* Disclosures: I’m a direct or indirect holder of GTC, ETH, BTC, SOL, AVAX. This content does not constitute legal, financial, tax or other professional advice, nor should it be read as a solicitation to buy or sell any securities. Views are my own, not those of my employer, Gitcoin Holdings Inc. ("Gitcoin"), and are shared for discussion or general education purposes. No attorney-client relationship is hereby established.

For the avoidance of doubt, Gitcoin has formally contributed all DAO-related assets, including (without limitation) protocol code, domains and related IP to The Gitcoin Foundation and its affiliates. To avoid any confusion and clearly disambiguate GitcoinDAO from Gitcoin, Gitcoin is rebranding - more to come @supermodularxyz! *

My last post highlighted the cambrian explosion of creativity and utility in web3 being built in and by DAOs, speaking as a GitcoinDAO observer and watching how much fruitful collective action has advanced the buildout of public goods. Over this summer, GitcoinDAO closed in on a major milestone along its decentralization path with its acquisition of its bona fide IP and related assets from Gitcoin Holdings - and it’s prompted me to reflect on why GitcoinDAO and its coordination tool are so critical to all the ideation, iteration and shipping going on within this micro-economy called Gitcoin. Look no further than Gitcoin Passport and diversity of cause rounds featured in GR15, launched just last week, for how much impact GitcoinDAO has delivered already since formally disaffiliating!

In my last post, I said that “bottoms-up organizing around public goods is among the most promising use cases for decentralized digital coordination infrastructures like DAOs”. 

I think this is likely just as true for decentralized digital coordination tools like tokens, and together these tools provide a step function improvement on public goods funding. Here’s what I mean:

1. Public goods require direct public coordination to flourish

First, let’s level-set on what we mean when we refer to public goods: Public goods are (i) non-excludable, meaning my consumption does not diminish your ability to consume a public good (say clean air) and (ii) non-rivalrous, meaning it’s impossible to prevent others from consuming that public good (or “drawing a fence around it”).  So public goods benefit everyone (without regard to geographic borders) equally. 

Elinor Ostrom went a step further, and received a Nobel Prize in economics for her discovery that public goods should be governed by their direct beneficiaries:

So everyone should have a say in the resource allocation of public goods, since everyone’s personal welfare depends on the sustainability of public goods. Public goods require public input. 

Moreover, the individual’s scale of influence should not be intermediated - instead, we should mitigate the principal-agent problem and push decision-making power to the edges as much as possible without compromising impact when it comes to the fate of public goods. So public goods require disintermediated or direct public input. 

2. Public goods funding has traditionally been deficient

Public goods are all around us. Open source software (OSS) is one example of a public good that is embedded in the daily interactions people have in the modern world - ranging from the utilities powering our homes and lives and iOS kernel powering iPhones. Yet OSS developers are massively under-resourced and underpaid, including especially those building the vibrant Ethereum ecosystem.  They are also among the scarcest resources in web3.  Public goods generally also deserve better funding mechanisms - here’s an example that resonated from @owocki’s recent regenerative finance post:

So public goods deserve better coordination mechanisms - both of labor and capital:

3. Public coordination in the digital age can be improved with DAOs

Now that we’ve identified the coordination pain points, how do DAOs fit in? In my mind, they improve the labor capital component in my above Schematic A. @Vitalik defines a DAO as “an entity that lives on the internet and exists autonomously, but also heavily relies on hiring individuals to perform certain tasks that the automaton itself cannot do” - so DAOs are decentralized groups of people coordinating over the internet via credibly-neutral protocols.

In the case of GitcoinDAO, by May 2021, there were already hundreds of thousands of developers learning, earning and connecting (and many more so today). Their footprint is global. So this community was at this time a decentralized group allocating their time and talents toward a public problem but was not yet a formal “DAO” prior to its ability to coordinate via a credibly-neutral protocol → enter GTC.

4. Public coordination around public goods in the digital age can be improved with coordination tools like tokens

Understanding the need to distribute decision-making over public goods back to the public since public goods require disintermediated or direct public input, how to do so? For Gitcoin, GTC proved a critical coordination tool. Here’s a few excerpts from that launch post to bring us back to our genesis block:

At it core, GTC was a critical tool deployed to future-proof against any single arbiter of OSS funding. GitcoinDAO’s constituents could use it to ratify quarterly grants rounds results, ensuring funding follows the will of contributors.  At this point it’s worth revisiting the other step function improvement that GTC brought about to double click on how contributor funds are amplified toward public goods - the implementation of the quadratic funding protocol (“QF”) via Gitcoin Grants.  In my mind, this is what allows GTC to improve the backer capital component in my above Schematic A.

5. Quadratic Funding (“QF”) via Gitcoin Grants is a novel way to allocate funding that optimizes for the preferences of the many - i.e., the public’s preferences

If you and I both were vying for contributions to build an open-source NFT project that educates young people about web3 (as an example), and I secured one 100 DAI donation whereas you secured ten 10 DAI donations, you would have quadratically higher exposure to matching pool funds, because the preferences of the many signal-boosted your project more than mine (also see below match amount breakdown).  This is the magic of QF in a nutshell.  See here for a delightful explainer on how this mechanism works to optimize for the preferences of the many, see here for an explainer of the sources of matching funds, and see here for non-custodial mechanics if you want to get into the weeds. 

To be sure, Gitcoin Grants took years to nurture into the impact engine it is today, but despite the meandering path to Gitcoin Grants, at each fork in the road, Gitcoin’s prototyping was always driven first and foremost by a clear mission: to coordinate the buildout and funding of digital public goods (see here for more color on other initiatives born at Gitcoin, like bounties, hacks, KERNEL, etc). 

--→ In short, DAOs and tokens or similar coordination mechanisms together improve our collective ability to nurture the commons

Mike Maples’ excellent Crypto Commons post is a must-read framework for how crypto can transform the tragedy of the commons into the wealth of the commons. Hint: we need a cognizable, intangible tool to facilitate participation in this direct democracy - we need a way to account for the public’s voice. People care about what they can control. Only what gets measured gets managed.

Gitcoin’s great unlock for the public goods collective action problem was the launch of GTC - before GTC, there was no way to account for the public’s voice or orient public preferences directly to public goods, as we needed to trust intermediaries like governments or large multinationals to support OSS.

GTC, combined with QF via Gitcoin Grants, is the ultimate Moloch-slayer when it comes to building and funding public goods - because GTC both (a) gets us one step closer to direct democracy over beneficiary preferences and (b) incents collective action to build and refine the QF mechanism, and iterate on others, by serving as the proof of work.  

On this latter point, what I mean is that GTC functions a bit like an improved community currency or scrip - DAO contributors’ acceptance of GTC in exchange for services rendered in furtherance of building public goods (like fraud detection or otherwise securing the integrity of QF as a funding mechanism) puts a value on that work. And that value is a function of the work of the many within and beyond GitcoinDAO dedicating their talents to public goods, rather than a function of any select few intermediary allocators.  Moreover, DAO contributors can also use GTC to decide budgetary allocations via governance - strengthening the feedback loop within the broader public goods-building micro-economy that is GitcoinDAO.

Zooming back up to present day, it’s amazing to me how much impact GitcoinDAO has achieved since agitating to govern itself by formally acquiring its inheritance and closing in on the second chapter of its progressive decentralization, and I feel very lucky to get to watch the experiment alongside everyone else as it continues to blossom.

--→ Final note on market trends outside of web3

Interestingly, we live in a world rife with public goods deficits so much so that even securities regulators mandate public companies to effectively invest in clean air; the New York Senate recently passed a moratorium on proof of work mining in part on account of environmental concerns and the White House Office of Science and Technology just this week released a report in part highlighting the environmental costs of proof of work mining.

We are reminded that everyone wants to do ESG and shareholders are pushing arrays of ESG proposals.  It just so happens that web3 by design offers ways to solve many of these same pain points - web3 is actually advancing diversity relative to other sectors, and puts both governance and environmental costs directly in the limelight by pricing negative externalities in some cases via tokens (e.g., all of these 220+ GR15 climate solutions round grants).

It feels like GTC and GitcoinDAO arrived just in time to contribute to advancing ESG trendlines - I am excited to watch how GTC’s use cases might continue to expand beyond the digital commons to the physical commons - GR15 alone already features specific cause rounds, including for climate solutions, crypto advocacy, diversity, equity and inclusion (DEI) and decentralized science, and I’m looking forward to watching its breadth of impact continue to expand! 

Many thanks to @RSSH273, @AnnikaSays, @kbw, @owocki and @KishanDAO for your early reads.