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Public Goods & Web3
Unlocking true potential of public goods with Web3 at the intersection of decentralized finance and social impact.
In cryptocurrency, a public good is a digital asset or service that is both non-excludable and non-rivalrous. Non-excludable means that it is impossible to prevent someone from using or benefiting from the good. Non-rivalrous implies that one person's use of the good does not diminish its availability or effectiveness for others.
Examples of public goods in the crypto space include open-source software projects, decentralized networks, and public blockchain infrastructure. These goods are often funded and maintained by a community of users who contribute their time, resources, and expertise to their development and maintenance.
One of the key benefits of public goods in the crypto space is that they provide a level of decentralization and transparency that is impossible with traditional, centralized systems. They allow for the creation of communities and networks that are not controlled by any single entity and operate on the principle of collaboration and shared benefit.
Hypercerts as a new primitive for public goods funding
Hypercerts is an interoperable data layer for impact-funding mechanisms. Each hypercert is an impact claim described by (1) the scope of work that has been (or will be) performed in a given period by a set of specified contributors and (2) the scope of impact that this work has had (or will have) in another given period. In addition, a hypercert can declare which rights the owner of the hypercert has, e.g. the right to display the hypercert publicly.
Individuals or organizations could create hypercerts of their work and sell all or some of them to funders or award them commemoratively in recognition of the funding provided. When, if or how hypercerts are sold or awarded isn't prescribed. Hypercerts open possibilities for creators of public goods to sell or award commemoratively, some prospectively and others retrospectively. Hypercerts can be sold or granted privately to a funder or as part of a public auction. Funders can outsource the funding decision to an expert panel or a public poll via quadratic voting.
These are just a few possibilities – hypercerts are agnostic about these mechanisms and facilitate experimentation. This is how hypercerts are a new primitive for public goods funding: They define the funding objects that claim to cause a positive impact and make it possible to own and transfer this impact, including in new, innovative and diverse ways. All hypercerts together comprise a data layer for public goods funding.
Kevin Owocki is the founder of Gitcoin, an Ethereum-based funding marketplace, and author of "GreenPilled: How Crypto Can Regenerate The World."
Gitcoin has delivered $65 million in funding to the industry via bounties, grants, tips and other products since its start, generating roughly $6 million quarterly to fund various projects for the past six quarters, according to Owocki.
Its matching pool has drawn participation from big investors, including Coinbase, a16z, Polygon, Starkware and Aave Grants, and helped the likes of decentralized exchanges Uniswap and 1inch get started.
Gitcoin Grants soups up crowdfunding with quadratic funding, using math to auto-allocate capital in matching pools based on the number of contributors. Gitcoin puts a premium on the interests of the many rather than, say, a well-heeled few.
Named after the God of coordination failure, this Decentralized Autonomous Organisation (DAO) is made up of members of the community who contribute capital with the pure intention of funding the development of Ethereum infrastructure. MolochDAO hence seeks to mitigate the ramifications of Moloch on society.
To achieve its purpose, MolochDAO provides grants to projects that are building regenerative infrastructure and researching how blockchain technology can be used to generate positive externalities. Since the launch of MolochDAO, members have raised over USD 1 million in contributions for these projects. Based on MolochDAO's annual reports, USD 1 million in grants is available each year.
Understanding Quadratic Funding
Quadratic funding is a mechanism that is used to distribute resources or funds in a way that is proportional to the square of the contributions made by participants. This means that each participant's share of the resources or funds is determined by the square of their contribution rather than by their contribution alone.
One of the main goals of quadratic funding is to encourage participation and contribution from a diverse group of individuals rather than just a small group of highly active participants. This is achieved by rewarding smaller contributions disproportionately than larger ones, which can help create a more balanced and equitable distribution of resources.
Blockchains are the ultimate public good.
There are many more examples of market failures and public goods problems that blockchains are solving which I could point to:
If Web2's infrastructure cannot reliably host information, the Arweave blockchain promises to store data forever and make broken HTML links a thing of history.
If the carbon footprint of proof-of-work mining is too high, a proof-of-stake consensus is an attempt to curb that environmental externality.
If culture is a public good, the tokenization of art on blockchains opens the door to a patronage economy while availing artists with a viable monetization model.
However, the provision of public goods in the crypto space also presents some challenges. One of the biggest challenges is finding ways to fund and sustain these goods over the long term. Many public goods in the crypto space rely on voluntary contributions or donations, which can be unreliable and insufficient to cover development and maintenance costs. As a result, finding ways to incentivize and reward contributions to public goods can be a significant challenge.