Explore: Ethereum Financing Incentive Model
Editor's Note: This article comes fromCrypto Valley Live (ID: cryptovalley)Editor's Note: This article comes from
Crypto Valley Live (ID: cryptovalley)
, Author: Qian Bojun, reproduced by Odaily with authorization.
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open source financing
Open source software is a kind of public product, and public product is a basic economic concept. Common public goods include national defense, lighthouses, clean air, and open source software. Public goods have two core features. One is non-excludability: it is impossible for anyone to be prohibited from using or consuming it, even if he pays nothing (aka "free-riding"). The second is non-rivalrous: multiple people can use or consume it at the same time, and such use and consumption will not reduce its availability (both quantity and quality). If public goods are financed through market mechanisms, there will be insufficient investment. For example, suppose the staff in an office building raise funds to build a fresh air system. If Zhang San knows that Li Si can enjoy the fresh air brought by the fresh air system even without paying, then Zhang San's enthusiasm for paying will decrease. If all the staff held the same idea as Zhang San and were unwilling to pay for fear of others "free riding", then they probably wouldn't be able to raise enough money to build the fresh air system. Similar logic applies to open source software: If everyone expects others to develop the software first and open source it, so that they can use it for free, then the software is likely not to be developed. This problem with open source software is very important to the blockchain community. Here are four ways traditional developers can participate in open source software: volunteering, donations, bounties, and crowdfunding.
Volunteers are the most common participants in the open source community. They actively contribute to the community, maintain software systems and participate in discussions, but there is no direct monetary compensation. Volunteers are often motivated by other factors, such as high ecological interests, community reputation, ideology, or enthusiasm for the project.
donate
donate
bounty
bounty
crowdfunding
The donation model described above belongs to the fundraising model of the overall open source community, while bounties belong to the small, piecemeal task model. The bounty model can be understood as an organization's practice of outsourcing work tasks that were previously performed by employees to a non-specific public network in a free and voluntary manner. The task does not necessarily have a specific description, it may be to find code loopholes, or provide the development direction of the open source community. The amount of bounty is determined according to the demand level and time limit of the task issuing entity, which is similar to the "crowdsourcing" model of enterprises. The bounty model has two advantages: First, developers are rewarded according to their contribution, which is fairer than donations, and can encourage capable developers to join the community, which is helpful to the expansion of open source projects. Second, the bounty model is particularly useful for addressing security-related issues of a project. Libra has used the bug bounty program to cultivate volunteers in the open source community, using external developers and researchers to jointly experiment with network security. The openness and transparency of the bug bounty program can bring public trust and popularity to a project. But the bounty model has three disadvantages: First, it may generate reverse incentives for the project. Difficult tasks that require collective effort tend to be uninterested, while simple and highly repetitive tasks are more popular with developers, which is not conducive to the long-term development of the project. Second, the results of many open source projects cannot be quantified, which will cause disagreements between the project party and the open source developers on whether the work is completed, and may lead to low-quality project results or the situation where the project party squeezes developers. Third, the release of bounty tasks is usually low in amount and has no continuity. Developers passively accept work tasks to get paid, which cannot motivate developers to actively contribute.
crowdfunding
Crowdfunding is a "pre-consumption" investment behavior. Open source projects use project vision and future goals to solicit funding from within or outside the open source community. Both one-time crowdfunding and continuous crowdfunding have the following characteristics: First, sufficient marketing activities are needed to promote crowdfunding activities. Second, projects usually must have a clear plan and what the plan will achieve, which also creates pressure on development and production. Third, crowdfunding is often difficult to obtain consistent donation commitments. Compared with venture capital, the capital chain is not complete. Fourth, crowdfunding belongs to a holistic donation model, and the standards for how to distribute within developers are relatively vague.
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Ethereum financing mechanism and direction
In the Ethereum ecosystem, funds for developer incentives are mainly managed by two organizations: one is the Ethereum incubator ConsenSys, and the other is the non-profit organization Ethereum Foundation. At present, there are two problems in the fund management of Ethereum: The first is the problem of fund allocation. Ethereum does not have a sound governance mechanism to determine the use of funds, causing the community to believe that Ethereum is not transparent enough. The second is the source of funds. Once the funds managed by the Ethereum Foundation are exhausted, it will face the problem of unsustainable development and upgrade of the underlying protocol. The financing incentive model of Ethereum needs to solve the source and distribution of funds in order to stop the loss of core developers of Ethereum and further enhance the sustainability of Ethereum. At present, only miners are included in the incentive mechanism of Ethereum, and both core developers and application layer DApps need to be supported by a reasonable incentive mechanism. The financing incentive model for Ethereum developers is not yet complete, and most of them rely on the enthusiasm of developers or their own interests to maintain community cohesion. The following introduces three financing incentive models that Ethereum can consider adopting in the future.
inflation financing
Inflation financing is a mechanism used to provide funds for the development of blockchain open source communities and other public products. It is similar to the function of national taxation. The country obtains funds by taxing individuals and invests in the construction of common social infrastructure. These foundations Facilities are something that individuals in society cannot do independently. The only difference is that the country is a centralized authority, and the government's tax collection is a power conferred by the people. If Ethereum conducts inflation financing, it needs to be implemented by formulating rules on the chain or voting by the off-chain community. Different from the existing foundation management model, inflation financing has a continuous source of funds, which is more decentralized and flexible, and the potential rewards that can be obtained are also very large.
The implementation process of inflation financing is divided into three steps: First, anyone in the Ethereum community can submit an EIP (Ethereum Improvement Proposals) and submit it to the community for discussion. Second, ETH holders or off-chain community participants vote to approve the proposal and take effect or reject it according to the voting results. Third, the community decides the specific bounty based on the value that the proposal can bring to Ethereum, and issues new ETH and rewards the proposal developers. For example, once the Ethereum 2.0 upgrade is successful, the community estimates that it will bring a 20% increase in the value of the Ethereum ecosystem. According to the concept of inflation financing, Ethereum will issue 20% of ETH and allocate it to the developers involved in the upgrade By. Tezos uses inflation financing to motivate developers. Tezos writes bonuses into the protocol code in the form of rules to encourage developers to innovate. Each proposal can be checked individually, and those proposals that pass the test will be automatically rewarded. However, there are some issues in inflation financing that need to be discussed: First, how to set the distribution of rewards and the additional issuance standards of ETH. If enacted by the Foundation, there would be oligarchy concerns. Second, the value of proposals is sometimes difficult to measure, and it is not easy to convince the entire community to contribute. Third, the rising supply of ETH will affect the price performance of ETH in the secondary market, which in turn will lead to a decline in the value of the entire Ethereum ecosystem.
secondary financing
As mentioned above, secondary financing is the financing configuration of Gitcoin Grants’ crowdfunding of projects on Ethereum, trying to solve the problem of inefficient financing of public products in the Ethereum ecosystem. The principle of secondary financing is to make a better allocation of the funds obtained from crowdfunding. The final funds obtained by the project are the "square root of the sum of the square roots" of the funds donated by community members, and the difference is made up by the Ethereum Foundation. For example: Consider two financing situations, one is to raise $1,000 from one person, and the project will receive a total financing of $1,000; the other is to raise a total of $1,000 from 10 people, and each person will invest $100, and the project will Received $10,000 in total financing. Therefore, it can be seen from the above example that secondary financing will subsidize a large number of small-amount investments more than a small amount of large-amount investment.
Transaction Fee Mechanism
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The transaction fee mechanism is a scheme proposed by Vitalik Buterin to motivate developers to participate. When a developer creates a new smart contract or proposes a new EIP, any community participant who uses the contract will distribute a portion of the transaction fee to the developer as a reward. The reward distribution method will be divided into one-time distribution or linear distribution. The current concept of this mechanism is based on Ethereum 2.0. Phase 0 does not support transfer transactions. It is expected that Phase 2 can realize transfer transactions and execute smart contracts. Assuming that Phase 2 implements the transaction fee mechanism, part of the verifier’s income will be allocated to developers, allowing developers to officially enter the Ethereum incentive mechanism. Ethereum currently generates transaction fees of about $50,000-$100,000 per day (approximately $18-35 million per year), roughly equivalent to the entire budget of the Ethereum Foundation, so the solution is sustainable. The details of the plan are yet to be discussed, but the key point of implementation lies in the distribution of benefits between developers and verifiers and the formulation of reward standards.
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