Gitcoin founder discusses emerging models in Web3: Why the Regen Web3 project is worth paying attention to?

Written by: Kevin Owocki, “Front-running The Regen Opportunity”

Compiled by: Dong Xun, The Way of Defi

There is a lot of noise in the Web3 space, but there is also an emerging ecosystem with a strong value proposition that is making an impact in the real world and delivering returns on investment (ROI).

These "Regen Web3" projects ------ many of which are still in their early stages, scalable, built for transparent governance, and can easily achieve 10x to 100x growth in the next decade.

So why should you pay attention to "Regen Web3" projects?

Capital Rotation in the Regen Network

As the ecosystem matures, capital will have the opportunity to flow into projects that create the most humanitarian value for the world, rather than just those that generate economic value.

In this article, we evaluate emerging models based on the Regen Web3 risk/reward scale. Top projects of this scale are now starting to operate, while those at the bottom are more theoretical with upside potential.

1. Scalable Gitcoin Grants (Low Risk, High Upside)

Gitcoin Grants is a capital allocation mechanism that has generated $64 million in funding for Web3 public goods primarily through Quadratic Funding.

Every quarter, the Gitcoin community allocates $3 million in funding to a matching pool, which is distributed based on the results of crowdfunding activities.

In Q2 2022, Gitcoin facilitated a value transfer of $7.4 million, which is about $3,413/hour (or $15,374/work hour) for the second quarter.

But this is just the tip of the iceberg for the value creation of public goods in this ecosystem. Open-source software and Ethereum have created public goods worth billions of dollars. To reach this scale, Gitcoin must grow 1,000 times.

To this end, Gitcoin launched Aqueduct, a way to allocate funds to any DAO ecosystem that wishes to receive Gitcoin Grants funding for its public goods.

Once Aqueduct is established, Gitcoin will automatically conduct a round of side rounds based on its quarterly Gitcoin Grants funding to finance public goods in the ecosystem.

What excites me is its scale. Each round of additional secondary financing is an opportunity for any given project to serve projects in other ecosystems. This is a positive externality windmill.

For example: If project X₁ is in QF matching round Y₁, then the matching multiple is Z₁. If project X₁ is added to Y₂Y₃…Yₙ, then its matching multiple becomes Z₁Z₂Z₃*…Zₙ.

Essentially: If each public round of secondary financing (QF) is a fan, then all of them stacked together become a jet engine.

2. Disrupting NGOs ------ $25 Trillion Regen Opportunity (Medium Risk, High Upside)

Every year, $25 trillion is spent by governments and NGOs on public goods.

With the advantages of transparency, immutability, global scale, and programmability brought by Web3, how can Regen DAO change the way these public goods are managed?

Regen Web3 projects disrupt the completely stagnant traditional nonprofit sector. The latter has many cumbersome processes, and the lack of transparency and administrative costs has reduced the funds that NGOs can actually use to support public welfare work.

Take a prominent example: Africa has received trillions of dollars in foreign aid over the past 60 years, yet today its per capita income is lower than in the 1970s, and most of its population remains in poverty.

Government agencies have not maximized the public benefit of every dollar.

Regen Web3 is not a "this or that" statement compared to traditional nonprofits, but rather an important "and" statement. Because Web3 projects are designed to be more transparent, accountable, and less bureaucratic, they are better positioned to scale and provide "dollar-for-dollar" impact in ways that traditional nonprofits cannot.

3. Greed of Long-term Incentives (High Risk, High Upside)

One of the shortcomings of our current system is that it incentivizes short-term and quarterly performance, growth, and profits at the expense of long-term returns and impact.

Many investments that need to be made cannot realize returns for years, so they are never made because there is no short-term benefit or impact for the investors. This is the marshmallow test for adults, investors, and human nature.

With Regen Web3, we can create a class of capital that can yield returns over a longer time frame (>10 years) to incentivize investments that need to be made in both the short and long term.

4. Retroactive Public Goods Funding (Very High Risk, Very High Upside)

Economies, systems, and people act according to incentive mechanisms. The results we get depend on how we design our incentive structures. If different results are needed, then the rules of the game need to change.

Currently, Regen Web3 projects also operate within a suboptimal incentive system that rewards founders' private value extraction over the value created for the public.

Retroactive public goods funding could change all of this.

By implementing retroactive public goods funding, an incentive structure for public goods can be created that provides exit incentives for impactful founders, similar to those in for-profit entities.

Vitalik Buterin wrote: "The core principle behind the retroactive public goods funding concept is… it is easier to agree on what is useful than to agree on what will be useful."

Since it is easier to measure and reward past contributions than future ones, retroactive public goods funding is a mechanism for investing in Regen Web3 projects that are worthy of funding based on their verifiable impact.

Thus, retroactive public goods funding is a mechanism for investing in Regen Web3 projects that are worthy of funding based on their verifiable impact. It is the most prominent example of retroactive public goods funding.

Optimism is the most prominent example of retroactive public goods funding.

Optimism uses millions of dollars in revenue from sequencer fees to fund the top public goods in its ecosystem based on a fair ratio ------ essentially 1 unit of impact = $1.

As sequencer fees grow, funding for public goods projects also increases. On this basis, public goods projects can have an "exit." This, in turn, incentivizes investors to allocate funds to projects that generate humanitarian impact, rather than just those that extract private value.

This is a great visual effect I borrowed from Nick Barr:

Image caption: Read more about Optimism RetroPGF Round 1 here.

Here’s an interesting story about Optimism: The founder of Optimism, Karl Floersch, proposed the idea of Ether's Phoenix, which would reward you for funding public goods.

This is an algorithm that rewards early collaborators who coordinate to help fund public goods. Because followers of Ether's Phoenix expect it to reward future contributions to public goods.

Learn more about Ethers Phoenix here.

5. Verifiable Impact >> Impact Certificates (Very High Risk, Very High Upside)

How do we verify the impact of different projects?

Solution: Impact certificates.

Impact certificates can be issued to projects that can verifiably achieve measurable impact goals.

Here’s how it works: In the so-called impact market, those who hold impact certificates can sell them to those who believe in the projects that are creating impact. This will create a speculative market around projects with value creation, unlike luxury goods (think PFP NFTs). When the positive impact is attributed to the new owners, profits can be generated.

This will systematically change the incentive mechanisms of Web3 projects, linking revenue generation with impact creation. I discussed impact certificates in depth with Evan Miyazono, Research Director at Protocol Labs, on the Green Pill podcast.

Rewards: Maximizing Extractable Value (VEV)

How would you change your behavior if you knew you would be rewarded for creating positive impact?

The future world will reward those who create impact, so how will you create impact to get ahead?

How to get ahead (for regen):

• Look for a mission-driven project, get involved, and start adding value. Do it early because you love the mission.

• Once a project is inevitable, don’t be late. You’ll miss out on VEV --- vibes extractable value.

• If the right people choose to coordinate and make it successful, each project will find its own virtuous cycle. By getting ahead of opportunities, you are creating opportunities.

Here, we salute all those who join DAOs with a sense of common purpose and civic pride ------ they join DAOs because these things are the purpose in themselves.

Vibes extractable value is a reality where DAOs tend to coordinate better than anything else. They do this because the positive atmosphere brought by a shared goal and mission focus creates positive value and outcomes. This cycle can become reflexive, repeating itself in a virtuous cycle of growth and impact.

Conclusion

Enter the world of Regen Web3 and join a DAO. Get involved in one of the projects that are measuring and creating impact, and create a future of technology, finance, and welfare that we can hardly imagine.