Cryptocurrency’s Solution to the Public Goods Problem
Public Goods have long been Capitalism’s problem child, but a subset of the crypto world is building new tools to address them — a quick overview on 1Hive, Gitcoin, and the Token Engineering Commons.
At this point in cryptocurrency’s infancy, most of the work being done is still on infrastructure, i.e. protocols, exchanges, fiat ramps, oracles and such; the equivalent of public transportation, sewage systems and electrical grids for our new city. Most of the real-world economic solutions being built with crypto so far are addressing low-hanging fruit, like:
- Providing financial alternatives for people living under governments with unreliable money.
- Building products that leverage the new abilities and efficiencies inherent with digital-native money (DeFi, CBDCs, remittances, 24/7 finance).
- Offering easier, more open financial access to the underbanked.
If this were a software update for our system of Capitalism, you might think of these as bug fixes, something like v1.3 to v1.4. But the full capabilities of crypto are far greater.
The Public Goods Problem
Our current economic system doesn’t store value that can’t be privately bought or sold, AKA Public Goods. Unfortunately for us, these happen to include our most valuable resources, like:
- Education
- Scientific Discovery
- The Environment
- Human Rights
- Our Quality of Life
So we’re stuck funding these with donations and government spending, neither of which work as stores of value. Still, because they’re so valuable, we spend a LOT of money on them. In the US in 2019, the Federal Government spent $4.4 trillion, state and local governments spent another $11.8 trillion, and another $450 billion was donated to US charities, meaning that in 2019, nearly $17 trillion was spent on Public Goods in the United States alone. This number gives a sense of how valuable our Public Goods are, and yet most would agree that they’re underfunded.
The Public Goods Solution
Cryptocurrencies have made it much easier to create new financial markets, allowing for all kinds of new value creation to be incentivized, including for Public Goods. Unlike government spending and donations, these markets can be built using tokens that sustainably function as a store of value. Most people — even within the crypto community — don’t seem to recognize the significance of this yet, but digital tokens that function both as a store of value and as funding for shared wealth represent a transformational change to our global economy. Why?
- They allow for significantly more capital to be available for Public Goods.
- They better democratize how this money is spent (compared to centralized governments and wealthy donors).
- They align our financial markets more closely to what people actually value.
In short, it’s a class of financial asset capable of significantly improving how our society directs and stores wealth — it’s an upgrade to Capitalism 2.0.
A quick look at Public Good crypto projects gaining traction
Creating real and significant shared wealth through token economies is not easy. Previously I wrote about how a Public Good Token might be built using a centralized token issuer, but most of the top crypto projects funding Public Goods with their tokens are doing so instead with a Decentralized Autonomous Organization (DAO). While DAOs are still relatively unproven, they have advantages in this use case.
Unlike companies that build private wealth, organizations that build Public Goods don’t have the luxury of revenue and profit to objectively assess their value. Shared value is much harder to measure, being determined subjectively by the people that benefit from them. Because of this, organizations building Public Goods are held to different standards than private companies, with greater emphasis on transparency, well-built processes, and an empowered community of stakeholders. These values happen to match up with what DAOs aim to provide.
With this is mind, here are a few crypto projects leading the charge on the Public Goods problem:
1Hive is a DAO with a token governance platform that has an open-ended mandate for shared wealth creation. 1hive’s native token (Honey) is issued and distributed to projects that are proposed by the community, are approved or rejected by the community using Conviction Voting, and are secured with Celeste, a decentralized arbitration protocol. A Covenant binds the community to the goal of funding “common goods that bring the most value to the 1hive community.” With the upcoming launch of Gardens, any community in the world will be able to issue tokens using 1Hive’s governance platform.
For the last 4 years Gitcoin has pioneered Quadratic Funding, an optimized way of distributing funding across Public Good projects, and the brainchild of Ethereum creator Vitalik Buterin. Gitcoin focuses its grants on Public Goods in the Web3/crypto space, and has facilitated $20 million in funding for them. Gitcoin has been dependent so far on donations for this funding, but just last week it launched a DAO with a native governance token (GTC), which has given Gitcoin a big fat treasury for sustainable value creation in the long term.
Commons Stack is building cultural and technical tools for small communities to launch “Commons.” Their first Commons will be the Token Engineering Commons (TEC), whose focus is on advancing token engineering, so that the cryptocurrency community can better build safe and robust token economies. Commons, like the TEC, will be bootstrapped by an initial fundraise, dubbed a Hatch, and after by the Augmented Bonding Curve, which will provide continuous funding through volatility while guaranteeing liquidity for the micro-economy.
Given the untapped value in our Public Goods, and the nature of crypto as an open tool for creating financial markets, it seems inevitable that projects will find a way to succeed in this space and create a LOT of value for the world.
