Overview
Recently, the Ethereum Foundation (EF) shared their 2024 Report that featured this stat: “In 2022 and 2023, organizations across the Ethereum ecosystem collectively deployed more than $497M to support projects across the community.”
An accompanying note explained that while a “broad definition of ecosystem funding” was used, two primary groups of projects were identified. Based on the descriptions provided (included in italics), we will refer to these groups as ‘Public Goods’ and ‘Ecosystem Project Funding’:
- Public Goods - “Ethereum public goods (like Protocol Guild)”
- Ecosystem Project Funding - “Funding that goes towards funding projects within specific ecosystems within the larger Ethereum ecosystem (e.g. products that receive grants for building on a specific L2).”
The following analysis aims to complement the EF’s 2024 Report, increase understanding of how ecosystem funding works, and drive forward conversations around future funding decisions by answering the following questions:
- Who receives funding?
- What is the initial source of the capital?
- How is the capital being distributed?
Please note: The data shared is only meant to present a snapshot of relevant funding, as opposed to being an all-encompassing view of ecosystem flows. The figures are from publicly available information. Values are based on the value at the time the capital was distributed. As such, this data should be treated as incomplete.
To inform this analysis, we conducted a deep dive into ten ecosystems and the respective programs responsible for Public Goods and Ecosystem Project Funding funding in each. Ecosystems were selected based on their historical grant activity, reputation for distributing grants, and the availability of relevant information. The following table lists the ecosystems and associated programs that were included.
Each identified program was categorized as targeting Public Goods or Ecosystem Project Funding. There is overlap between the two in many program mandates. However, the lack of standard definitions and categorization of grants makes distinguishing the two categories within individual programs difficult. Accordingly, one of the two categories was chosen based on each program’s publicly available mandate and objectives.
| Ecosystem | Program | Funding Target |
|---|---|---|
| Aave | Aave Grants DAO | Ecosystem Project Funding |
| Arbitrum | Arbitrum Foundation | Ecosystem Project Funding |
| Questbook Arbitrum | Ecosystem Project Funding | |
| Gaming Catalyst Fund | Ecosystem Project Funding | |
| Stylus Sprint | Ecosystem Project Funding | |
| Plurality Labs / Thank ARB | Ecosystem Project Funding | |
| Compound Finance | Compound Grants Program | Ecosystem Project Funding |
| Compound Grants Program v2 | Ecosystem Project Funding | |
| ENS | ENS PG Working Group | Public Goods |
| Ethereum Foundation | Ecosystem Support Program | Ecosystem Project Funding |
| Academic Round | Ecosystem Project Funding | |
| Client Incentive Program | Ecosystem Project Funding | |
| Donation to Nomic | Public Goods | |
| Gitcoin | Gitcoin Grants Labs | Public Goods |
| Gitcoin Ecosystem Collective | Public Goods | |
| Gitcoin Rounds (Alpha - G22) | Public Goods | |
| Citizen Rounds | Public Goods | |
| Octant | Octant Epochs | Public Goods |
| Octant Community Fund | Ecosystem Project Funding | |
| Optimism | Optimism Grant Cycles | Ecosystem Project Funding |
| RetroPGF | Public Goods | |
| Protocol Guild | Ecosystem Donations | Public Goods |
| Uniswap | Uniswap Grants Program | Ecosystem Project Funding |
Who received funding?
Data was collected and aggregated from previous successful funding proposals and relevant follow up reporting to create an overview of flows throughout the history of each program. Across all of the programs analyzed, $788,860,043 of outflows were categorized as either Public Goods, Ecosystem Project Funding, or Operation & Execution Costs.
The following table shows the total spend identified for each ecosystem and the percentage breakdown of spend attributed to each category. Each program was classified as either Ecosystem Project Funding or Public Goods and is not representative of all funding in the ecosystem.
| Ecosystem | Total Spend Identified | Ecosystem Project Funding | Public Goods | Operation & Execution Costs |
|---|---|---|---|---|
| Aave | $9,995,901 | 88.43% | 0.00% | 11.57% |
| Arbitrum | $228,502,147 | 69.16% | 0.00% | 30.84% |
| Compound | $4,296,656 | 78.41% | 0.00% | 21.59% |
| ENS | $1,725,154 | 0.00% | 100.00% | 0.00% |
| Ethereum Foundation | $200,791,659 | 96.02% | 3.98% | 0.00% |
| Gitcoin | $14,751,586 | 0.00% | 75.62% | 24.38% |
| Octant | $5,239,668 | 7.03% | 92.97% | 0.00% |
| Optimism | $260,811,422 | 42.50% | 55.58% | 1.91% |
| Protocol Guild | $38,019,849 | 0.00% | 100.00% | 0.00% |
| Uniswap | $24,726,000 | 74.97% | 0.00% | 25.03% |
Operation & Execution Costs include:
- Each program’s expenses include compensation to individuals, management fees and operating expenses. This is based on the spend self-reported by each program. As some programs quote relevant costs in their initial proposal but do not follow up, the actual spend is likely higher than the data shows.
- Expenses incurred and reported by the Ethereum Foundation, Uniswap Foundation and Arbitrum Foundation. Given the mandates of these foundations include the scope of funding covered in this analysis, any associated Foundation Expenses, such as what the Ethereum Foundation reports as ‘Internal Spend’, has been tracked as a separate line item and aggregated in the total spend and breakdown for each ecosystem.
Across all the programs analyzed, the breakdown of end recipients of funding is:
| End Recipient: | Ecosystem Growth | Public Goods | Operation & Execution Costs |
|---|---|---|---|
| Value (at time of funding) | $492,801,689 | $208,736,262 | $87,322,093 |
| Percentage | 62.47% | 26.46% | 11.07% |
What is the initial source of the capital?
From the data collected, there are three primary sources of capital: Token Generation Event (TGE), donations, and protocol revenue.
Token Generation Event (TGE)
DAO treasuries account for the largest pools of capital, mainly due to the value of the ecosystem’s native token and the high allocation the ecosystem received during the TGE. After TGE, capital is usually allocated from the DAO Treasuries via a token vote to fund individual programs.
Uniswap’s September 2020 token distribution is the largest token distribution in the Etheum ecosystem, allocating 43% of the initial UNI token supply to the Uniswap DAO. The Uniswap treasury is currently valued at over $5B. (Reminder: values in Sankey are based on the value at the time of distribution.)
Chart 1: Uniswap Flows
Donations
Donations are made directly by individuals or ecosystems. For example, Protocol Guild is entirely powered by donations from the Ethereum community. Core development is seen as valuable and individuals and ecosystems are willing to contribute funds to support Protocol Guild. This can be seen from the sources of capital in the Sankey Chart below, all the funding Protocol Guild distributes is from donations by other ecosystems or directly from individuals.
Chart 2: Protocol Guild Flows
Protocol Revenue
Some protocols earn revenue that flows to the respective DAO treasuries. This helps ecosystems create sustainable businesses. For example, Octant was built around the revenue it generates from the ETH staking yield in its treasury. Octant is developed by the Golem Foundation and has 100k ETH in its treasury. These funds have been staked, and their yield is distributed to Public Goods, currently based on Quadratic Voting.
Chart 3: Octant Flows
How is the capital being distributed?
The mechanisms used to allocate funding can be categorized into two high-level categories: Algorithmic Distribution and Discretionary Allocation. Based on the ecosystems in this analysis, Algorithmic Distribution is the primary funding mechanism for Public Goods, while Discretionary Allocation is primarily used to target Ecosystem Project Funding.
Algorithmic Distribution
Algorithmic Distribution is when capital distribution is based on a formula or another objective mechanism. Examples include Protocol Guild’s splitter contracts as well as Quadratic Funding (QF) used in Gitcoin Rounds and Octant Epochs.
Protocol Guild uses a series of splitter contracts and whitelists to manage the allocation of funds to support Ethereum core development. Splitter contacts allow for funds to autonomously and automatically be distributed to a whitelist of addresses. The whitelist is self-managed and while there is some discretion in terms of addresses included or excluded from the list, the distribution mechanism itself is subjective.
QF allocates funds collected from various ecosystems, known as a Matching Pool. The Matching Pool is allocated based on a formula that gives greater weight to the number of individual donors a proposal has as opposed to the amount of capital donated. QF is an improvement on standard token-voting where power can be concentrated. Large amounts of capital have a muted impact while the impact of smaller donations can be amplified. QF removes any discretionary input which eliminates the possibility of an individual expressing their bias either to improve or negatively impact the funding decision.
Chart 4: Gitcoin Flows
Discretionary Allocation
Discretionary capital allocation is when individuals, such as a grant committee, are tasked with distributing a pool of capital to teams building in or contributing to the ecosystem. While the dynamics and mandates can vary between different programs, the key similarity between these programs is that, at their core, they rely on some form of discretionary decision-making to decide which proposals to fund and which to reject.
While most ecosystems in the analysis tended to have one dominant program allocating capital, Arbitrum was a notable exception. The Arbitrum DAO has funded multiple grant programs directly, including a meta-grant program that funded 12 different grant programs.
Chart 5: Arbitrum Flows
Discussion Questions
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What can we learn from the breakdown of funding that flows to Public Goods, Ecosystem Project Funding, and Operation & Execution Costs?
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What are the advantages and disadvantages of programs that are funded with capital from TGE, Donations, and Protocol Revenue?
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What are the tradeoffs between using an Algorithmic Distribution mechanism versus a Discretionary Allocation mechanism? What drives a program to adopt one mechanism over the other?
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Why does Public Goods funding tend to use Algorithmic Distribution mechanisms while Ecosystem Specific Programs tend to use Discretionary Capital Allocation?
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What variations have ecosystems made to their allocation processes? What is this change trying to achieve? What has its impact been? Have there been any unforeseen consequences?