Retroactive Public Goods Funding

Transcript

hello hello this is carl.tech and today i'm going to talk to you about optimism ethereum and public goods specifically retroactive public goods funding so let's get started now optimistic ethereum retroactive public goods funding first off what's optimism pbc optimism pbc is a public benefit corporation that's pbc and we out we have a charter to enshrine fair access to public goods on the internet with open source software basically we are scaling ethereum with layer 2 writing it all as a public good writing it all as open source software and

trying to make sure that public goods are sustainable long into the future now table of contents how what are we actually talking about well first off let's talk about the public goods problem public goods aren't getting funded enough retroactive public goods funding the solution or a very key part of the solution to that problem and a little bit of love so what's a public good and we're going to take an example of open source software that's the public good that we care about so a it is a good or a thing that is non-excludable so for instance open source software once i write it and i share it to the with the world everyone can benefit from it there's no exclusion no wallet garden

additionally it's non-rival risk that means that if one person gets an idea right reading my software that everyone can get that idea it's not like you learning something prevents me from learning it as well so that is a good now the problem with it is that it is really hard to get funding to build public goods private goods of course they're easy they're excludable they're rivalries but public goods no way there is no business model for public goods at least no effective one we have grants programs but they're just not enough as right now so no business model means no investors and no exit so people don't get you know don't work really hard for it and

there's just all this results in no progress we end up with a starvation of public goods specifically why is this really important well it's because ethereum core infrastructure is itself open source and a public good and it does not progress at the speed that it could if the incentives were aligned we are scaling ethereum but we also need to fix the incentive problem which is keeping ethereum force from scaling so that's what we're doing at optimism building core infrastructure open source infrastructure we got to solve this problem it's terrible so let's you know no business model right

oh no open source there's no business model well done we gotta took that thing out actually retroactive public goods funding can give open source and business model let's go okay so how does this actually work retroactive public goods funding and overview so a few months ago vitalik said huh i have this really interesting thought if you fund work that has already happened aka public goods that are fund them retroactively then it actually incentivizes a market for people to build the public goods it's kind of like leaving honey out and you've incentivized the animals to come

you know come eat it up it's that concept so you don't have to pay people for the work you can actually just leave the money as an incentive for people to do the work for you that's really crazy so really first let's talk about to get a better understanding of this let's talk about what retroactive public goods funding isn't it's not a traditional grants program so before we you know go dive in deep let's get a lay of the land why don't we so a traditional grants giving org is normally connected with some ecosystem that they're trying to promote they want their ecosystem to improve over time and they've got these builders that are wanting to contribute to the ecosystem and so the grants giving organization

says okay i'm taking proposals so maybe one building says oh i'll build a slide for your ecosystem or i'll build a a swing set for your ecosystem and the grants giving organization chooses one or two of you know some number of these projects to actually fund and you know provides a little bit of a little bit of money to actually execute and build the thing that they're saying they want to build so they get some you know some some coins and they build the slide right okay but the problem is what if no one uses the slide how does this grant giving organization know what is actually best for the ecosystem they are now this centralized kind of thought process that's going on oh i'm going to fund this i'm not going to fund

that how why is this grant giving organization the ones that are centrally planning this ecosystem it doesn't actually work out because maybe the swing set would have been a better option but it was never able to be funded and so you know ecosystem suffers from this so what's wrong with this picture specifically we have a vague intuition why this is like top down and weird but let's think about the exact incentives that are causing this well there are three major ones the first one is limited foresight so for instance this is a big organization that may or may not know the needs on the ground or how best to implement or who is the best team to implement what the ecosystem needs it's a very complex

problem additionally there's a legitimacy risk every single time that the grant giving organization is participating in this ecosystem to to fund projects well they're actually they actually have two roles they not only fund projects but they also are a social signaling you know legitimacy uh bringer so for instance the ethereum foundation they coordinate hard forks this is a key process that is not just giving grants and so what that means is when a when the when the grant giving organization don't uh uh inves or donates to a project it gives a grant to a project well if the project were to do something bad or be evil then it actually hurts the legitimacy of the grant giving

organization so this is a real issue because that means that there's actually not an incentive to take risks there's no there's no good payoff and in fact that is the next part there's no good pay up off for taking the risk of you know betting on the legitimacy of this project or investing in this project and sharing a bunch of legitimacy to them so there's no stake in the upside this grant giving organization yes okay they want the ecosystem to improve but it's it's a loose connection much more loose than for instance a traditional investor so with all of these problems grant giving organizations really don't do a great job of of implementing their what they're trying to do improve the

ecosystem so it's bad news bears it's very sad this is you know we can all take a moment very sad anyway so okay don't fear retroactive public goods funding is here let's take that frown let's take that problem flip it upside down let's flip the problem on its head instead of investing proactively let's do it retroactively because we all love retroactive public goods funding so instead of a grant giving organization let's replace that with a results oracle so instead of funding future work we're going to instead reward past contributions so things that have already happened the results oracle says oh i'll actually reward that i'll give a payout for that so let's think

about how this works first we need to establish a goal the results oracle needs you know it needs a bunch of money and and people need to know that it has money and is going to pay it out and it also needs to establish a goal so everyone knows what they're working towards so they know if if they progress the the the progress to this goal then they actually will get that reward and so we can represent this as a little progress bar towards some goal and the goal should be relatively specific maybe not too specific to constrain creativity but you need to know what you're building and then the builders can actually just on their own get going start working on the goal start progressing it start building out the ecosystem and let's say after some

time has passed we get 30 complete towards that goal now the results oracle can say hmm instead of investing and trying to figure out how to achieve this goal i'm just going to observe who helped me get here and then what i'll do is i will reward the people who contributed to the result i will judge the results and reward people accordingly and so you know the this you know this gerbil did some help this gerbil helped a lot and this guy you know honestly didn't do that much unfortunately and so this process can continue as we progress towards our goal right the builders build then we get closer and then the results oracle uh

rewards and so this actually allows builders to express their creativity so let's let's take a look at this side by side so the the proactive funding or the traditional grants giving we have this ecosystem right that's similar to the results oracle but it's retroactive so in the proactive case the grant giving organization is actually coming up with the ideas or evaluating the ideas and top down kind of mandating and giving money you know sending money down into the the builders instead with the retroactive we have the builders coming up with the ideas and then bottom up after the idea has been implemented the results oracle is

actually rewarding the builders so this is of pretty much the difference between a top-down process and a bottom-up process but now here's the question there is a little bit of a subtlety because it doesn't work on its own in fact we need a third party in the retroactive case because how did the builder actually get the money to implement the thing right we said okay the slide gets created but how does it get created that is a great question well how do they get funding for their venture how do we bootstrap ventures how do they get venture capital oh i mean you know so anyway this is turns out it incentivizes a secondary market building a big exit a

big reward into our protocols provides an investment opportunity creates an investment opportunity so that's why we have a big retroactive reward this is how we create a startup model which is very successful in the private goods world and replicate that for public goods we can create that same incentive loop so retroactive funding actually incentivizes investment in a multi-sided marketplace so we have the results oracle we have the developers and we have the investors and so the developers they can get a great idea they can go pitch it to their investors the investors invest in the project the

developers implement that idea and then they get rewarded from the results oracle and so depending on the quality of their idea the quality of the result they actually get payouts and guess who else gets payouts the investors themselves they also get paid out and so this creates a bottom-up market force that is actually fulfilling the objectives of the results oracle the results oracle doesn't have to say how things get implemented all it needs to say is this is where i want to go and i'll pay you if i get there that's it and so this creates that natural you know that kind of selection process that creates really intentional and intelligent investors as well as great builders and it selects

for quality and that is extremely valuable so now if we look at this picture we actually get a full idea we have a system where the investors invest in the project the project creates the idea right the brings it to reality and then gets rewarded by the results oracle from doing this so the ecosystem can grow naturally bottom up so now let's take a quick look review the incentives limited foresight well this is not a problem because the developers have the context right they know what's going on additionally the legitimacy risk this is not an issue because what ha the people that they are rewarding have already created the good work it's not about saying oh i'm gonna invest in you or i'm

gonna think that you you know you need to you need to take my money and actually uh you know do something with it i had there's no expectations for the results oracle it is literally just i will give you this money because you have actually performed a service a good service and additionally there is stake in the upside specifically because you have the investors and you have the builders and they can have stake in their project success specifically you can create what is called a project token for each project and they can that token can be a part of the buyout so the essentially the results oracle buys the project tokens which automatically

rewards the investors and the builders at the same time so you can actually on the blockchain kind of create the same market dynamics that we see play out and succeed in a private market really nice and we can build that into make make open source and public goods that help everyone a part of that which is pretty cool right you know rain it down on the people who build ethereum anyway so all of these problems are not an issue in this thing we just literally all we've done so we said it don't invest you know grant's program actually just reward that's it

so you can actually create a business model for open source from idea you know the developer getting the idea to exit with the results oracle paying out the developers the investors everyone who made it happen this can all be naturally done from the bottom up and we can create a glorious ecosystem with open source software at its heart right this is critical and that means that this business model no business model get out of here get out of here we all want to fund public goods and guess what you've got a business model if you build them and you build them right so we are going to solve scalability solve the progress of

ethereum solve the creation of open source software in perpetuity using a combination of retroactive public goods funding and protocol incentives and so boom boom boom we can shower our ecosystem with money and reward people for the great work that they do so anyway let's scale ethereum it's really exciting let's let's do it again yo it's optimism pbc you know and and specifically you know the pvc uh we are hoping to you know this is this is a decentralized movement so you can be a part right in any way but i will shout out that we are hiring so you know if you want to work on geth

oh yeah do some development anyway [Laughter] thanks y'all love knows no borders share your public's goods share your open source we're all in this together it's it's it's exciting and you know stay optimistic thanks everybody