Introduction

As a leader in the Ethereum ecosystem, Gitcoin is renowned for its pioneering Gitcoin Grants project, which aims to support public goods through Quadratic Funding (QF). The project was launched in 2019 and so far has raised over $59 million for enriching the Ethereum ecosystem’s public goods. It is noteworthy for pioneering the Quadratic Funding (QF) model, making the Gitcoin Grants project the largest QF activity in the web3 field to date.

Like many tech startups, Gitcoin has explored various products and models including technology accelerators, hosting hackathons, and launching bounty platforms. In 2019, we achieved success by raising funds for public goods through the QF model. We refer to this phase as “Gitcoin 1.0” – a phase where we gained momentum but had not yet realized the potential and scale of the Grants projects.

Gitcoin 1.0 was utilized by many prominent leaders in the space, including Ethereum founder Vitalik Buterin, and important protocols like Walletconnect, Uniswap, Yearn, and 1-inch exchange. Gitcoin has been an early source of funding (and validation of their work) for many notable ecosystem contributors including David Hoffman (Bankless), Austin Griffith (Build Guild), Anish Agnihotri (Ritual), Carl Cervone (OSObserver), and more.

Gitcoin recently completed the transition from phase 1.0 to the 2.0 stage. This transition has been driven by several market changes, including the expansion of the Ethereum ecosystem with the launch of L2, the growth of open-source development, and the increasing popularity of grant projects. The transition of Gitcoin can be categorized into the following aspects:

Figure 1: Gitcoin Timeline

1. The transition from a centralized platform operated by Gitcoin to a modular set of products and protocols that anyone can use and build upon.

2. Evolution from solely Quadratic Funding (QF) to multiple types of capital allocation mechanisms, including QF, Direct Grants, Retroactive Public Goods Funding (RetroPGF), and others.

3. Shift from deployment solely on the Ethereum blockchain to deployment on multiple EVM-based networks (Optimism, Arbitrum, Base, Polygon, zkSync, Scroll, Avalanche, etc.).

The innovative approach of Gitcoin 2.0 (detailed in this whitepaper) positions it as a key force in reshaping public goods donations and fostering ecosystem growth. This initiative represents not only technological advancement but also serves as a beacon of social progress, heralding a new era of empowered communities in the crypto space. In the forthcoming era of blockchain, Gitcoin is committed to defining and developing the realm of capital allocation—especially in public goods grants.

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The article has a total of approximately 7800 words and is divided into 8 sections:

1. Gitcoin 2.0
2. Capital Allocation: The Next Frontier of Growth
3. Gitcoin = Grants = Growth
4. Beyond Grants

5. Our Solutions

   5.1 Architecture
   5.2 Protocol Layer - Allo Protocol
   5.3 Application Layer - Grants Stack
   5.4 Project Layer - Grants Program

6. Conclusion

7. Disclaimer
8. Acknowledgments

1. Gitcoin 2.0

As of January 2024, Gitcoin has conducted 19 rounds of QF (Quadratic Funding) grant projects, distributing over $59 million in funds to early-stage builders and other recipients. Some of Gitcoin’s earliest grant recipients, such as Uniswap, Optimism, and Bankless, have graduated from the grant program and have since fundraised and operated their grant rounds. Over the years, Gitcoin’s brand and influence have significantly grown, making it one of the most recognized organizations in the web3 space. Gitcoin has collaborated with a range of prominent organizations, including crypto-native organizations like Coinbase and the Ethereum Foundation, as well as organizations interested in the crypto space, such as UNICEF and the American Cancer Society.

Across these 19 rounds, we witnessed a huge impact on capital allocation. Organizations that can make effective funding decisions to invest in their ecosystem will experience higher builder activity, user growth, and transaction volume—in short, grants create growth.

Capital allocation is a simple concept: it is the act of deciding how to distribute funds or resources. If you’ve ever paid a bill, or taxes, or split a dinner bill with friends, you’ve engaged in capital allocation. While capital allocation is a task for most individuals, it is a full-time job for many: governments and grant organizations spend significant time and money figuring out the processes, logistics, and decisions involved in allocating capital. At scale, capital allocation inevitably falls into gatekeeping, competitive decision-making, and a lack of transparency and accountability.

With programmable smart contracts, blockchain, and cryptocurrency, there are incredible advantages for efficiently, effectively, and transparently allocating capital. Gitcoin seizes this advantage by moving the entire grant program—from governance, creation, management, to distribution—onto the chain. On-chain and open-source grant programs also enable us to build a network in web3 consisting of developers, grant projects, and capital allocators—ultimately benefiting the Gitcoin ecosystem.

Gitcoin has previously explored various forms of grant designs, primarily focusing on achieving fair and effective methods for QF implementation. We’ve created a market for this grant mechanism, expanding distributed grants from 0 to millions of dollars. We are now beginning to see the impact of new mechanisms such as Direct Grants and RetroPGF, and we are prepared to scale them up.

The crypto ecosystem has raised over $1 billion through 5,900 grants and is continually expanding to support the ambitious growth goals of blockchain. The potential of capital allocation extends beyond grants; it represents a disruptive category, and Gitcoin, along with its extensive network of partners and protocol builders, is poised to lead in this space. The North Star goal of raising $1 billion in grants is both a bold growth target for Gitcoin and just the beginning of what’s possible.

2. Capital Allocation: The Next Growth Frontier

The most easily recognized form of capital allocation is government expenditure. It also perfectly illustrates many limitations of traditional capital allocation.

Governments accumulate funds through taxation, with each individual obligated to participate. In theory, the collected funds are intended to benefit the collective interests of taxpayers. This system also highlights many issues faced by traditional capital allocation methods:

Figure 2: Traditional Capital Allocation

1. Gatekeeping: A few decision-makers may become power brokers, unwilling or unable to democratize.

2. Not Scalable: Unable to leverage the native advantages of the internet (convenient access, direct consumer-facing interfaces) and Ethereum (trusted neutrality, composability, transparency, democratic decision-making, censorship resistance).

3. Not Precise: Cannot manage large amounts of information in a programmable way at scale, unable to accurately allocate capital resources.

Over the past 30 years, technological advancements have created opportunities to address the challenges of capital allocation. The internet introduced an unprecedented ability to communicate at scale. Blockchain created a transparent ledger, reporting activities through easily accessible data and immutable on-chain behavior, thereby creating accountability mechanisms. By innovating internet speed and blockchain transparency, we will open up a new way of capital allocation. This will enable communities to support causes they care about in a more efficient and culturally sensitive manner.

Capital allocation based on Ethereum can be:

1. Democratic: The ability to easily create and operate on-chain voting allows governance to reflect the will of participants.

2. Accessible: Anyone can participate via web or mobile applications, only requiring internet access.

3. Transparent: Utilizing the core features of blockchain, namely the immutable public ledger, anyone can view audit trails.

4. Powerful: Using programmable smart contracts and resources can be accurately allocated at scale.

5. Evolutionary: Anyone using open-source software can easily fork and modify existing methods to further develop them according to their needs.

The time to address capital allocation issues has come. We can build capital allocation systems that address the limitations mentioned above. We can overcome adoption barriers by emphasizing the transparency and scalability of these systems. We can build more effective, efficient, or innovative capital allocation methods by using democratic voting and creating convenient participation systems.

In today’s web3, hundreds of DAOs allocate large amounts of capital to fund the growth of their ecosystems. These DAOs unlock new global markets, accelerating the transformation of ideas and APIs into products and adoption much faster than before. Building on the success of QF and web3 donations, Gitcoin is poised to define and lead a new category of capital allocation. Through its grant programs, Gitcoin has unparalleled on-chain capital allocation experience. We believe in this potential so strongly that we spent two years building a protocol and product suite that enables anyone in web3 to easily participate in new capital allocation methods.

3. Gitcoin = Grants = Growth

While the market for web3 capital allocation tools is currently limited to organizations with token treasuries, we anticipate this market to grow exponentially. Over the next decade, we predict more assets will move onto the chain and be tokenized. This includes financial assets (from fiat currencies to investment instruments) as well as non-financial assets such as real estate, art, or other physical assets. As more assets become available on the chain, the use cases for capital allocation will continue to grow in both breadth (common, user-friendly systems) and depth (innovative, imaginative methods).

However, 11 years after Ethereum’s inception, web3 is still in its early growth stages. This technology still lacks key features that would make it more trustworthy and accessible. Only 4% of the global population holds cryptocurrency. There exists a gap between the potential of blockchain and its actual use cases and adoption today.

Bridging this gap means attracting more builders and developers who develop next-generation infrastructure and applications that attract future users and unlock next-generation use cases. Aspiring to build organizations of super scale requires attracting new builders at super scale. This scale far exceeds the capabilities of traditional BD or investment channels, which are too slow and inefficient. Traditional web2 marketing is driven by closed data collection and cannot operate effectively in a user-centric chain world.

Grants have become a core driver of web3 growth, capable of recruiting new builders and motivating existing ones. When tokens are distributed as incentives or compensation, new builders are attracted to grants. These grants are often distributed in the early stages of a project, providing crucial funding, visibility, and validation. Many early-stage builders choose to apply for grants rather than seed round financing. Grants can be distributed faster than VC capital and bring additional benefits, including exposure to the project and connections with other beneficiaries within the ecosystem. Unlike VC funding, Grants do not require builders to give up equity. By distributing funds in the native currency of their ecosystem, grants create win-win results: if the project succeeds, the value may accumulate.

The ability of grants to create win-win results through token distribution is crucial for retaining builders. Not only can all organizations in the ecosystem share in their success, but tokens distributed through grants also give builders ownership and governance rights within the ecosystem. This enables them to play a crucial role in policies and investments that directly impact their projects.

Grants = Growth, this is not just a theory; it has also been empirically validated in the past four years of Gitcoin Grants!

Figure 3: Donations and Developer Growth

The above chart demonstrates a strong correlation between the funds received by projects and value-additive activities. Since 2019, for every $1 million paid through Gitcoin Grants, there are 7 full-time developers still active. With the multiplier effect of crowdfunding, this ratio increases to 13 retained full-time developers per $1 million in the matching pool when comparing these numbers to venture capital investments where approximately $760 billion results in retaining about 0.1 developers per dollar invested, these figures are particularly impressive. (This sentence may be a typo in the original text, or it may be a misunderstanding by the translator. Please note, readers.)

4. Beyond Grants

We believe that the impact and coverage of the next generation of capital allocation will span across many industries, from web3 social and marketing to traditional sectors such as crowdfunding, real estate, and scientific research. The next generation of capital allocation represents not only the evolution of technology but also the evolution of our social practices in organizing, exercising purchasing power, and asset ownership.

While Gitcoin’s initial focus was on providing grants to DAOs and other tokenized communities, we believe that as more assets across various industries become tokenized, a vast design space will emerge where we can reimagine capital allocation in different sectors.

These sectors include but are not limited to:

1. Funding for DAO ecosystem development

2. Funding for scientific research

3. Funding for environmental and social impact initiatives

4. Funding for charitable initiatives

5. Funding for city, county, and state development projects

6. Funding for capital formation and economic growth

Each of these industries will require higher levels of strategic development, thought leadership, stakeholder engagement, and new applications tailored to meet their specific needs. The Gitcoin Network has already conducted many pilots in these industries, including collaborations with the American Cancer Society, the DeSci project, UNICEF, the city of Boulder in Colorado, and more.

The potential for capital allocation in these industries has not been fully explored, but we can already sense its transformative impact: consider how email has changed written communication. Now, humans send messages 100 times more than physical mail sent decades ago. We believe that the future of capital allocation will involve higher capacity and higher-resolution financial decision-making than what we see today.

In the past few decades, the evolution of capital allocation has taken on a skeuomorphic style: physical cash evolved into physical checks, which further transitioned into virtual checks (credit cards). Credit cards and the internet introduced faster banking transactions, enabling the possibility of e-commerce and crowdfunding platforms (such as Patreon, Kickstarter, or Gitcoin Grants). It is challenging to predict the next possibility, but we will discover it together through the Gitcoin Network. As it is built on blockchain, we believe it will bring more transparency and accountability to organizations and empower individuals with more purchasing power through new collective ownership. We can speculate on the contours of this frontier based on the properties of blockchain. It will be faster, more democratic, more emergent, and more powerful than anything that has existed in the past.

5. Our Solutions

5.1 Architecture

The design space for capital allocation is vast. While our first and primary focus is addressing the use case of grants, we have designed a modular solution stack intended to be scalable or replicable for many different use cases.

This stack primarily consists of three layers:

1. Protocol Layer

2. Application Layer

3. Program Layer

Figure 4: Stack Architecture

First and foremost, and most scalable, is the protocol layer. The Allo Protocol, also known as the Capital Allocation Protocol, aims to be an infinitely flexible and scalable method of capital allocation that is both trustworthy and precise.

Next is the application layer. Gitcoin’s Grants Stack is a no-code platform for running grant projects. The application currently allows grant managers to create, manage, and run QFs, direct grants, and RetroPGFs, and projects can extend to any grant mechanism with a strong need. The Grants Stack is an open-source decentralized application (dApp) that allows the community to create customized versions by developing complementary apps or even forking apps.

Finally, the project layer. This is the most enduring and characteristic part of the stack. The Gitcoin Grants program is a powerful tool for spreading and nurturing the power of grant projects within the community. It has distributed over $59 million to the Ethereum ecosystem through 19 rounds of grants.

In this whitepaper, we will delve into the protocol layer first, followed by the application layer and the project layer.

5.2 Protocol Layer - Allo Protocol

The Allo Protocol serves as the cornerstone of this design space. It features a simple, versatile architecture that can be easily customized to accommodate a wide range of use cases. The design of the Allo Protocol embraces both breadth and depth:

1. Breadth is reflected in its strategy library, allowing the Allo Protocol to support various types of capital allocation (such as QF, RetroPGF, Conviction voting, etc.).

2. Depth is evident in the stable, secure, and robust core protocol, which manages capital pools and permissions for these pools. Each pool is allocated through a specific strategy tailored to the developers’ needs. The strength of Allo lies in its ability to deepen impact by precisely allocating capital.

The Allo Protocol consists of three key components:

1. Tokens: Funders send tokens to the funding pool.

2. Registry: The registry is structured data of potential participants eligible to receive allocated tokens.

3. Strategies: Strategies determine how tokens are allocated and distributed to recipients.

Figure 5: Allo Protocol

There are two types of inputs entering the funding pool (marked as “Allo”): tokens and registry. The registry is used to define what we want to fund and collect information about these things. The project registry is the core foundation of the data intelligence about project content, members, their reputations, and influences. In addition to the registry, funds can also be provided to the pool by depositing individual tokens.

Funds are held in pools, which are rigorously audited, simple, and modular contracts. The strategy determines how and when funds are released from these pools. Strategies can decide whether funds are allocated all at once or flow over specific milestones, specific periods, etc. Strategies can also determine the decision-making process for releasing these funds: whether it’s a single signer, a voting committee, or QF.

By building the Allo architecture in a modular way, we will be able to accommodate many different types of capital allocation, becoming the design space for the evolution of capital allocation.

Over time, we believe that the most extensive and in-depth capital allocation strategy library will make Allo contracts a powerful and user-friendly tool that can be used to build capital allocation anywhere in the world.

We aim to make Allo a reliable resource and easy-to-integrate tool, serving developers who are integrating capital allocation into their applications. These developers expand the Gitcoin Network and will serve as decentralized explorers and researchers of the capital allocation design space. They will have the opportunity to align with Gitcoin’s incentives while gaining rewards through our Citizens Grants program (rung on the Allo Protocol).

For a deeper understanding of what we expect people to create using Allo, please read the Rainbowpaper, which focuses on the design space.

5.3 Application Layer - Grants Stack

The Grants Stack is built on top of the Allo protocol and serves as the primary application within the Gitcoin ecosystem. It aims to be a trusted, enterprise-grade tool and serves as a reference application for Allo protocol builders, as it is open-source and forkable.

The Grants Stack is designed to be an easy-to-use tool that assists any grant manager in creating, managing, and running grant rounds. It productizes Gitcoin’s years of experience in running successful grant rounds, covering everything from grant setup and builder profile creation to community-facing grants or engagement interfaces. The Grants Stack has recognized the significant coordination costs among grant managers, builders, and the community, not to mention the various tools and processes they each use. We strive to achieve optimal coordination by implementing automation, transparency, and modularity in our product, making it as seamless as possible. Additionally, as an on-chain product, it comes with out-of-the-box high standards of fund decision transparency and accountability mechanisms.

The Grants Stack focuses on several core areas to provide tools for grant managers to run successful grant projects. We believe the success of grant projects is driven by the following aspects:

1. Engaging community participation in crowdfunding and identifying the needs of grant projects.

2. Creating a network of the best and brightest builders.

3. Providing transparency and accountability in grant decision-making.

4. Measuring and increasing the impact of grant projects.

The Grants Stack currently supports various grant methods: QF and direct grants. We are also constantly experimenting with and exploring new types of grant mechanisms. When new grant mechanisms arise, we strive to gain sufficient expertise to effectively productize them. A good example is EasyRetroPGF.xyz. Initially used by Optimism for RPGF3, we have now open-sourced this tool, allowing anyone in the web3 grant community to host and run it. As we learn about the effectiveness and power of Retro PGF, we may incorporate these features into the Grants Stack, making them available in a no-code, stable environment for grant managers’ convenience.

We expect the community to build many experimental web applications, including complementary tools (such as reporting tools or discovery tools) and novel capital allocation mechanisms (including conviction voting, whitelist voting, or EasyRetroPGF.xyz). These create an innovative flywheel for the grant ecosystem, keeping the Grants Stack as a stable, trusted solution while staying at the forefront of grant innovation.

5.4 Program Layer - Grants Program

The goal of the Gitcoin Grants project is to fund public goods that promote the growth and adoption of the Ethereum ecosystem, as well as contribute to our Gitcoin North Star – the Gross Merchandise Volume (GMV) of grants facilitated through Allo. By focusing the project on the growth of the Ethereum ecosystem, we not only gain insights from internal experiments but also contribute to the public goods within the Ethereum network.

In industries at an early stage like web3, new trends and developments emerge constantly. Being practitioners in the art of capital allocation allows Gitcoin to stay at the forefront of innovation and develop a community of expertise that influences our grant projects and products.

Grant projects also create significant network effects for Gitcoin. Over the past four years, we have raised nearly 4,000 unique grants. Gitcoin now boasts the largest community of open-source software builders in web3, making our platform particularly attractive for organizations looking to recruit new builders and for builders seeking new funding opportunities. Grant projects also provide support for donation managers in the market. Many recipients have graduated to become Gitcoin partners, running their grant rounds through the Grants Stack and building applications based on the Allo Protocol.

6. Conclusion

The evolution from Gitcoin 1.0 to Gitcoin 2.0 marks a significant milestone in the field of capital allocation, particularly in the realm of public goods grants within and beyond the Ethereum ecosystem. By transitioning towards a more decentralized, modular approach, and expanding its grant mechanisms beyond Quadratic Funding (QF), Gitcoin has taken a step towards the forefront of a more democratic, efficient, and transparent capital allocation practice. The expansion to other blockchain networks signifies Gitcoin’s increasing influence, providing a scalable and flexible platform to fund public goods across the entire web3 space.

This shift not only enhances Gitcoin’s ability to support the growth of the Ethereum ecosystem but also explores a new frontier of how to fund and support public goods in a decentralized world. Furthermore, the implementation of Gitcoin 2.0 showcases the potential of blockchain technology to revolutionize traditional capital allocation methods. By leveraging the benefits of programmable currency, smart contracts, and decentralized governance, Gitcoin demonstrates how capital allocation can become more convenient, precise, and scalable.

As tokenization continues to reshape the world, the total addressable market (TAM) for capital allocation tools may experience exponential growth. Gitcoin’s commitment to improving and expanding capital allocation possibilities (especially through grants) highlights the transformative power of web3 technology in addressing long-standing challenges in funding and resource allocation. As Gitcoin continues to explore and develop this vast design space, it paves the way for the future. In this future, capital allocation is not only more efficient and transparent but also more aligned with the values and needs of the communities it serves.

7. Disclaimer

This whitepaper is for educational purposes only and does not constitute financial or tax advice. It is not a solicitation to invest in or trade any assets or make any financial decisions. Additionally, Gitcoin contributors hold cryptocurrency assets. This document is not Gitcoin’s official strategy unless approved by Gitcoin governance.

8. Acknowledgments

We would like to thank everyone who supports the Gitcoin Grants project, including our grantees, donors, and Matching Pool partners.

We also want to acknowledge the numerous collaborators on this document. MathildaDV provided editing, and Harry Eastham designed and created the microsite. Carl Cervone and Umar Khan provided the data analysis mentioned in the Grants = Growth section.

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