[BUIDL Asia 2024] Retro-Futurist Public Goods Funding by Matt Stephenson

Transcript

[Music] I was going to talk about about crypto AI I did that about 10 days ago uh but we already had this great fireside chat from vitalic and Ilia and then Maria gave us a lovely overview too so that happen to be talking about something else that's pretty timely at least it is on my forecaster X feed on retr public goods um and I'm going to kind of I'm going to present two mechanisms and I'm going to try to unite them under this concept of retrofuturism as a way of sort of like uh giving you like a through line so bit of a funny start to a research talk but retrofuturism is like a design thing and if futurism is about sort of like predicting the future and anticipating the future something maybe we're all familiar with here retr futurism is

remembering that anticipation so kind of going back in time and thinking like oh the Jetson's imagined our future or something right that like that and I'm going to say that in the Retro public goods context uh I think this approach of remembering the anticipation has unique value in terms of expanding the ecosystem and and F furing uh furthering some of the institutions they can they can help push it so retr public goods why is it all why is it interesting especially recently right we just had this announcement from optimism of 400 million in uh retr public goods funding for the rest of the year uh to date I think there's been 300 or so million given out in ecosystem grants most of that from optimism as well but you have arbitrum salana near a lot of great projects who have done experiments or

are doing experiments in the space and there's a lot of reasons for it I mean just generally I think it's an it's an exciting idea and something that is fairly unique to crypto because you might be able to leverage certain aspects of commitment um but also we you know many of us were around for this sort of uh grant funding uh Bonanza nightmare of 2021 where you had these kind of mercenary groups going around farming different grants and at best you know doing the letter of the law to sort of make this money and you can see uh before the funding comes in so I think that's one of the reason you're seeing excitement around it that said it's a new idea and you have some problems around it one of them is you're just

always going to have a lack of supporting institutions when something's new so one of the things I'm going to talk about is maybe how we can further those and secondly there's just going to be Mission creep around the people carrying it out because it's a fairly new idea and maybe hard to get your mind around or not everybody's fully bought in um and so if we're going to talk about Mission creep and you know I'm going to I'm going to term it futurism creep since we're doing the theme I'm not trying to meme retr futurism I really just that we're going to do that as thematic might as well Define the mission many of you probably know it right but retro public good so we have two parts of it retro means it's easier to understand it after it's been built than it is before and then public good

yeah yeah yeah excludable blah blah blah we've all read that stuff but essentially it's just some lack of Market power that's the easiest way to sort of think of what a public good is and so retr public good has both of these qualities examples that cleave this uh classic example is like the Henry Ford quote of if I'd asked people what they wanted they would have said I want a faster horse instead he built a car so cars are sort of a retro beneficial good right uh in that people don't know they want it but then after you make it they're like oh yeah cars are pretty good uh not really a public good though here because the market power for cars was pretty good last I checked at least Ford was doing all right for a while right so it turned out that even though it was a retro good it

wasn't a public good but there were also public goods famous example is fireworks you know you have fireworks in the middle of the city people off in the Hills can see them right so it's it's not excludable not rival RIS right it's sort of enjoyable by everybody but it's not really retro you can tell people hey I'm going to light fireworks on you know the new year and people kind of know what you're talking about and they go yeah I could pay for that UPF front so fundable by more traditional mechanisms uh maybe quadratic funding or or pick your favorite right um combining the two right where it's both retro and public goods that's that's the intersection where you find RPG F and where these where we're we're ideally trying to find um so I mentioned there are two problems let's start with one uh the the mission creep futurism creep

since we just defined the the mission maybe we can uh now talk about how it can sort of creep and go wrong so one of the problems you'll face if you sit inside these rounds is you'll notice people go well look I mean these things are already built and meanwhile there's all these other teams promising to build some things for us next year why don't we give them the money instead pretty reasonable thing to think right uh at the same time if you do that you're essentially not doing retr public goods the essence of it is you're trying to commit to funding things that have been built for you in the past so if you then go yeah but you already kind of built that stuff so I'm not really going to give you the money anymore I'm going to give you the stuff that or I'm going

to give people the things for uh for what they're promising to do in the future you're just doing kind of a vanilla grants program so this is something that's uh that's you know debated inside inside telegram groups and on on Twitter and so on and so I'm not really going to try to litigate this exactly um if you I'm not going to really go through this there's reasons you might want to try to keep it pure uh screenshot it if you want happy to talk about it but essentially the idea is just if you think it's interesting to experiment with retr public goods funding it's probably worth just trying to do retr public goods funding which is not let it slip into a vanilla grants program at least if we think it might be doing something interesting for us so how might you do this and now we'll get

into something a little more researchy right a little more mechanistic um so you can think of this as a you imagine this curve of of two types of businesses right or or I'm sorry one type of business but it's before and after on the x-axis we have this perceived utility and on the y- axis we're going to just think of these as votes or add a stations or something right and then imagine you show up with your proposed business and you say hey everybody what do you think of my idea and it looks like this orange curve right basically a whole bunch of the people don't think it's such a hot idea they don't understand the utility but then you go ahead and make it and then you show everybody and you say hey what did you think what do you think I made this

thing I built this bridge and now it looks a little closer to a blue curve right where out there on the right tail you have have this like higher perceived utility they Now understand oh yeah that was a pretty good idea this difference seems to capture something interesting about what we mean when we we're interested in retro public goods right something that looks like orange when you tell people about the idea and looks like blue once you've actually made it um and so exploiting this difference might be interesting turns out we kind of have this data and I say kind of I'm going to italicize that but in an interesting enough way to run it um you know we have ecosystem grants where people will show up to gitcoin rounds for instance and they'll say hey here's what I'm going to build and then you can

see how many people seem interested in donating and then some of those same orgs will then apply for so do we have I don't know do we have any measure theorists in the crowd kind my notes actually said hold for Applause here so I thought I was really expecting a lot of measure theorists okay there we go okay cool yeah well anyway if you're if the measure theorists or the buring measure

theorists you're probably licking your lips right like I said surprise now you're seeing these two integrand right and the difference between them and you're like oh okay I don't know like KL Divergence or like helinger distance or probably some Nar non-parametric thing I've never heard of um but I think as I started to do the data work and I'm not a measure theorist anyway uh I just decided to sort of left curve this and do log odds um to run the data uh happy to talk about the reasons why but we didn't actually wind up having measure theorist so I don't know that I have to explain myself to you but but come harass me after if you want to know why not KL yet maybe eventually though uh so if you left curve it and you just try to figure out what's the difference between

these two curves using using log odds which that's the functional form here just literally we're dividing rpgfinal um you get a score and you get a score that we might call the sort of like surprisingly useful score and when you run the numbers which hatp Carl cervone who runs a really great get Hub repo for this data which I was able to pull and with my partner Lauren we basically just ran through this and said what are the most surprisingly useful orgs and this is just what the data says I don't know they seem pretty good but I mean I'm not a I'm not an expert you can sort of use your judgment but that's what that's what seems to be a useful org from the perspective of they applied for a for a gitcoin round at one point and

didn't get a lot of funding and then proportionally got much more rpgfan right and you can see how that what what that mechanism is doing going back here is going to the anticipation right the gitcoin piece the part when we hadn't built it yet and we're saying what did people think then and now we're applying it to what they think now and so that's the essence of that of that mechanism um and that's why it's that's why it's retr futurist shall we say all right so now we have a second uh a

second problem which I raised that we're going to still fly under this retrofuturism banner and that's how you can support Capital intensive projects now earlier I technically said you know supporting Institution but and that's what I mean here so too but I'm trying to identify a specific problem which is which is the question of how you bridge something from zero to one if you're not going to give it funding UPF front right because we have this they showed up to a gitcoin round and they didn't make any money and yet they built it anyway how did they do that and um and Stephen uh goldfeder on Twitter has been really good this is not from two hours ago this is actually from 26 hours ago I made these slides yesterday but thank you Erica and June for being flexible and letting me update my slides at the last minute but uh but

essentially Steven's making this point um you know if you if you read it pretty tough to go to people and say hey figure out how to make this thing and then once you've made it I'm going to give you some money right and even though I think those that c or that Talent has opportunity costs and you often need to pay them some money so figuring out how to get them some money up front uh can be useful um especially challenging if we think one of the most interesting

things about a business is going to be that it didn't get a lot of broad-based money upfront which is what we talked about in the last mechanism right um so one thing I just want to call your attention to going back a little bit is when we talk about gitcoin and and when I'm talking about these like early GR funding mechanisms I'm thinking of them as very broad-based right so I'm thinking of them as we're asking a lot of people a whole room full of people how much how useful are these things and on average they don't get it the Henry Ford idea right of like you tell everybody that you're going to make a car and they don't sort of understand but that doesn't mean that there aren't Specialists who could sort of understand what a car is going to do or how important it would be so there still can

be specialist funding um it's just going to be hard to leverage these kind of these kind of cool uh broad-based Grand funding apparatuses that we have in the space so what's a form of specialist funding well look I mean VC is what it says on my paycheck you know so like there we have VCS in the space you probably have heard that some Capital goes around in these spaces and so you might go well hey what if VC's funded this but VC funding is controversial for it's controversial for a good reason there are good arguments on both sides

um and again I'm not going to try to litigate this this is something that a lot of smart people are considering And discussing and I'm you know I'm participating as a badge holder but there are good reasons why people are a little gunshy31 I loved it when I saw a picture of it as a kid when I finally you know got to New York like a couple decades later or something I loved it when I saw it I think it's a cool looking building I dig it if you told me if you said hey you know it turns out we did the math and Chrysler for all the aesthetic

benefit and joy that the Chrysler Building has captured they actually never really recovered that they never internalized that value Chrysler didn't right for whatever reason you know as long as they owned it or something like that or or the brand value or the number of people who bought Chryslers because of the name is just not high enough they spent too much money or it cost them too much reputation maybe that's true I mean this thing has brought a lot of Joy right uh at least it did to me so I'm sort of extrapolating here uh at any rate do you want an didn't capture the value well doesn't

that kind of fit our frame of what a retr public good is and doesn't that seem kind of I don't know that doesn't seem super interesting to have a retro pgf round for Chrysler so that to me captures the flavor of what the problem is with with VC funding and so when I said like a public good is something that lacks Market power I'm going to modify that to say a public good is something that lacks expected Market power or at least in this case and I think to me that's what's really the difference about why the Chrysler some types of VC funded orgs shouldn't get it is because Chrysler did this they had to show up and justify this to people who you know were shareholders right and in expectation it was probably profit-seeking you know retrospectively it wasn't but in expectation it was and

so if we just compensate that after the fact because it failed we're just drisking their Investments and then what we're not doing is we're not capturing the upside where they took a Chrysler Building size bet and it paid off and so that just doesn't seem like a super exciting thing to do and so what's an alternative to this this is this is retr futurism supply side Edition so we talked about the anticipation of the people were asking about the good now let's talk about the anticipation of the people building The Good the investors the people showing up uh you know the early employees maybe right and what we want to do is we want to prevent this drisking and maybe we want to prevent adverse selection too we want to prevent businesses that thought they were going to make a bunch of money showing up at

with their hands out because they didn't and now saying no I was a public good all along and so we're going to ask them to to make this commit up front um to say you know what I don't think I'm going to have the market Val the market power to capture this value instead the only route for profit for me is going to be retr funding um and so capturing that that expectation will require them to credibly commit to that right and so one way to have them credibly commit is to say you should change your organizational structure you should be a retrofit organization sort of like being a nonprofit but with a little bit extra right um so same as a nonprofit commits upfront and says hey I'm not going to take any profit because I think I'm building the

sort of business that that isn't going to be able to achieve it or be a you know be a normally profitable business uh a retr profit organization does the same but with retr profit so um you recycle all the normal operating profits into the business but with one little wrinkle and the wrinkle is retr funding rounds are things that we consider retr funding that stuff can be considered profit that could be paid back to early investors uh to employees to shareholders to stockholders it unlocks a little bit of that Equity but it also gives you this commitment up front because they're basically saying if it turned out suddenly that I had a car on my hands right uh in the Henry Ford sense I have now structured my business so like it's very hard for me to capture

that profit so it's a costly commitment and as we saw from the from the open AI side just these structural Comm from from the open hisory right where we had to like change the structure of this organization from a non profit or change its mission to some extent it was pretty difficult to do that um it took some pretty powerful people trying pretty hard to change it so these can be pretty binding commitments um also I it probably just worth saying given that I'm talking about commitment and we're here mostly talking about these sort of decentralized commitment devices we call blockchains you could try to imagine some fancy mechanism design where we're not going the legal route and probably something to be said for that the reason I'm going to say the legal is maybe interesting here is the

problem where identifying is a lack of capital up front uh they don't have Capital so then you're like okay well they should pledge some of their capital and get it slashed if they decide to take profits yeah but they don't have capital is the problem we're solving so that's where the where some of the the sort of like more incentive design mechanisms you might think of could go wrong so instead maybe you have a legal or structure maybe some of the exciting Network State uh things we have going on maybe you could organized under that I don't know that seems that seems promising and interesting to me so what would the What would the retr profit organization Journey look like right you would you would start off applying for some sort of um this is the econ jargon you'd call it like ex anti funding or

upfront funding but something like a getcoin round where we were soliciting a lot of people's opinions about what what you were going to be able to do right and then uh then you would register as a retrofit organization before or after right and what that's giving us is this pre-commitment that you you think you're not going to be able to uh achieve enough market power to do something profitable right and then uh and then you might apply for this for this bonus rpgfan gets you a couple of things right first of all applying for the gcoin round gives you the opportunity to get some Capital upfront because maybe it turns out you don't think you're going to be able to do to convince people that your car is good and they're all going

to think you have horses but then you show up to your gitcoin round and it turns out people get it great you just learned that you're you're traditionally grf fundable right and so that's a good exit and now we have people who are who are Grant fundable and you can go do that um secondly this retrofit organization what does it give us um you know as I said it gives you this upfront commitment that you know this sort of or you're going to be and so you're not a failed business sort of coming out with your hand own and and what that does not just on the commitment side you know even though I'm saying like we're trying to avoid these orgs showing up with their handout the people who have to vote on and decide these lot of businesses to look through right they have to review let's say 600

applicants more if they if they weren't gated it feels a little bit like a free option so why wouldn't a business come up and say yeah sure you know pay me for the Chrysler Building or pay me for something else this credible commitment sort of creates a separating equilibrium where uh what voters could do is they could say okay well you didn't make a commitment UPF front so I'm not going to spend as much time looking on you so it reduces the sort of computational or at least like labor overhead uh on the voting side as well and then third as you're applying for this bonus R pgf round um now the voters don't have to like look at every single business they can focus on you that gets you a little more attention probably um and then uh and then if it turns out that you

weren't uh getcoin fundable or upfront fundable maybe you were able to find specialist funding maybe you were able to convince early employees or something like that that that this equity share could be paid for um via retrofit or via retr profit funds and if that happens then then you can do that and then incentives are sort of aligned over time right um one word on this bonus thing before I before I finish I think I only have one slide left it's just I talk about this as a bonus there's a lot of ways to use that Gadget I just do bonus because right now I think there's that futurism slippage where people are trying to do R pgf but they're rewarding things in the future and the reason you do it as a bonus right now is to sort of accommodate that but there's a lot of

different things you could do with the mechanism okay so lastly we always have to close on the depressing note it's the classic like what are the challenges what are the things we could do next right uh so first look is Adventure investable in theory yes I mean right like in theory if you're creating this amount of value the people who that value is created for could redirect it back to you right if that happens to be unicorn siiz value yeah in principle it could be directed in practice I think it's pretty reasonable to say we're a long way away from that and even some of the trends you're seeing in rpgfunny pushing in the wrong direction here where you really might want to see a a really huge impactful thing get get

a lot of money um and so you might want the distribution to not be so flat that said probably just something to be experimented with and again the fact that it's in theory possible means that you don't want to rule it out um and when I say Venture investable I mean it under this sort of like classical unicorn siiz fat tail returns sort of thesis right um there might be other other models or other Theses that could support it and hopefully there are um secondly you we have this how gameable um we don't you know the the secret measure theorist maybe there's some secret game theorists as well and you saw this mechanism where I have gitcoin and optimism and it's kind of a partial equilibrium at best certainly not a general equilibrium Theory right uh and you might imagine okay well let's say if

it turns out rpgfinal is my likelihood to succeed anyway if you start down that path you realize you know the actual incentive design for connecting them um it might be a little more complicated than what I've suggested I think the gadget essentially works but I haven't done all the work so I think there's something interesting to do there and then lastly I this is the fun part I think Could you actually slash retr public harms this uh I said I'm not meing retr futurism but I am still trying to meme retro public arms because I think they're interesting the idea that you have people uh you have people um

pledge something upfront they commit just generally because you don't know what they're going to do and then if you recognize the harm afterward you slash it it's sort of the evil twin of retr public goods and if you wanted to use those fancy Metro measure theoretic things I was referencing before you'd actually probably need to do this you'd need to find a business that let's say you thought was going to do a really great job and have them you know stake some of their Grant and then if they didn't do a great job you'd have to slash them like the theorist in me really likes that uh as a practitioner and actually imagining trying to like slash somebody's business it doesn't sound super cool so that's one of those questions that I would say is sort of TBD theoretically interesting all right so this is the tell them what you told

him slide I I give you two different mechanisms so I think it's it's fair to me it's only fair if I just sort of reiterate the Thematic component right the Thematic component is the retrofuturism the fact that we are remembering that we have to like look back at the anticipation of the future and so that's what unites these as a way to sort of expand the rpgfemale structures right first what we saw is remembering the anticipation on the demand side remembering what people thought of the project you were going to build and if they didn't think it was good and then they changed their mind we think that's a pretty strong signal that it's like a retr public good it's almost the definition of it right and then the second one is remembering the anticipation from the Builder side from the early employee from the investor

side and making sure that maybe upfront they thought it was a public good and expectation so we prevent that adverse selection and we prevent that sort of drisking of investment that you could otherwise see and so I'm generally I I'm excited and enthused about this approach and I'm excited to support it however possible so if anybody's especially interested in it definitely uh would look forward to chat further and and appreciate the time thank you all and talk to you soon