From SIMON DE LA ROUVIERE

While the mainstream news in the crypto space this week was the approval US Bitcoin spot ETFs, another more interesting thing happened. In a difficult time where a lot of tech businesses are laying off workers, Optimism’s 3rd Retroactive Public Goods Funding Round (RetroPGF) funded 501 projects to a tune of over ~$100m dollars (30m $OP). Optimism, a scaling solution for Ethereum, is increasingly setting the tone for how we might envision the funding of work and the ecosystems around it without resorting to traditional business models or current expectations on how to monetize open source work.

In the previous two rounds, 10m OP and $1m was rewarded.

The idea behind retroactive funding is simple: reward that which was useful instead of predicting what will be successful. In Optimism (for now), it does this by allocating a portion of its initial token supply to these “funding rounds”. What projects should receive how much is dictated by a simple equation: “impact = profit”. Thus, for now, VC-funded projects are also allowed (which is/was contentious) as long as it trends towards positive impact for the Optimism ecosystem. The sustainability of this system is dependent on some of these projects building on the network in order to generate future revenue in fees for the protocol. And then the fly-wheel can hopefully continue.

What’s interesting is that although it’s focused on Optimism as a technology, it also acknowledges the wider community that makes it all work. With round 3, you had a wide variety of projects being funded. From pop-up cities (Zuzalu), to the most-used open source software in the ecosystem, to influencers that spread the message. Full list here.

The governance of this process is done by one of the two “governing” houses of Optimism: The Citizen’s House vs the Token House. They try to balance the two incentives: economic and short-term (tokens) vs long-term and human-focused (badgeholders).

While these kinds of governance experiments in the blockchain space isn’t new (it’s evolved substantially since TheDAO in 2016), what I feel it gets right is precisely the necessary introduction of a bicameral house and a focus on retroactive funding.

The bicameral house mediates the concerns of allocating resources effectively and trying to resist capture. I’ve always been an advocate of experimenting with additional houses of governance. For example, my favourite is still the principle of introducing a section of legislature that’s based on sortition. It’s size is determined by the disillusionment of the existing political parties.

Retroactive funding works well because it divorces the goal of a project from how it’s done. Most work today, for it to be sustainable, need to fit into an existing mode of capitalism/distribution to be successful. Wanting to tell stories, for example, can take the forms of: self-publishing, trad funding, do a kickstarter, sell merch, paywalls, physical, digital, film, comics, books, etc. But with retroactive funding, how it’s done is then up to the choice of the creator, not what’s necessary to get it made in the first place. In addition, when retroactive funding is predicated on verifiably stored actions in ledgers, the possibilities are even more grand as *any future* can reward *any past*.

As I wrote previously:

This has interesting implications, especially when there’s compounding network effects: the more it happens, the more it will happen. The longer it goes, the more it will happen and the more opportunity there will be to reward past transactions. There’s a continuous reward system that incentivises more and more users to interact with protocols, not for a known speculative reward, but a hypothetical reward. It’s not akin to traditional speculation (buy something and hope it goes up), but rather a way to bet on any unknown futures. All becomes possible and to receive these future, hypothetical rewards, the sooner you interact, the better. The more traces you immutably record and leave behind, the more likely it could be that you could be rewarded.

Along with the initial supply of tokens, continued revenue can come from any source of goods and services provided in a network. It’s a voluntary tax system where the transparency of it is visible to all participants involved (as is the case with a blockchain). An example of such a variation is Zora’s network where users voluntarily pay fees to the network and its curators. In 2023, it earned around ~$1.9m of these rewards (above and beyond the actual price of the works being supported by fans).

What about a system that focuses on climate change, local communities worldwide, or just literally stands up a deliberative house that through sortition represents a global citizens assembly?

While these systems always comes with caveats and expectations of failure, the fact that innovation in economics and social systems continue unabated is promising. Lessons are being learned along the way.

But, the fact that teams are receiving enough money to keep supporting themselves for producing open source work for another year or two, that’s exciting. It’s all kind of slowly but surely… *working* as scale continues to grow.

Blockchains always represented a sandbox for imagining how we might organise in the 21st century and Optimism is currently a shining beacon in this domain. As with most innovation like this, the first generation of attempts are often skeuomorphic, made to mimic aspects from the old world until the medium’s native benefits changes how we do it. In Optimism, it’s explicitly aiming for a house of the economy and a house of the people/users.

I’ve often oscillated on the point of speculation in building out these systems. Some days, it is a superpower. A necessary component that sometimes draws in scrupulous actors, but still manages to build an economy that’s now worth almost $2T in 15 years. On some days, it feels vile and sinister. That only a handful of people are actually smart enough to not lose money in a system where speculation is necessary.

But, over time, the undeniable power of speculation in a crypto network is that it’s a multi-party contract about the future. If a traditional legal contract attempts to ensure that it’s costly to defect within the bounds of an agreement, then a crypto network is a contract that makes it beneficial to behave collectively into the future. Underneath it all is a ledger that reduces the cost to coordinate over some domains. Even when they fail, it leaves behind coral reefs of open source cryptography, new research in economics, and the friends we made along the way.

As time goes on it drastically feels like the world needs different forms of coordination, and some day I hope we arrive there with something new like Optimism as one part of a larger set of change.