Diversifying Funding for Digital Public Goods: are Frontier Research Contractors the answer?

Transcript

[music] All right. Can you hear me? Okay. Yeah. Uh, thank you to the Devcon team and specifically to the volunteers because they're always the backbone of any event. So, super happy to be here. Very excited to be in India. Um, at the risk of sounding a bit repetitive because it seems that my team has quatted stage three, I'm part of the funding coordination team and we have three specific goals in mind as part of the Ethereum foundation. The first one is to increase the net new public goods funding supply. The second one is to match funding supply and demand more

efficiently and the third one is to reduce ecosystem demand on Ethereum foundation for funding specifically on the grants. I want to start with the problem because I think it's a very common problem in the Ethereum ecosystem but also in the open source world in general which is the problem of sustainability. How do we think about sustainability for open source projects? How do we monetize open source projects and how do we work with public goods or public infrastructure and sustainability itself?

The p the problem is uh quite complex but if we have to define it in three simple points I would say that in general public goods are characterized for grant funding and grant programs tend to be very fragile, very ad hoc and very political. You might have a grant this year and then you will uh start shipping code. Then your runway will shrink. Then a new grant sprint will come which will you apply and it might renew or it might not renew. You might find one new grant or you might find no grants and then you start the cycle again.

In general also public infrastructure teams are teams that they are experts in the scope of their work. Excellent teams but they lack a lot of operational capacity. They lack a lot of HR, legal and accounting support in order to think uh long term about their runway and their road map and in order to remain futurep proof. And this is a big challenge for public infrastructure teams. And the third one is a very particular effect that grants have in the open source world and that we've seen in the Ethereum ecosystem as well, which is the distorting effect that grants have. In general, when there is

an abundance of grants programs and teams need to compete for which grant to get, they stop thinking about what are the needs that they are satisfying with the product that they build and they start thinking about how do they fulfill certain grant program criteria. So they take a bit of distance from the user that is actually using that public infrastructure and public good. And this is a big big problem. So the main question that we ask ourselves throughout Auding project which is an Ethereum foundation uh project is can we translate research and maintenance of

digital public goods into deliverables that clients can actually pay for. This is the question that governs the entire program. Uh please note here the highlights between deliverables and payments because it also opens the question of monetization of code. How easy it is to monetize code in the open source world in the free and open source world and how can we think about a long-term runway infrastructure when these projects rely only on donations or on grants. There is also the question of the tradeoff that developers and teams need to make when they need to align to the crops vision and the open source

values. We see Odin as a program that is one of the alternatives that the funding coordination team is offering to public infrastructure goods in the Ethereum ecosystem and beyond for a sustainable future. And we work with a particular but very specific concept which you might have heard about and this is an organization type that is called frontier research contractor. A frontier research contractor sits in between this very common organization types that we've seen throughout the Ethereum landscape and in the open source world in general.

We've seen academic labs that they're great at novel ideas and publications and sharing ideas and reputation, but they lack the capacity and sometimes the challenge of turning research into technology that is actually usable for real users. Then we've seen a lot of VCbacked startups. Startups are great in fast growing markets. We've seen it over and over again. that they are not so prominent when it comes to niche or slow to monetize problems. DPGs tend to navigate this niche or slow to monetize problem in the blockchain industry. And then we have consulting agencies. And

consulting agencies are great at stable and incremental revenue, but they lack the frontier level technical ambition that we want to see in the Ethereum landscape and in the open source world in general. A frontier research contractor sits in between these organizations and tries to fill the gaps that these organizations cannot fulfill. An F FRC as we call it is an organization that defines a very ambitious northstar as a point of research frontier. But at the same time, it is combined with a startup management structure that makes it flexible enough to be able to pivot to identify ideal

client profiles and at the same time to make sure to increment revenue streams that are highly aligned with the frontier research that they define. So as I so as I said before a frontier research contract is a contractor is an ambitious built for real users organizations and runs like a startup and the particularity is that is funded by a mix of contracts and grants. We estimate that approximately 20 to 30% of the total runway of an F FRC is funded by grants program while 60 to 70% tends to be funded by revenue streams in a contractable work or product development

sales. You might also have heard about focus research organizations or FRO. These are also great organizations that also define a frontier research. But the difference to frontier research contractors are that first they get all of their funding up front in advance and second once they complete the frontier research once they have achieved their northstar they tend to disappear they tend to dissolve. The reason why we choose for auditing project frontier research contractors is because these contractors are the ones researching, maintaining and developing the public infrastructure that Ethereum relies on.

So this is why we need them to keep working on this for years to come. An F FRC as I said before then is an organization hired to conduct cuttingedge research, exploratory research at the leading edge of a technical field where knowledge is still or might still be limited and outcomes are still uncertain. and they transform their research into revenue streams that are highly aligned with their mission in order to keep funding the research frontier. What project Odin is is actually a frontier research contractor program for Ethereum. So what we do is

help public goods that are critical in the Ethereum landscape transform themselves into frontier research contractors in order to start thinking about a more sustainable runway road map and future. It is very important to understand that first of all is not a grant program. We we work with the grant uh the grants management program at Ethereum Foundation very closely but we don't provide grants and it's also not a startup accelerator. We are a hands-on support program that helps digital public goods think about sustainability in 12 months via engagement on one standard cycle,

regular sessions, consulting and brainstorming strategies. The program has three stages towards 12 months. We will see what those stages are after. and we assign one embedded strategic advisor per participant in order to help document, advise and have regular calls with these teams. The three goals are to reduce dependence on a single funding source which is what makes funding uh public goods very fragile, reach a stable operating model within a 12 months horizon and make outputs adoptable, repeatable and also contractable.

Of course, as you might have discovered by now, uh project audit is very biased towards near-term repeatable revenue. We help these teams open revenue streams and increase them in a repeatable way in order to support retainers, training, consulting, contracting or provide services while protected the public goods mission by making sure that the project that is part of the public infrastructure is defined as a dependency. And it is very important for us to understand that sustainability for these projects in our mind doesn't mean profit seeking but it means enough committed resources to stay viable and effective for as long as the

infrastructure is needed and this is quite important for the program. We have started cohort one in January this year and we're finishing the pilot which is cohort one in December this year or January 2027 and we will start cohort 2 in February 2027. For cohort one the eligibility criteria were these five elements right here. The first one is they needed to be EF strategic grantees, meaning that they needed to have a stable runway at least for 12 months to be able to think about these problems and to take the necessary measures to transform their structures into a

suitable FRC. They needed to be aligned with the crops vision. You might have uh read uh the Ethereum Foundation mandate as you might know. Um, all of the programs at Ethereum Foundation align with this crop vision, which is censorship resistance, open-source, privacy, and security values. And the projects that we work with need to be aligned with the Ethereum Foundation values and mandate. With regards to the team profile, as I said before, they need to be experts on their field, but lacking the operational and strategic capacity in order to think long term about runway and sustainability.

They need to fulfill the ambitious long-term orientation of thinking of Ethereum as a very strong candidate that can be part of the next generation of internet protocols. And of course there there needs to be sustainability potential. These are the three stages that we go through with the participants of the program. The first one is discovery, research or mapping for the first three to five months. Then validation and planning and execution and the risking. When it comes to discovery, research and mapping, what we do is we do an intake of the runway, the funding mix and the constraints of the team. What the team is working on right now, what they're developing, what are the dependencies.

We help them define the northstar of frontier research as the most important output to this stage. And we also help them understand what are the current funders for their teams, what does their budget look like and what are the legal and operational capacities of the team. In the case of the validation stage, we help them to do something very important based on the theory of change that they defined on the first stage and on the northstar. We help them define their ideal client profiles or their funders profiles in order to open conversations with these users that are the ones using the technology that they built. Package their offer and build three to five

credibility assets in order to start negotiations and exploration calls with these potential funders and clients. And on the execution side of things, we sign commitments, we run the pilots, we ship deliverables. And of course, success is measured as reduced dispendancy risk. This is what usually an FRC would look like when it goes through the program. It would start with a research contract in which they're allowed to uh be paid despite despite the outcomes, very low margin, hard to templatize, but then they would move slowly to an engineering and services contract where there is a fixed scope of work and price predictable once repeated and of course

requiring productizing research as well. And then slowly move to a pilot of proof of concept in which often priced at a loss. So, it needs a follow on, but it has the benefit of being highly repeatable and with the long-term goal of transforming those pilots into commercial contracts. So, F FRC's or these teams can actually diversify their revenue streams. With regards to how we measure success, at least on cohort one, we take into account resilience. We measure resilience. We don't measure size. We don't measure profit seeking.

So what we measure is how concentrated the funding is and it was at the very beginning. How predictable the runaway is right now in comparison to the very beginning of the project. whether the pipeline is healthy, what are the ICPS, what is the conversion rate of those ICPs and potential funders, whether at least one of the recurring recurring revenue streams exist and can be repeated and whether the team has the operating rhythm to deliver new contracts and to define new level of ICPS for project auditing cohort one. H for the pilot. We were very very lucky to work with three very very amazing teams.

We're ending our collaboration by the end of the year. These teams are arc works which is working on production grade postquantum zero knowledge infrastructure that any developer can be can use to build on with high assurance. We're working with Viper as well the language you might have heard of them. um they are working on actual formal verification end to end for smart contracts and following with all software via formal verification of their compiler and they have developed a product called sequent that is easily um that can easily be integrated into release processes or auditing process

and we're working also with quick go which is the quick library greeting on go trying to make the central ized wave reachable by anyone via communications online and providing true anonymity to users. For cohort 2, uh you might have heard Martin Hansen's uh talk this morning on this stage as well. For cohort 2, we're going to be working in tight coordination with his project, the Ethereum kernel project, in order to work with public infrastructure that is critical for Ethereum network to run smoothly without critical vulnerabilities.

Uh so we're going to be in tight coordination uh with kernel and we're going to choose and select projects from the kernel project. kernel if you don't know is a framework for mapping pricing and funding the infrastructure Ethereum actually depends on today taking into account what keeps the chain alive correct and permissionlessly accessible. We have at the moment a pre-seelelection list of 25 projects and we're working with the funding coordination team about making that list a bit shorter. As you might understand, project audit is a very hands-on uh program that takes a lot of work uh by

the advisors and in collaboration with the teams. We expect to have for cohort two four to six new projects working with us helping them transform into frontier research contractors. So this is it for me. If you want to talk about sustainability, frontier research contractors, FRO's and digital public goods, you can find me after or you can connect with me uh and what and see all of the information at projectin.org. Thank you. Thank you. Thank you, Raul.

Interesting topic. I know normally at Ethereum conferences at Defcon or Defconnect we don't talk about money but funding is the one exception that we do. Now Ro there's a couple of questions as you can see. Let's go through them and answer the questions that the crowd has for you. So beyond oneoff project grants is the EF exploring long-term recurring support for core open-source maintainers? Yes, particularly the funding coordination besides Audin is working on three other projects that focus specifically on long-term recurring support for open source maintainers. And we're working with

organizations uh within the Ethereum landscape and beyond in order to make sure uh that this long-term funding it's actually recurring and repeatable. is not ad hoc and fragile as we're seeing with grid grants program right now. >> Maybe let me give you a follow-up question on that. Are you planning to be as selective for that as the build guilds and are you also going to fund only individuals or also teams? >> We found bo we we fund both. Um in general the framework that we follow from now on will be the kernel framework which defines the minimal viable

infrastructure needed for Ethereum network to stay functioned. >> Okay. So you have a very clear definition of what core means to you. >> Correct. >> Okay. Next question we have here on Mircat. For some public goods the natural paying customer is a public institution ministry or regulator. Does Odin work with EF's institutions site like Epic on that revenue path or avoid that capture? >> Correct. Uh Odin particularly on stage two of the cohort which is discovery of ideal client profiles. We work with internal teams at the Ethereum Foundation and also with external teams in order to define different levels of

ICPS uh depending on the project and the team that we're collaborating with at the moment. and we define different levels of ICPS and they can be for-profit companies that have the public infrastructure teams are working on as a dependency but we also work with public institutions nonprofit organizations not only on opportunities for contracts and pilots but also on uh future funding via grants program for those teams. Interesting. Thank you for that. So when does Odin advisers leave a team and how do they how do they know the team won't draft drift back to depending on grants?

So what we can do from the audience side is making sure that we have open revenue streams that um leave the the team working on on on the public infrastructure not dependent on one single source of funding. that that revenue stream can be repeated and can be incremental over time and erh that we make sure that the team is strong enough operationally speaking in order to follow up on those clients and potential clients in the future depending how they develop and maintain the dependency. So we leave them there and then we have limited sessions with them not so

regular like this is not weekly or bi-weekly with this alumni or participants in order to make sure that they follow up on what they've built in the past. >> So you keep in contact with the former cohorts they become part of the ecosystem that you work with and you might even like have connections from cohort to cohort that the teams know each other and can help each other. I assume. >> Wonderful. That's good to hear. So, what are some of the themes or verticals you would would you would be prioritizing on cohort 2?

>> Some of the themes or verticals that we're thinking about cohort 2 are very much aligned with the functions of the kernel um which you will be able to check on Martin's talk which happened this morning on stage three here. But this includes uh consensus layer uh execution layer uh languages uh privacy and postquantum development maintenance. Thank you. That's those are some very important topics and verticals that we need to tackle. Why does the EF funding decline over the years? So I assume that's talking about general funding because Odin is relative new relatively new. So what what is going on there? Um I think I mean I cannot speak for the EF

in general or for the grants management team but I would say that I think uh with over the years and based on the talks that we've had here um Ethereum Foundation has uh become more specific and more focused on making sure that the grants that they provide give uh or show more success metrics and I think that's what's happening right now but not only at the Ethereum Foundation level but also with all the grants program as well. But for more information about that, you should definitely contact the grants management team. They're here at DEPCON in Mumbai and you will be able to discuss with them this.

Thank you for these um answers and thank you for the insight you gave us and thank you also crowd for the interesting questions that you pose. You see this [music]