Retroactive Public Goods Funding (Retro Funding) provides an effective framework for addressing a challenge faced by communities, organizations, and networks that hope to build and maintain public goods: how do we sustainably reward those who create value for the public interest, especially when traditional funding models fall short?

The Problem with Traditional Funding Models for Public Goods

Public goods—resources that are non-excludable and non-rivalrous, such as open-source software, shared infrastructure, and research—provide immense value to society but often struggle to secure sustainable funding. This absence of a direct monetization strategy means there’s no straightforward way for investors to profit from their investment. Traditional NGO funding models, like donations and grants, rely on upfront support or the promise of future value. These methods are often unpredictable, short-term, and insufficient to cover the ongoing costs of development and maintenance. For many public goods projects, the absence of a clear pathway to compensation or an "exit" means that contributors are left without a reliable means of being rewarded for their work. This not only discourages potential builders from engaging in public goods creation but also forces many to pivot toward for-profit models, even if it means compromising on their mission.

How Retroactive Funding Works

Retro Funding addresses these challenges by introducing a model that rewards contributions after they have demonstrated their impact, based on a simple but powerful idea: it’s easier to agree on what has been useful than to predict what will be useful. This retroactive approach allows organizations to create a system where contributors are incentivized to deliver tangible value, knowing they will be compensated if their work benefits the community. This reduces risk and uncertainty compared to traditional funding methods since rewards are allocated based on proven outcomes rather than speculative potential.

At the core of Retro Funding is the Results Oracle, which serves as the mechanism through which contributions are evaluated and rewarded. This Results Oracle can function as an algorithm, a DAO, or another type of governance body, assessing the impact of projects after they have delivered value. By funding projects retroactively, the Results Oracle ensures that rewards are allocated based on tangible outcomes, reinforcing the principle of impact-driven funding and aligning incentives directly with the contributions made.

One of the key advantages of Retro Funding is its ability to foster a culture of fairness and transparency. By rewarding contributions based on demonstrated impact, Retro Funding guarantees that compensation is both fair and proportional to the value delivered. This transparency helps build trust within the community, as contributors can clearly see that their efforts are valued and recognized. In addition to this, Retro Funding promotes sustainability by establishing a reliable pathway for public goods projects to receive ongoing support. Rather than depending on unpredictable donations or grants, contributors can be confident that if their work has a tangible impact, they will be rewarded, which encourages continued investment in projects that benefit the community.

A crypto-native aspect of Retro Funding is that it can turn public goods into a profitable investment with the introduction of project tokens. These tokens represent the potential for retroactive rewards, allowing early supporters to invest in high-potential projects and providing much-needed capital for initiatives that might otherwise struggle to secure funding. Investors in public goods projects eligible for Retro Funding can expect their return through the appreciation of project tokens, which are tied to the project's potential for receiving retroactive rewards. As the Results Oracle or similar governing body allocates retroactive funding based on the project's demonstrated impact, the value of these tokens is likely to increase. This creates a mechanism where early investors can benefit from the project's success as the retroactive rewards flow into the project.

When a public goods project receives retroactive funding, it can use this capital to buy back project tokens or distribute rewards to token holders, effectively creating liquidity and value for those tokens. The value of these tokens can also rise in secondary markets as the project's impact becomes more widely recognized, allowing investors to potentially sell their holdings at a profit. Thus, the return for investors in this model is similar to traditional equity investment, where the value is tied to the project's success, but it is driven by the project's impact and the retroactive funding it attracts rather than immediate revenue generation or profits. This enables contributors to gain early support and encourages a culture of investment around public goods, making it easier for impactful projects to thrive.

Addressing the Challenges of Retro Funding

While Retro Funding offers a pathway to sustainable public goods funding, it does come with certain challenges that must be addressed for the model to be effective. One of the primary challenges is evaluating impact, which can often be subjective and complex. Establishing clear and transparent criteria for impact evaluation is essential to ensure that rewards are distributed fairly. Another challenge involves handling disagreements, as the Results Oracle will inevitably face varying opinions on which projects deserve recognition and how contributions should be valued. Building robust governance structures and ensuring active community participation will be crucial in addressing these disagreements and maintaining trust in the Retro Funding process.

Lastly, there is a risk of short-termism, where projects might be rewarded for immediate impact at the expense of long-term contributions. Retro Funding must establish mechanisms that recognize and prioritize sustained value creation over time to support projects that deliver enduring benefits. This balance will help ensure that the model fosters long-term innovation and growth in the public goods ecosystem.

The Future of Retroactive Public Goods Funding

Retro Funding is moving beyond subjective human evaluation of impact and towards a more metrics-driven approach. This transition aims to make the process of assessing and rewarding impact more efficient, transparent, scalable and continuous, allowing Retro Funding to function with greater accuracy and fairness. Using onchain metrics provides a transparent and verifiable source of impact metrics for projects.

This metrics-driven approach offers several advantages over traditional subjective evaluation. First, it reduces the potential for bias or inconsistency in funding decisions, ensuring that projects are rewarded based on tangible, measurable outcomes rather than personal perceptions or narratives. Second, it enables funding mechanisms to operate continuously and at a larger scale, as the process of impact evaluation becomes more streamlined and automated.

Additionally. a metrics-driven approach opens the door to integrating off-chain data sources that can be anchored on the blockchain via trusted Oracles, such as social media engagement, research impact, educational reach, or the adoption rate of open-source tools. This combination of onchain and off-chain metrics can provide a comprehensive picture of a project's impact, making Retro Funding more adaptable to different types of public goods initiatives, whether they exist solely within the crypto space or have broader societal implications.

As Retro Funding continues to evolve, the integration of data-driven evaluation methods will help ensure that funding is allocated more equitably and effectively, allowing the most impactful projects to receive the support they deserve and ensuring that the principle of "impact = profit" is upheld in a transparent, verifiable manner.

Why Retroactive Public Goods Funding

Retro Funding offers a practical way to support public goods by rewarding projects based on proven impact. Instead of relying on unpredictable donations or upfront funding, this model ensures that contributors are compensated fairly after their work has demonstrated real value. It also provides a first of its kind for-profit investment vehicle for public goods projects.

As this model evolves, it has the potential to redefine how we fund and reward projects that serve the public interest.