystem reports um it's funded tornado cash it's funded some other um a lot of other things um so it is small the amount of funding in it is not huge but it's uh you know i i'd say it's still one of those kind of alternative grants givers that's been punching above its weight um bitcoin grants um so this is a experiment in quadratic funding right this is this quadratic voting inspired mechanism for choosing where public goods get funded to um and it's a type of voting um except you basically vote by giving donations and the donations that individuals give are small but then there is also this central matching pool and the matching pool gets allocated between the projects using a formula that takes into account how many donations each project's got and from how many different people those donations came from um so dickon grants has been running in the ethereum ecosystem for a few years um community grants some infra grants so there's these different sections for grants there's one round roughly every two or three months um and uh so we see yeah these a lot of interesting projects can funded on the community side a lot of interesting projects get funded on the infrastructure side a lot of other projects that have been uh funded lately and it's it has become a very stable source of uh revenue for i think at least some participants like bankless for example gets a significant amount of funding every round i think like bankwest is definitely getting unfunded enough that that um you know david and ryan can like they basically have and like um have enough to be able to live comfortably like this is thirty thousand dollars and and they're getting amounts roughly on this order once every couple of months i'm ethereum magicians um eth importance community resource and then some ethereum clients some umbra and other interesting privacy solution so a lot of things have already been funded by get going grants and geckwood grants is interesting right because anyone can vote and so it really does kind of source this very wide and diverse community input and so it ends up funding different projects from the kinds of projects that retro funding um and or sorry the projects that kind of more centralized community committees end up funding by themselves so now right retro retroactive funding so retroactive funding is this a new idea that um i have been working on with um optimism and actually optimism's retro funding round one um recently finished and they yo they released the results some about i think a week and a half ago and the idea with retro funding is instead of funding projects in anticipation of future work um you funds them in recognition of work that has already been done so instead of the retro funding mechanism having the job of making predictions we are making predictions is hard and often like uh relying on these kind of conformist voting mechanisms to make predictions just the leads to them missing really important things um instead like you just let people do whatever projects they want to do and and when if something happens that turns out to have a really good impact then they can vote make this basically vote to reward that project for the work that they did um if there are projects that are considered long-shot bets at the beginning but succeed at the end and they still need money to be funded then like you can combine retroactive funding with an investor ecosystem right investors could invest in public good projects and then if that project succeeds that if that project gets a retro award then some of that retro reward could also go to the investors now obviously for this to work there has to be a very a pretty big sized retro funding pool and a pretty consistent retro funding pool but this is one of the nice things of the uh about optimism doing this right like their roll up is getting hundreds of thousands of dollars of transaction fees every day um and now obviously like most of that has to go to paying the sequencer but or sorry to pay in gas fees for the call data on a1 but some of that still goes to um like basically excess profits for for the sequencer and uh the plan is to take a lot of that revenue um and put that into these retro rounds so retro round one was one million dollars and it's likely that they're the restaurants are going to be bigger in the future um so now of course with retro funding like there's still the question of like well what kind of voting mechanism decides what um how this funding actually happens right and with retro funding we're like there take the optimism experiment is taking this interesting exp route um using what we call badge holders um basically a medium-sized set of technical experts that are at the beginning hand-picked but then over um um over time mechanisms can be added to kind of choose and and you add new ones in a more decentralized way um so it's not coin voting um it's um like as i've written in other contexts i think cryptocurrency governance needs to move beyond this kind of cons this idea that pure coin voting is the only legitimate kind of decentralization um so this batch holder thing is uh interesting as an alternative um it's not coins but it's also a a much bigger committee than you would get in pretty much any traditional centralized team um so what where is this all going to go in the future right i think first of all public goods funding in ethereum is necessary and public goods funding has to be systematic and i think more public goods funding in ethereum is going to be possible i think we're going to see more large-scale application protocols and layer 2 protocols on ethereum helping to fund public goods both within their own ecosystems and within the broader ethereum ecosystem and i think once they are large enough within the ecosystems uh going even far beyond ethereum like i wants to see you know ethereum-based public goods funding and filecoin based up other goods funding gadgets collaborate on say funding um the the open source virtual reality ecosystem or funding um open hardware or even you know funding life extension research um i think once these mechanisms get big enough they are going to be big enough that they'll be able to have a scope of concern um far beyond the the these crypto ecosystems themselves and they're going to be a potentially significant part of how you know hopefully humanity ends up building the 21st century um now of course you know big vision very dependent on crypto and blockchains continuing to succeed in order to be able to actually have the funding to realize that but you know we'll see how it happens and also as these funding projects get bigger ecosystems are going to form around these funding mechanisms right so there's going to be i think very soon will be what i call the first quadratic freelancer like the first like people who actually make enough money off of these quadratic funding rewards that they just rely on it as their source of income i think bank list might even be probably very very close to there already um well i mean there basically are there already though they also have some other revenue from sponsorships and their ends they're doing that for doing some other things as well um eventually we're going to see people doing a kind of creating second layer infrastructure around these funding mechanisms so things like quadratic funding block explorers and then those projects themselves would get funded through quadratic funding or through a retroactive funding eventually we're going to see investors invest in early stage public good fund projects early stage of individuals or teams partially in the hopes of getting rewarded uh through retroactive rewards so as these projects get bigger as these projects get more sustainable then i mean hopefully we're going to start seeing these ecosystems form and then we are going to see this kind of very large and systematic ecosystem level wide effort on making sure all of these uh really important things um in the ethereum ecosystem and beyond um actually can get uh i can't get funded thank you thanks so todd that was a really uh great view on how we can take a long term and systematic view to supporting public goods and we actually have some time for questions so i think i will highlight a few if you don't mind from the chat i believe the first question had to do with what an exit looks like in this structure so let me see if i can find that again and so if we're talking this is a question from daniel irwin in the chat if we're talking about investing in the public what does the exit look like um is it like getting uh elected to run things how else can you measure that the broader masses are better off or happier in this system how can you measure that the masses are better off so like how do you actually measure the like to what extent these public grids have been funded have actually been having an impact um i mean i think in general measuring impact is an incredibly complicated problem i don't claim to have like very good solutions um i think like ultimately any mechanism that does get developed is going to have to be like what we call some kind of dow with some kind of governance um and but then like that's if it if it needs to be a part of the protocol but otherwise like the the these rounds and the results are all completely open the processes are transparent so they're definitely fully available for anyone who wants to study and try to make conclusions off of the results to do that and [Music] so like i don't think that there is like you know one correct way to measure i just think that the only thing that we do need is just like a larger ecosystem of people um analyzing and as discussing what's going on and trying to make conclusions um about how to improve these mechanisms more going forward into the future thank you for that i i'd like to remind the participants you complete you can still add questions in the chat we have a few more minutes i'm going to go to another question that's sort of prompted by what you just said about a lot of participants in this ecosystem and i believe there was a question earlier from dave mackey about how does how does retroactive public goods funding scale is there can you sort of model that for us sure um so i think like the main scaling problems with all of these mechanisms are like one of them is just where to get more money for them right like how do we actually get into a future where instead of these rounds being a million dollars they're a hundred million dollars and so you know we can seriously talk about like big parts of entire communities getting their money from them um i think to get like the most realistic route to get to that point i personally think is these applications and way or two protocols um that i'm talking about like really succeeding and actually getting an amount of revenue that can pay for those things i think it's happening already right like if you just look at ethereum itself like the amount of fees that it's getting are on the order of like 80 million dollars a day right now i mean so as the ethereum ecosystem in particular moves to layer two um in order to scale and like and have a lower transaction fees like the layer two protocols i think at some points are going to start getting levels of a fees that are of uh similar orders of magnitude to that um and so when that happens like the ages like and when i think you know like other blockchains like and filecoin succeeds i think it's going to have a large amount of fee collected fees collected as well and so if those those critical fees can go into these decentralized public goods funding gadgets then like that's already a uh it's it's an improvement i mean like like i think that can get us to the next level um the second scaling problem is the scaling problem of governance i think with quadratic funding it's easier because like the whole mechanism is just very democratic and so the more money there is the more people care and the more voters you have with retro funding with the current badge holder system there is this like there's a little bit more challenges because the the way the batch holder system is currently structured is that it expects every batch holder to have an opinion about every project i mean i think even after round one we already recognized that that's completely unsustainable i mean so how that evolves in the future like would there be some kind of two-level system would badge holders have to delegate um their badges their kind of specialists in particular in particular categories what something else happened but that's a discussion that i think would have to happen like specifically within the optimism retro funding community um so i mean these things are in general early stage experiments and we'll do them and as we as they grow like we'll we'll see challenges and we'll learn how to adapt the challenges thank you we've got just a few more i've got a question here from ben reinhart relating to time scale he mentioned that one of our earlier speaker our first speaker juan most of the things juan was talking about in his presentation won't be valuable until long into the future and would require a lot of capital to get there is retroactive public goods funding applicable there i think it absolutely could be um it's one of those places where attractive public funding could actually be really great um i think in order for that to actually work though people need to have confidence that this retroactive funding ecosystem actually will exist 50 years in the future right and like that that itself is a big kind of legitimacy hump like i think five years ago people were not convinced that crypto would be here five years in the future and a lot has changed over the last five years already right and krypto i think is increasingly establishing itself as a major player of this a new world that work that we're coming into right especially with uh you know major protocols literally having higher market caps with uh um with major banks and uh like being at the forefront of like safe funding um a large portion of all the cryptography research out there um and also at the forefront of funding a lot of the life extension research out there uh so it like i i personally am more convinced than ever that crypto will be around in 10 years you know we'll be around in 20 years what it will be like in 50 years and will crypto in 50 years be committed to making retroactive rewards um again it's an open problem um i think creating the like institutions that give people comfort that such thing yeah that such things actually will happen is probably one of the big problems uh one of the big challenges of the whole thing um i guess we'll see i don't like i don't think there's a good answer now i just think we have to be aware of this as a problem and just work toward kind of like creating these uh these structures and then stabilizing them so people can be confident that they'll continue to exist further in the future thanks a lot and i have a question here that i think might be a clarification that some listeners may really appreciate from cedric barney what is the difference between retro public goods funding and prizes i mean i think arguably our attractive public goods funding is just another word for prices but i think in practice the word prize tends to refer to prizes that are kind of relatively kind of specified within a particular category right like you know there's like the x prize for like me doing some very particular space travel there's like the methuselah mouse prize for like making a mouse live 10 years or whatever the number of years is and so retroactive public goods funding is much more generic it just says if you create anything that has a positive impact that gets recognized then like then it can't get rewarded right and that's really powerful because like it captures the long tail right it cap like it's not just about a few specific things that like the the designers or funders today have like are excited about and have high opinions of it's like it's something much more open-ended that could capture like things that are recognized as being important tomorrow um so like that obviously comes with higher governance challenges as well because like you just you need to have this like open-ended or um governance process that determines like what kind of what level of value some project provided in general um but like that's like trying to iterate toward that as the points of a lot of these experiments thanks a lot for that really comprehensive answer and for being so generous with your time at this point i will retroactively acknowledge that we decided to skip the first coffee break in favor of making sure that we can hear more from our speakers and i think that was definitely the right choice since we just had extremely exciting two first presentations and now we're back on track so thank you again vitalik [Music] [Applause] [Music] you