Quadratic v. Pairwise - by Daniel Kronovet

Public goods are defined by economists as goods (“useful things”) which are both non-excludable (anyone can use them) and non-rivalrous (my use doesn’t prevent your use), classic examples of which include knowledge, clean air, lighthouses, and open-source software — obviously valuable things.

The classic problem posed by public goods is that while anyone can enjoy them, no-one has a reason to produce them. Under vanilla capitalism, people invest to earn a return; ergo, projects must have some way of returning capital to investors. Public goods have fewer ways of making money, the story goes, so go under-funded. Known as the “free rider” problem, the challenge of articulating and producing public goods has puzzled economists for years, producing a large body of literature. 1

The Web3 community, flush with cash and dependent on public software goods to grow, has over the last five years invested significant time and energy into this problem, with impressive results and tens of millions of dollars distributed to open-source projects. Broadly framed as “grants programs,” large institutional-scale donations are channeled through innovative allocation mechanisms towards hundreds of public-goods projects.

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