Roundabout Production
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Roundabout production is when get more of something by first producing something else - For example, you'd cut down more trees if you produce axes beforehand.
Roundabout production functions as a funding mechanism by investing in intermediate stages or foundational technologies to enhance productivity and support long-term profitability.
The concept of ‘roundabout production’ traces back to the Austrian School of Economics, particularly through the works of Carl Menger, Eugen von Böhm-Bawerk, and later, Ludwig von Mises and Friedrich Hayek. It was formally introduced in Böhm-Bawerk’s 1891 book “The Positive Theory of Capital.” Today, it is being used in web3 contexts to support projects with longer timelines for realizing sustainable profits.
This mechanism is best suited for projects or DAOs focused on building core blockchain infrastructure or scalable governance systems. It’s ideal for organizations willing to make long-term investments in research and development rather than looking for immediate returns.
The roundabout production funding strategy involves investing in projects with complex, high-resource needs (e.g., Ethereum Layer 2 solutions, cross-chain bridges, decentralized storage). It emphasizes the core principle that a more strategic, long-term path ultimately optimizes processes and maximizes output over time, aligning well with the infrastructure needs in web3.
The roundabout production process generally begins identifying long-term objectives (eg increase adoption of our product). Then the community sets out to find high leverage projects to meet these objectives.
Fund allocation for roundabout production is direct and disbursement varies. Often, funds are provided on a milestone basis to ensure projects receive funds after achieving specific benchmarks. An additional option is for some funds to be distributed while others are locked in staking mechanisms to encourage long-term commitment.
In roundabout production, funding is first allocated to the identification, creation, and implementation of anything needed to improve the projects objectives. Next, these ideas are applied to more tangible outputs that can receive funding.
One example of roundabout production looks like in web3 is Ethereum’s transition to Proof of Stake (PoS) in Ethereum 2.0. While this transition was lengthy and complex, it was crucial for enhancing scalability, energy efficiency, and security—foundational elements for the future growth of DeFi, NFTs, and other decentralized applications.
1-Long term efficiency improvement project approved for funding
2-Fund allocation and milestone based disbursement established
3-Milestone 1 completed
4-The third party validates
5-Funds distributed
This mechanism focuses on long-term scalability over immediate gains. It requires patience and considerable upfront resources but paves the way for building resilient, future-proof infrastructure within the blockchain ecosystem. This long-term approach differentiates it from the typical short-term strategies of many mechanisms.
It is adaptable to various contexts, which allows it to be applied effectively across different industries and ecosystems.
Roundabout production often focuses on solutions that enhance the broader ecosystem rather than just individual projects. This ecosystem-centric perspective drives collective growth and innovation, benefiting all participants over time.