2. Tradeoffs of Existing Mechanisms
The existing suite of protocol funding mechanisms have so far adequately supported the ecosystem, but come with their own tradeoffs:
Typically not forward looking, eg. they are usually retroactive
Tend to favor projects/teams instead of individuals
Formed around mediating institutions
Do not typically give exposure to the upside of application layer
In the future, there will certainly be ways for these existing funding mechanisms to collaborate and interoperate with the Protocol Guild.
Grants are a very common funding mechanism, seen in Gitcoin, the EF’s Ecosystem Support Program (ESP) and Ongoing Development teams, as well as application ecosystem programs like the Uniswap Grants Program (UGP). They tend to be best at rewarding contributions from the near-past to near-future. While these mechanisms may be well suited to their current applications, there are some limitations to their direct use in something like the Protocol Guild.
For Gitcoin Grants, it can be challenging to ensure accountability for grantees due to the amount of time and expertise it takes to perform due diligence. In addition, because round participants are effectively competing against each other for the same matching funds, it necessitates some amount of self-promotion. This wouldn’t work for large groups of individuals doing similar work like core developers, many of whom are more low profile. Collections (a curated set of Gitcoin profiles) could accomplish some of our objectives, but still does not include vesting, and doesn’t resolve issues related to custody and membership management. Finally, any prospective funder from the application layer has to rely on a mediating institution (e.g. the Ethereum Foundation, Gitcoin) to facilitate discovery, processing, and due diligence.
2.2 Retroactive Funding Programs
An explicitly historic-looking variant of grants includes Optimism’s RPG. These can account for past work, but are usually scoped to measure the contributions of teams or projects, instead of individuals. Furthermore, there is no guarantee of consistent funding, as there is a possibility of omission from subsequent rounds. In Gitcoin’s case, it can take a while for past contributions to be recognized and rewarded due to how discovery and grant promotion cycles work.
2.3 Independent Non-Profits
Some teams may opt to establish their own non-profit entities, e.g. the Nomic Foundation which stewards ongoing maintenance of Hardhat and other initiatives, announced in Q1 2022. The challenge is that the overhead to create a legal entity can be very high for a small team, and impossible for pseudonymous individual contributors. Additionally, the recurring burden of fundraising inevitably pits them in competition against each other, while further disadvantaging individual contributors.
Salaries do target individuals, but are limited in that they can only account for the present and near future. Further, they are tied to a single legal organization, and can never be a good proxy for ecosystem value creation.