By Carl Cervone
Compiled by: Gu Yi
01 Translator’s Preface
Carl Cervone is an innovator and leader focused on public goods funding and social impact. He and Gitcoin founder Kevin Owocki are partners in the field of crypto public goods funding. In this article, Carl Cervone compares crypto public goods funding with traditional public goods funding, deeply reflects on the challenges faced by the current traditional funding system in terms of scale, efficiency, iteration, and career development path, and explores how to use crypto technology to improve these problems, while looking forward to the possibilities of public goods funding in the future. The original intention of translating this article is to help more Chinese readers recognize the potential of cryptocurrency technology in the field of public goods funding. With the advancement of technology, we are witnessing a global transformation from centralization to decentralization. This not only provides more opportunities for emerging projects to survive and develop, but also brings important supplements and transformation opportunities to the traditional funding system. I hope that through this article, more people will be interested in this field and promote greater breakthroughs in public goods funding in the future.
02 Overview of this article
This article is The past, present and future of public goods funding, written by Carl Cervone. The full text is about 5,500 words and it is expected to take 30 minutes to read.
03 Content
This is a talk I gave at the Greenpill NYC event on September 23, 2023. I am writing this blog post from my notes two months after the event. I’m not sure if there was a recording of the talk, but hopefully this post is close to what it said. Many thanks to Luciano, Tirisanna, Mathilda, Scott, Izzy, Owocki, and others who remain unnamed for making this event possible, and to the dozens of people who came to Greenpill on a rainy Saturday, fresh off NYC Climate Week and Mainnet.
We are here because we are optimistic about the future of public goods funding and want to see the space evolve from cryptocurrencies funding their own public goods to cryptocurrencies becoming the infrastructure for funding a wide range of digital and real-world public goods.
To achieve this, we need to quickly learn from all the lessons that traditional institutions have accumulated about funding public goods. This is still a young and fringe movement, but there is some real momentum behind it.
In preparation for this talk, I created a 7-point scale for evaluating the state of cryptocurrency public goods funding versus traditional systems. While this is neither scientific nor exhaustive, I hope it provides some inspiration for future directions and some clues on how to get there.
scale
Spoiler alert: the scale of public goods funding in crypto is very small.
Before I get into the numbers, let me first define what I am referring to more clearly. I am talking about decentralized public goods funding based on cryptocurrency technology, not traditional foundation grants or venture capital-style funding, which still rely on centralized coordination mechanisms and distribute funds through traditional channels.
The Ethereum public goods funding ecosystem includes multiple participants such as the Ethereum Foundation, Protocol Labs, Gitcoin, Giveth, clr.fund, Optimism RetroPGF, Protocol Guild, DAO Drops, Arbitrum DAO, Octant, Celo, Uniswap, Starknet, Polygon, etc. Together, these participants allocate approximately $100 million per year for public goods.
Now let's look at this number from another perspective.
$100 million is even less than what Samoa allocates to public goods. If you're not familiar with Samoa, it's an island nation in the Pacific Ocean with a population of about 200,000. It's the smallest public sector budget I could find here. Going to $500 million would put us on the same level as Chad. The point is, if we want to have an impact in terms of traditional public goods funding, we still have a long way to go.
Early in my career, I worked for an international development NGO. We received a $50 million grant from the Gates Foundation, which enabled me to grow my team to hundreds of people. In that organization, grants of less than $1 million were not enough to get us out of bed. That was a completely different scale.
Currently, no project in the crypto space has received more than $1 million in grants. Some of the top projects on Optimism Retroactive Public Goods Grants have received grants of more than $200,000. The top projects on Gitcoin currently might receive $30,000 per round.
In the case of Gitcoin specifically, we're talking about a matching pool of $1 million that will be distributed to hundreds of projects. We're orders of magnitude smaller than the discretionary portion of traditional public goods funding like international development. We're even smaller than the big areas like healthcare, education, and infrastructure.
We have a rounding error, and that’s okay. We are the underdogs. To turn this around, we need to take this movement to national scale: billions or even tens of billions in decentralized public goods funding.
Score: 0 for crypto public goods funding, 1 for traditional public goods funding.
efficiency
In this regard, the situation is a bit complicated.
Everyone is familiar with the fundraising problem. Fundraising is hard. Time you spend fundraising is time you’re not spending doing good. And it’s expensive.
My first job in high school was doing publicity for an environmental activist group. We made about $8 an hour, and our goal each night was to raise $120. If you raised more than $120, you got to keep 50% of it. I had a few nights where I raised over $300, and I had a lot of nights where I raised less than $100. So the fundraising cost for that organization was basically 50%. What did they do with the extra money? It went to lobbying and media outreach, which had their own expenses. So for every dollar raised, maybe less than 10 cents actually went to its intended purpose.
This is actually very typical.
There’s an organization called Charity Navigator that rates the efficiency of different nonprofits based on the ratio of their fundraising costs to their program costs. The problem is, most nonprofits have figured out how to game the formula, for example by classifying door-knocking fundraisers like me as part of their program costs.
There are exceptions. For example, Give Directly gives money directly to the poor with no strings attached and tracks efficiency and impact. There are parts of the crypto public goods funding cycle that are very efficient. I love how I can fund 50 projects around the world in minutes on Gitcoin. But I've also been on the other side of the table as a grantee. To do well in quadratic funding, you need to have a high profile, and that takes time. Then there are all the issues around fiat on/off rails and L2 bridges. If you're in the US, there are tax issues to deal with.
Therefore, I will treat this question as a tie and give both sides 0.5 points.
Crypto public goods funding is 0.5 points, and traditional public goods funding is 1.5 points.
In the future, I think cryptocurrencies must win this battle overwhelmingly. I hope projects like tea.xyz and drips v2 will be widely adopted because they have the potential to make payments extremely efficient. I also hope that these models can be used beyond open source software.
Iteration
In the traditional public goods space, the incentive to iterate quickly is not strong. It is very rare. There are many things that everyone knows are bad or ineffective, but no one can change them. This is the definition of coordination failure.
David Deutsch once said, "Retaining means of error correction is the core of morality." In other words, a well-designed system is always open to criticism and seeks self-improvement. A poorly designed, or in his words, "unethical system," will continue to operate in failure mode.
I think crypto has a lot of advantages in this regard. There is a lot of experimentation happening here.
I also think it's attractive that as protocols become more widely adopted, they become more rigid and less iterative. Maintenance costs go down over time. Whereas in the traditional world, as something becomes more popular, the bureaucracy required to maintain it becomes more complex, increasing by 5% per year.
My hope for the future of crypto public goods funding is that there will be a lot of experimentation at the edges, and at the center a collection of already stable protocols that require little or no governance. This is the exact opposite of the traditional system, where there is very little funding at the periphery and most of the funding is concentrated at the center to maintain a rigid structure. 1 point for crypto this time.
1.5 points for crypto public goods funding and 1.5 points for traditional public goods funding.
Career Path
The good and bad thing about traditional public goods funding is that it does offer a clear career path. In fact, a traditional public sector job today is probably the most predictable career path you can imagine. This is true for civil servants and teachers. It’s also true for international aid workers and employees of large nonprofits.
I lived in East Africa for a while and knew some people who wanted to get into the UN system. Once you get into the UN system, your housing and living expenses are basically covered for life, you get a tax-free salary, and you don't have to wait in lines at passport control wherever you travel. The UN system is difficult to get into, but once you're in, you're basically set.
I like the idea of a “quadratic freelancer” — an open source contributor who survives on Gitcoin grants — but I don’t think that’s a lifestyle that everyone aspires to.
A brief digression, and then I’ll get back to this point…
The first thing I did after graduating from college was to start a microfinance bank in a rural area of Tanzania. We would provide people with uncollateralized loans of about $100 to start small-scale businesses, such as running a vegetable stand or repairing bicycle tires. The model worked, and most people paid back their loans, but there was a key flaw in our logic. We assumed that everyone wanted to be a small-scale entrepreneur. But the reality was that most of the so-called small entrepreneurs we provided loans to would rather trade in their vegetable stand or bicycle repair shop for a factory job.
You know the saying “sell the hole, not the drill.” Most people just want a stable life, not to be entrepreneurs.
The same thing is probably true here. I think a lot of people just want a life like this:
(I just want to write code
Making meaningless posts on social media
Go on vacation 10 weeks a year to a nice place without mosquitoes
I hope my children grow up and have successful careers.
I make way more money than I actually need)
I hope that the future means not only an increase in public goods funding, but also more business models and resulting jobs so that organizations, DAOs, guilds, whatever, can survive and thrive on public goods funding.
I know this goal is central to Gitcoin’s origin story, and hopefully it will unite all of us here. It would be great if crypto could create a range of satisfying career paths in the public goods space, from quadratic freelancer to generalist manager to local Greenpill chapter organizer to enterprise-scale provider of hypercert-selling beach cleaning services.
But for now, this kind of life is still unstable. So I will give this 1 point to traditional public goods funding.
1.5 points for crypto public goods funding and 2.5 points for traditional public goods funding.
Connectivity
Of all the topics discussed so far, I think this is actually the most important criterion in the long run and where cryptocurrencies have the greatest advantage.
Traditional nonprofits and public sector organizations are highly parochial and, while they claim to serve the public interest, their behavior is zero-sum and short-sighted.
Can you imagine a world where, say, a school in Brooklyn proudly announced that they copied an idea from a school in Boulder? Or look at marijuana law, where every state is rolling out its own slightly different version. No one is proud to say, "We cloned this from Colorado," or "We took these parts from California, but we got this part from Massachusetts."
The situation in the nonprofit sector is even worse. How often do universities collaborate on research? Do donor countries co-finance a road or a school? Do NGOs collaborate on training programs? It’s rare.
Sadly, this scarcity mentality is prevalent in the public sector I come into contact with.
Crypto feels different. Sure, we have other forms of tribalism, like Bitcoin maximalists, EVM supremacists, and so on. But there’s something special about the connectedness and interdependence of an ecosystem of people whose values align. This connectedness isn’t just about feeling. (A lot of it is feeling, but that’s okay.) You can see it in the network graph of Twitter followers and the network graph of Github contributors. People actually rely on each other and promote each other.
This is probably what I like most about the Gitcoin community. Even though there is only a limited matching pool, everyone is supporting each other and trying to grow the pie. This vibe is really special and refreshing.
Why is this happening?
I think this is at least in part because crypto still feels like a David vs. Goliath struggle, and WAGMI (We’re All Gonna Make It) is a powerful driver. But I think it’s also because much of crypto is open source, and needs to be open source in order to properly connect. This actually makes connectivity and interdependence a fundamental feature of the crypto economy, just as limited liability and bankruptcy protection make risk-taking a fundamental feature of the real world economy.
I think this will be the biggest revelation that crypto public goods funding will bring to the world in the long run. Sure, there is still a lot of political fighting, infighting, fear, uncertainty, and doubt (FUD) mongering on a daily social level, but the cryptocurrency value chain is much more circular and intertwined than traditional value chains. It's like the allegory of Flatland, trying to explain the concept of three dimensions to a world that can only understand two dimensions.
All in all, cryptocurrency has a very big advantage at this point, and I hope it will continue to develop in this direction.
2.5 points for crypto public goods funding and 2.5 points for traditional public goods funding.
Participation
On a semi-related note, let’s admit that funding Web3 public goods is way more fun. I look forward to every Gitcoin grant round. I love learning about new projects and new funding mechanisms. Maybe it’s because we’re all just a bunch of geeks, but I think the fun and social aspects of this are really important.
If you think about it, sharing a public good you care about is one of the most important and meaningful ways to demonstrate your personality and social influence. This pales in comparison to the cynicism surrounding traditional public goods.
My grandmother used to say she loved paying taxes because they funded so many good things. Can you imagine anyone saying that in 2023?
Last November, I voted in the New York primary, and one of the ballots was for the state supreme court. There were 12 vacancies, and 12 candidates running. In addition, each candidate could choose any number of parties to represent them. So most candidates chose multiple parties: Democratic, Republican, Libertarian, Working Families, and maybe a few others. Anyway, it was a matrix with 12 rows for the candidates and 6 columns for the parties they represented. I stared at it for 5 minutes and felt like I was missing something. There were 12 candidates running for 12 positions, and each candidate could choose multiple parties to represent them. So no matter how I voted, the result was the same. What the hell.
Thanks for the "I Voted" sticker, but I'd really rather have a POAP.
So, on this point, cryptocurrency public goods scores 1 point.
3.5 points for crypto public goods funding and 2.5 points for traditional public goods funding.
Influence
Let's review. Our current score is 3 for crypto, 2 for traditional, and 1 for tie. The last criterion is influence.
I think impact is why we're all here. We want to fund things that matter. So, what's important to you? Are you achieving it?
It's complicated. In my case, I generally fund a range of projects on Gitcoin. Some of them I benefit directly from and really want to see continue. Some of them I have no direct benefit at all, but I want to support those teams.
Let me rephrase that a bit. Some projects are good for me now. Some projects I think will be good for me in the future. And some projects have no bearing on me now or in the future, but I admire the team and want to support them regardless.
Unfortunately, all of these nuances disappeared when I gave $5 to each project, which revealed some disconnects between a relatively tight-knit community deciding which public goods would have the most impact, and me making preferences for other communities based on feelings or perceptions.
I don’t think the second scenario is wrong, but I also don’t think it’s as influential as the first. In the first scenario, as a beneficiary, I’m happy to vote directly. In the second scenario, I care about the overall area of influence, but my opinion shouldn’t carry more weight than the opinions of those directly affected.
So I think we need to work on that. Having a mechanism where the community decides which public goods are most valuable is very powerful. But I don't think we've achieved that balance in all the rounds.
In addition to giving the right voices a voice, we also need data.
Right now, this is mostly based on anecdotes. There are a couple of ways to address this. One is to get the data to prove it and start measuring the ROI of impact. This is something I’m personally passionate about and what I’ll be focusing on. Another is to build the underlying models that we use to measure impact. This is where hypercerts come into play.
But ultimately, you need to have credible and neutral ways to measure and assess impact. Balaji calls this a ledger of record or a cryptographic information model.
This is in contrast to the current state, where you either have organizations grading themselves, or there are strong distorted incentives to claim that everything is fine.
This is where I think crypto has huge potential to surpass the traditional model, but so far there has been little progress. If I had to vote, I would vote for the traditional system to have more impact than the crypto world in public goods funding.
Final score: Draw
Of course, that has to change, and that’s why we’re here. That’s why we attend events like this one. That’s why we show up at every Gitcoin round. Because this is a movement.
I'll tell you one last story. A few months ago, an environmental activist knocked on my door. These groups now have data to track who regularly donates to them; I'm one of them, so they come to my apartment every year. I sat through her entire speech. To be honest, it wasn't very convincing. The call to action was always the same: We did great things with your donations last year, but this year there's something even more important, so you need to give twice as much.
Anyway, I wrote her a check (yes, that paper thing), and as I handed it to her, I asked her if she’d heard of “quadratic grants.” She had! She knew about Gitcoin! She even said she’d tried some DAO stuff!
I went back inside and gave her a copy of Greenpill—and a copy of an article I wrote in high school that I published in the local paper about how I became a door-to-door activist like her. I had wished she were in this room today. Maybe next time. I hope this movement grows. As a Gen X speaker, it’s fun to share stories about how bad the legacy system is, but I look forward to the day when the score is a 7-0 landslide and it will seem quaint to recall a time when I doubted it.
Public goods are beneficial.
