In the public goods funding ecosystem, there is a balance to be found between confidence for funders and stability for builders.
On the one hand, we have upfront funding such as Gitcoin grants in which projects that qualify for a certain category such as open source software may accept donations which are quadratically matched with additional funding. The more verified unique people donate, the more matching funds there will be (the formula to calculate the matching amount is to take the square root of every donation, add up each of those square roots, then square the sum.) Upfront funding such as grants provides assurance to builders that they have resources in hand with which to move forward with their project. However, from the funders perspective they are handing over money simply hoping that it results in worthwhile outcomes. There is no guarantee of results.
On the other hand, we have retroactive public goods funding programs like the one the Optimism Council runs. In that program, community members distribute a fund to existing projects they vote as being worthwhile. This provides assurance to funders that they can already see the results of projects and then distribute rewards, but provides no security to builders because they have no idea if, when, and how much "bonus" funding they might receive through this program at some point after they build something.
These existing systems serve their purpose well. For example, the uncertainty and speculation of Optimism's retroactive public goods funding may be a feature because this adds the same sort of gamification that makes casinos so succesful (in psychology according to RF Skinner's classical conditioning models this would be referred to as variable interval and variable reward.) However, their purpose is not to find a balance. There is one for builder security and the other for funder confidence, but where is the option that includes both?
There's the additional issue that these options only exist because funds are being funneled from profitable projects to these more "charitable" programs, but the programs are not sustainable in and of themselves. How can someone else launch their own public goods funding programs if they don't already have a pool of funds?
There is a solution to find a middle path between funder confidence and builder security through a type of public goods funding program that any community may launch even without a fund.
Let's back up. What are public goods trying to solve? Public goods are the key to addressing the tragedy of the commons and slaying Moloch (a mythical embodiment of coordination failures.) A classic tragedy of the commons example is that a village wants to build a public/communal good such as a road, but no single person wants to take on the costs of creating this. Thus, the traditional coordination solution is for a government to tax the population and put out a contract to build these public goods and regulate the usage of those goods to make sure no smaller group over-uses this publicly accessible resource at the expense of everyone else. (This article addresses incentivizing the creation of public goods and not the governance of how to oversee the distribution/usage of them.)
However, crowdfunded prizes is a way to incentivize the creation of public goods through peer to peer collaboration rather than bureaucracy.
Definition:
A prize is a project proposal combined with a reward for anyone who successfully completes the project. (Prizes are also known as bounties in the web3 ecosystem.)
Prizes as a public goods funding mechanism allow for complete funder confidence because you only ever send out a reward after you see evidence of the successful completion of a project. In this way, no funds are ever wasted ($30 billion dollars annually are spent on crowdfunding campaigns that do not deliver what was promised. Imagine what the public goods funding world could accomplish if we reclaimed even 10% of that?)
As well as this, from the builders' perspective they have security knowing that a transparent pool of funding is waiting for them if they successfully bring a project from its current proposal stage into the realm of reality. Prizes provide far more security for builders than existing retroactive public goods funding programs.
Best of all, a community doesn't need an existing pool of funds to start coordinating the ideation, creation, and funding of public goods. They may simply start launching prizes and let the community crowdfund them.
Prizes (AKA advanced market commitments, inducement prize contests, contract upon completion, etc.) have a rich history of moving forward human progress ranging from Charles Lindbergh becoming the first human to cross the Atlantic Ocean in an airplane to win the Orteigh Prize to the modern day 100 million dollar Xprize for creating carbon sequestration technologies.
Prizes are also known by economists as hyper-efficient systems. This is because they activate massive amounts of rapidly deployed energy for relatively little resources. Consider hackathon prizes and how much creativity they produce. Compared to a three day hackathon with 100 people in San Francisco, if each developer were paid as employees at $100,000 per year then it would cost around $300 per day per person resulting in a cost of $100,000 for three days of hacking. However, for a prize of $10,000 you can often motivate 100 top developers to hack non-stop through the night creating tools that often become the foundation for new companies that shape the world.
Meanwhile, we all know that projects completed through government contracts often cost an order of magnitude more than the same project in a corporate setting. This is in part due to the extra costs of bureaucratic processes, the difference in incentives where the people allocating government budgets aren't investing their own money but instead deciding how to use someone else's, and because of corruption or coordination failures which lead to certain companies holding oligopolies on winning government contracts rather than having a more open market.
Meanwhile, prizes are an open invitation to anyone to complete a project with a reward for whoever did the best, and it often costs an order of magnitude less than in a corporate setting.
In other words, for 1/10 the cost of traditional employment and 1/100 the cost of a government contract you can often accomplish the same and with less risk of wasting funds.
This is due to human psychology. We want playful, fun forms of competition. We want gamification. We want recognition. We want collaborators and teammates united in a clear vision. Prizes combines all of this in a healthy, productive way.
There is an added benefit in that prizes force someone to clearly pre-define an end state that they are trying to achieve. How many projects have fallen apart because they didn't have a clear vision?
Prizes force people to clarify their thoughts, encourage collaboration in the format of an exciting competition, and invite builders to become entrepreneurs.
However, existing prize and bounty platforms have missed out on major opportunities in addition to all this - crowdfunding.
Currently, viaPrize.org is the only platform in the world in which you can crowdfund a prize/bounty. This allows for community elevation of the best ideas as people vote with their dollars. Instead of relying on a corporate sponsor like in most currently existing hackathons, prizes may be more dynamic and gain momentum if many people recognize project proposals as ideas they wish to support. This one change results in radical differences in impact.
In the viaPrize model, the steps are:
1. Proposals - Crowdsource project proposals which anyone may propose as easily as making a LinkedIn post (add a picture, description, etc.)
2. Publication - Admins then review these and check whether the end state is clearly defined before publishing them
3. Crowdfunding - Then the community crowdfunds the project proposals.
4. Submissions - The market decides how much incentive is enough to convince a builder to pursue a project in which case they enter a submission and become a contestant.
5. Submission deadline - If no submissions are made at the deadline, then funds are all refunded. If there are submissions, then voting commences.
6. Voting - Funders vote on which project they think should win. Funds are distributed through a directly proportional formula, meaning that if a project wins 10% of the votes then it will receive 10% of the rewards. This also eliminates the Sybil attack because it means that funders can only allocate where their own funds go. You can even eliminate their psychological influence over how other funders allocate their votes by hiding all votes until the final reveal. If anyone does not use their right to vote, then admins allocate their voting power. For added security for contestants, admins reserve the ability to revoke the option for funders to vote for "refund" if they believe that at least one project has clearly successfully completed the project.
7. Distribution - At the end of the voting deadline, funds are distributed.
Using this system, anyone may launch their own public goods funding program without needing any pre-existing pool of funds.
This is a new economic model. Builders don't fulfill the demand by selling the product. Instead, they scoop up the demonstrated demand embodied in the prize pool. It makes it far easier for a builder to become an entrepreneur because they don't need to do user research to discover what users want (they already can see upfront demonstrated demand) and they don't need to sell the product afterward (people already paid for it.) All they need to do is build. This lowers the barrier to entry for builders to be entrepreneurs because rather than being paid a per hour wage like most laborers instead they are paid for the amount of demand they fulfill like most entrepreneurs.
Current incentives in economic models require selling products to fulfill demand. This incentivizes builders to hold a monopoly on the creation of their product which results in a more closed, jealous, and secretive world. Some estimates indicate that hundreds of thousands of people died because Pfizer refused to open-source their covid vaccine because they wanted to be the sole producers and sellers for it as long as possible.
Imagine how this new economic model would reverse those incentives. By winning prizes, you have a way to make profit by fulfilling demand without selling anything. Consider if vaccines and medicines were funded with prizes. If we had a prize for "develop a cure for covid and share it with the world" then even before scaling up a monopolized production of an IP protected product in order to sell it researchers and pharma companies would be incentivized to release their formulas and evidence of the efficacy of their medicines in order to collect on the prize pool. They could make a profit right after RnD before ever selling a product and they could still sell the product and take the market... but it would be open-source and available for the world as a tree being added to our species' forest of knowledge. Software companies would be incentivized to open-source their code, hardware companies to share the specs on their designs, and the world would increasingly become about being rewarded through sharing rather than selling and extracting.
New forms of companies could emerge in which teams of builders form professional guilds of bounty hunters/prize pursuers. With prizes, you don't need to sell products in order to profit. You can simply click "submit." Imagine how many people could form successful companies if they could focus on building rather than needing to find product market fit and spend all their time marketing and fundraising.
If we offer rewards to users who create the project proposals (for example, 5% of the reward upon distribution of funds heads to the proposer) then we incentivize every proposer to market their campaign and a new category of creative emerges: the prize creator who is rewarded for their ideas being recognized as worthwhile and then being turned into reality by the builders. Imagine being rewarded simply for posting great ideas.
This also fits as a base layer for other emerging economic systems such as:
Impact certificates which may be issued to funders
Prediction markets speculating on which projects will be completed and by who in order to better plan for the future and map out tech trees
On-chain reputation systems wherein a user history of what prizes they proposed, funded, and completed in order to show their skillset and and demonstrate which sorts of communities and cause areas they support.
In our experience, outsourcing tasks through "meta-prizes" have already proven to be a great recruiting strategy in order to open up an offer for a sort of pilot project that anyone may jump into and demonstrate their capabilities. This has already brought viaPrize a smart contract developer who has continued to contribute as a volunteer after winning this prize.
Since realizing the importance of this idea during the pop-up neighborhood called Zuzalu in April, we have raised and distributed over $10,000 in funding to projects such as:
1. Intenty
3. A delivery of medical supplies to volunteers in the frontline in Ukraine
We accomplished all this with zero funding and purely volunteer efforts.
In my personal life, when I was trying to solve all of society's problems, I felt powerless. My hope was restored when I found an orphanage in Ecuador of incredibly caring people like my brother Francisco. Francisco grew up in the Amazon jungle as an orphan before building up his life from nothing and becoming a caretaker of his own family and community. We have struggled to get by since the pandemic, but there is a passion to rebuild through collective action so community members came together to crowdfund a farm to provide food and income for everyone, but then one person stole the funds and ran leaving everyone else with nothing.
We have people whose governments neglect them and leave them to die. We have the technology to prevent this.
We have people waiting to be able to come together as a community and take collective action. We have the knowledge to make this possible.
That is why we are building viaPrize to empower collective action.
Me and my bro Francisco
Creating functional and low barrier to entry funding systems for public goods is more than a thought exercise. It is how we make a world in which our friends, our families, and our communities can care for one another.
Will you join us?
Our community is found here: https://t.me/+QsphrF50bv43ZTg5