Retro Funding

Good at

1-Decision making by experts
2-With benefit of hindsight

Dependencies

A large ecosystem with
enough history to fund retroactively

Not good at

1. Creating opportunities for
   everyday people to allocate
   capital
2. Funding proactively

TL;DR

INVENTED BY VITALIK BUTERIN,
& OPTIMISM, POPULARIZED BY
OPTIMISM

Retroactive Funding is a financial model that rewards creators and developers of public goods—such as open-source software, scientific research, and
community projects—after they have demonstrated a significant positive impact. Instead of funding these projects upfront, funders assess the outcomes and benefits generated and then provide grants or financial rewards based on the achieved results. This approach incentivizes high-quality work and impactful projects by ensuring that resources are allocated to initiatives that have proven their value and effectiveness.

WHO SHOULD USE IT?

Retroactive Public Goods Funding should be used by ecosystems who are looking to establish long term incentives for contributors. This funding model rewards impactful work after its
positive effects are demonstrated, encouraging the development of high-impact public goods over the long term.

WHO USES IT?

Optimism

Optimism has been the pioneer of Retroactive Funding,
using it to reward impact within the Optimism and Ethereum
ecosystems. This program has
distribued over $100m worth
of rewards in rounds 1-3.

DAO Drops

DAO Drops is an experiment in
retroactive funding that directly empowers Ethereum users
to allocate ecosystem funds.
In Round 1, DAO Drops
distributed $250,000 DAI to
nominees.

EasyRetroPGF.xyz

Gitcoin has partnered with
Optimism to build voting interfaces for Retro Funding. Then it
has packed up this experience up into a product called
easyretropgf.xyz which allows
anyone to do Optimism-style
Retro Funding. This is being
used by Filecoin, Celo, Libp2p

PIONEERED BY OPTIMISM

Here is a summary of Optimism Retro Funding Rounds 1-3:

Round 1 (Q4 2021)

Distributed $1 million among
76 nominated projects. 24
badgeholders were appointed,
with 22 participating in the
voting process. 58 projects
received funding.

Learnings:

The process highlighted the importance of means testing and identified unconscious biases among badgeholders. The round also stressed the need for balancing democratic and technocratic elements in governance.

Round 2 (Q1 2023)

Distributed 10 million OP
tokens among 195 nominated
projects. 90 voting badges
were offered, and 69 badgeholders voted. This round also
saw the launch of the Citizens’
House.

Learnings:

The round underscored the need for improved
means testing of applicants
and emphasized the benefits
of including a broader range of
contributors. It also explored
the impacts of nomination versus self-nomination processes.

Round 3 (Fall 2023)

Allocated 30 million OP
tokens. 145 badgeholders participated in the voting process,
with projects self-nominating
for funding. There were a total
of 1596 applications.

Learnings:

This round highlighted the limited scalability of experts voting on individual projects. The process highlighted the need for standardized and verifiable impact metrics to reward projects accurately.

FUNDING STRATEGY

Who is eligible to receive funding from the pool?

In Optimism RetroPGF Round 3, the eligibility criteria for receiving funding included:

1. Contributors to the Optimism Ecosystem: This includes developers, educators, artists, writers,builders, and evangelists who have made impactful contributions to the development and adoption of Optimism.

2. All Contributions Considered: Any contribution that supports the Optimism ecosystem is eligible, regardless of when it was made. This means past contributions are also eligible for funding.

3. Inclusivity: Both VC-funded teams and teams that have received grants from the Optimism Token House are eligible for retro funding.

Who is eligible to allocate?

Optimism RetroPGF Round 3, badgeholders were eligible to allocate the funding. All badgeholders have equal voting power. There were 208 badgeholders selected through various methods. This included Round 2 bagdeholders, top 50 recipients of RetroPGF 2, and 10 badges from the Optimism Foundation. This diverse selection approach aimed to ensure a broad representation of knowledgeable
individuals capable of fairly assessing and allocating the funding.

How are payouts calculated?

In Optimism RetroPGF Round 3, payouts were calculated using a median voting system. Badgeholders could allocate up to 30 million OP tokens among the projects, with each badgeholder able to allocate between 0 and 30 million OP to a single project. To qualify for payouts, a project needed to receive 17 votes or more. The results were then normalized to ensure the total allocated amount matched the round size of 30 million OP.

How is the pool distributed?

In RetroPGF 3, following KYC completion with the Optimism Foundation, projects received their rewards via a 90 day stream using Superfluid.

In EasyRetroPGF, the payout strategy is configurable. Funders may send different types of tokens on
any network, and may opt to use streaming protocols like Superfluid or Hedgey to distribute the tokens.

HOW DOES IT WORK?

1-Project Applications

Projects self-nominated and/or
submitted their applications.

2-Badgeholder Voting

Badgeholders, who were selected through various methods, reviewed the applications and allocated OP tokens to projects.

3-Calculation of Results & Distribution of Funds

The results were calculated, a
conflict of interest check was
made, and projects applied to
receive distributed funds.

While each retroactive funding round is a discrete event...

...retroactive funding rounds can be run periodically over time in order to reinforce new behaviors in an ecosystem.

The more predictability, the stronger the assurance that current actions could be rewarded retroactively in the future.rewarded retroactively in the future.

How can I run a Retro Funding round for my community?

If you want to learn more about how you could run a Retro Funding round on Allo Protocol to fund what matters for your community, reach out here.