The Art of Funding Crypto's Public Goods

Key Insights

• Public goods increase social welfare, but because their production costs are so high, they cannot be directly profitable to their individual creators.
• While there are a variety of ways to fund public goods in crypto, none have emerged as a dominant solution.
• Quadratic funding and retroactive public goods funding systems allocate funds to public goods initiatives in a distributed manner.
• To date, the majority of public goods funding has taken place within the Ethereum ecosystem and focused on projects building core technology infrastructure for its community.

Public goods are the key to a flourishing civil society. They enable one individual’s consumption to increase the well-being of others — think education, national defense, and street lights. Although public goods enhance social welfare, they are innately unprofitable for any individual to create on their own because of their high production costs. As a result, societies have historically relied on philanthropic organizations, altruistic individuals, and governments to fund the creation and ongoing development of public goods.

Public blockchains are intrinsically tied to public goods: the open-source code upon which these networks are built is a public good. Early successes demonstrated the social benefits that crypto applications, protocols, and middleware can deliver to the community, but many of these goods and services lack a clear business model to sustain their existence. Further, decentralized networks fail to natively enforce the funding and development of these public goods.