/* mashbean is a DAO contributor and currently works in Taiwan government, ministry of digital affairs (moda), section of Plurality. He is actively working to build a bridge between the traditional government and the web3 public sphere, striving to create a connection between the two worlds. */

The reason lies in Digital Public Goods (DPGs).

In the world of open and permissionless public blockchains, if developers provide good services that attract more users, the blockchain will gain higher value.

Users live on the blockchain (transactions, exchanges, agreements, etc.) and need to pay a small fee to the maintainers of the distributed ledger. However, maintainers are usually not the developers, so developers and maintainers often become two sides in a blockchain, engaging in a struggle for maintenance and upgrades in public governance.

Developers create open-source digital public goods to create more use cases for the blockchain. But where do developers get their money from? On the one hand, developers can create their own tokens (although the tokens may not necessarily be useful) to attract investors willing to take risks and grow together. Alternatively, they can receive funding from public chain foundations to provide services for specific public chains.

The former invention created the ICO mania and numerous fraudulent cases. The latter is a common occurrence where emerging public chains attract developers by distributing tokens generously, as seen with recent well-known public chains like Aptos and Sui. After all, a public chain is like a sovereign government. Without stable and usable public resources, it will not attract immigrants.

I have had conversations with friends who worked on highly successful ICO projects, such as Mask. I have also chatted with grant reviewers from different public chains, such as the Solana Foundation, Tezos Foundation, Ethereum Foundation, and others. Although their initial intentions may differ, they all play a role in funding digital public goods to some extent. Different investors with different ideologies or policies will bring extremely different prospects to the ecosystem.

Since the world of blockchain changes rapidly, and if you know and are familiar with these decision-makers, these cases of "public decision-making, public funding, public outcomes" iterating rapidly can help us think about which funding directions can benefit or destroy the ecosystem.

For example, recently, the founder of the Tezos Foundation created a website to subsidize victims of high Ethereum gas fees with small amounts of money, around 5 USD. I am extremely skeptical of this subsidy-based marketing approach, but whether it is good or not is not for me to decide. However, it is possible to infer its public outcomes quickly based on the number of users and price fluctuations.

Are there any smarter variations apart from conventional investment/grant mechanisms? The answer is yes, and they have become almost the norm in the world of blockchain.

For example, the well-known Gitcoin Grant recently launched its Beta Round. Gitcoin is probably the most successful web3 organization that applies Quadratic Funding to digital public goods. The simple concept is this: Gitcoin Grant collects a large sum of money from wealthy individuals or entities but finds that the "expert review system" cannot identify the best open-source projects. Therefore, they allow everyone to vote, and the allocation of grants is determined by the number of votes. However, everyone must use their donations to vote, with each dollar being a vote, and all votes cast must be square-rooted to prevent wealthy individuals from manipulating the voting process.

After several successful rounds of experimentation, Gitcoin recently underwent a major overhaul. They developed a new "Gitcoin Passport" that verifies social graphs to eliminate fake donations from Sybil Attcks. Due to the remarkable success of previous Grant rounds, some people have questioned Gitcoin's manipulation of Grant operations, including the review committee and marketing activities, suspecting favoritism towards certain projects, similar to clientelism from local government. In order to address these doubts, Gitcoin decided to open-source all their services and make them modular so that anyone can use Quadratic Funding to create their own Grant.

In a recent discussion with their director, Kyle, he mentioned that Gitcoin never intended to become an organization that decides who is a "real person" or who is "qualified" to receive funding. Gitcoin is the creator of the underlying mechanism for digital public goods. The system they built is always ready to be forked and used by everyone. This statement deeply moved me.

Optimism, a Layer 2 public chain service, also collaborated with Ethereum co-founder Vitalik to develop Retroactive Public Good Funding (RetroPGF). The core concept is that even experts find it difficult to predict which open-source services or protocols will have significant impact in the future. Therefore, retroactive funding is more effective than predictive grants. Predicting success is the job of risk investors because in a capitalistic society, successful predictions yield high returns. However, it is not easy for open-source communities to attract funding.

Initially, RetroPGF entrusted an expert committee to evaluate the impact of various public goods (mostly infrastructure, including education) through retrospective analysis and provide funding. Now, it is gradually transitioning to a decentralized autonomous distribution model, and its effectiveness is evident. With the goal of "attracting more users to the public chain with good services," Optimism's public experiments have produced fruitful result.

Protocol Lab, the creator of IPFS, recently launched HyperCerts through its Network Goods team. HyperCerts serve as certificates of digital influence or social impact bonds, allowing everyone to determine the influence of others, particularly applicable to public goods. Of course, different certifying authorities bring different levels of authority, but the market for digital public goods' influence, similar to the recent booming fields of the Regenerative Finance (ReFi) and carbon trading, involves trading products that abstractly yet tangibly affect the real world.

However, due to regulatory risks from the U.S. Securities and Exchange Commission (SEC), Protocol Lab has made HyperCerts semi-liquid to mitigate the risks of securitization. HyperCerts can only be traded once in the secondary market, significantly reducing the liquidity of influence.

Read more about: Hypercerts: A new primitive for public goods funding

Furthermore, the emerging public chain Canto recently introduced the concept of Contract Secured Revenue (CSR) and became EIP-6969 (Ethereum Improvement Proposal No. 6969). CSR does not refer to corporate social responsibility but rather a model for distributing fees through a contractually secured income allocation. In other words, developers who provide digital public goods receive certificates that allow them to collect tolls. Of course, developers can sell these certificates and realize profits in advance. This solution achieves a compromise between the two factions mentioned at the beginning of the article. Validators and developers can both receive rewards for providing infrastructure services, with validators ensuring the security of the public chain and developers enhancing its value.

Read more on Introducing CIP-1 Contract Secured Revenue (CSR): Tokenized Fee Sharing for Canto Builders

From ICOs and traditional grant funding to emerging methods of distributing rewards for public goods such as Gitcoin's Quadratic Funding and Passport, Optimism's RetroPGF, Protocol Lab's HyperCerts, and Canto's CSR, these attempts have emerged from the mutual influence between the open-source community and blockchain services.

With the introduction of the “Act for Promotion of Private Participation in Infrastructure Projects” (link) just revised in 2022/12 in Taiwan, entering the era of "Promoting Public Participation 2.0" (commonly known as PPP, private-public partnership, which includes Build-Operate-Transfer, or BOT), "digital infrastructure" has been included within the scope of public participation. Whether it's BOT, OT, or any other form of public-private partnership, the benefits of open-source digital public goods for society should be considered.

Moreover, the concept of compensated public participation, originally developed as the Private Finance Initiative (PFI) in the United Kingdom, has a legal basis in Taiwan, and there are now various demonstration projects and pilot cases being implemented in the physical world (such as long-term care facilities and office buildings). We may be getting closer to a world where public funds are used to develop and operate public programs and services, leading to the concept of PM/PC (Public Money/Public Code).

Read more on: What Did We Learn at “Public Money? Public Code!” Releasing Event?

In simple terms, Quadratic Funding addresses the issue of effectively allocating public funds, Retroactive Public Good Funding addresses the relationship between public goods' impact and funding incentives, HyperCerts deals with the marketization of influence, and CSR addresses the issue of users paying for public goods. These four solutions address specific aspects of the sustainability of an ecosystem.

It is not necessary to adopt web3-related tools at this stage. The adoption of web3 in everyday life is still a long way off. However, the world of web3, particularly the experiments of public chain organizations in funding public goods, is worth observing and monitoring its effectiveness from the local government at this moment.