Study Overview
This research project examines the economic efficiency of blockchain-based public goods funding mechanisms, specifically focusing on capital allocation to blockchain infrastructure and ecosystem development. While traditional institutions rely on financial professionals to make investment decisions through ROI and cost-benefit analyses, blockchain projects often distribute funds through decentralized autonomous organizations (DAOs) using token-holder voting and prediction markets. DAOs represent a novel organizational structure that replaces hierarchical decision-making with direct participant voting via blockchain mechanisms. Proponents argue this approach leverages collective wisdom and mitigates behavioral biases in capital allocation, while blockchain transparency reduces agency costs and information asymmetries. We have partnered with Funding the Commons, a consortium connected to major blockchain organizations, including the Ethereum Foundation, Gitcoin, and Arbitrum, to analyze their historical funding decisions and conduct field experiments. During the 2021 crypto bull market, these organizations distributed over $500 million to developers. This creates an opportunity to evaluate which funding mechanisms prove most effective and inclusive. The study will examine whether this decentralized approach democratizes capital access, particularly for underserved communities and emerging market developers, while distinguishing between luck and skill in allocation decisions. However, this raises important security considerations, as blockchain's borderless nature could enable funds to flow to sanctioned entities or hostile state actors. We will analyze how DAOs navigate these compliance challenges compared to traditional institutions' due diligence processes. Finally, these insights will be benchmarked against established corporate, venture capital, and government grant-making approaches to help provide actionable insights for policymakers and similar blockchain-based organizations.
Study Results
Pending
Intervention: Observational study using historical data, but based on initial findings, there will be opportunities for field experiments.
Research Partner: Funding the Commons
Populations: Various DAOs and Foundations token holders as well as the developers allocated capital.
IBSI Funding Acknowledgement: Lab for Inclusive FinTech (LIFT)