How do we scale public goods funding in crypto to a level where it actually makes a dent in the world — going from millions to billions and trillions of dollars in funding?

The truth is that it may never happen unless we dispel an entrenched myth that is holding us back.

That’s because exponentially growing public goods funding will require a different approach from what we’re doing today; these goods will need to capture value.

The difference between goods that capture value and goods that don’t is like the difference between funding car production from the sale of the car and funding it from cookie sales.

If you fund car production from its sale then you can scale production, because with each additional car sold you can produce more cars.

If you fund car production from cookie sales — or any other external source of funding that operates independently of the good produced — then you need to find more people to buy your cookies for every car you produce, regardless of how valuable these cars are.

It’s not a scalable or regenerative process.

And that’s the essence of value capture; it’s the idea that when you create value for others — through a good or service — you can secure a portion of that value for yourself, typically in the form of compensation.

So what is keeping us back from capturing value in public goods?

Currently, all public goods funding platforms in web3 rely on external sources of funding. None of them have a mechanism that allows public goods to capture value.

The bigger problem though is that most people in the public goods space believe in the myth that public goods cannot capture value.

If people don’t think it’s even possible, how can they make progress toward building value capture mechanisms?

They can’t. And that’s why so little progress has been made on this front.

Why do people believe public goods can’t capture value?

The argument goes something like this: public goods, unlike cars or other private goods, are non-excludable — you cannot restrict people from using them — and because of that they cannot capture value.

We need to bust this myth!

The reason public goods don’t currently capture value has nothing to do with their excludability.

The real reason is that there is no proper Coordination Structure that allows public goods to capture value. Once you have such a Coordination Structure these goods would be able to capture value too.

What is this Coordination Structure?

Think of the common good of network security in blockchains. Network security is non-excludable; you cannot restrict users of a network from benefiting from it. And yet, we have a Coordination Structure, in the form of blockchain networks powered by consensus mechanisms, that allow miners or stakers to be compensated (capture value) when they secure a network.

We can equally think of companies or businesses as Coordination Structures that allow commercial goods to capture value.

Even though airplanes are excludable goods, if you did not have airlines that created demand for airplanes, they wouldn’t be able to capture value and they wouldn’t be produced in the economy.

No matter how much travelers would want to crowdsource the production of an airplane, they’re highly unlikely to produce the vast supply chain for the systems and components needed for the production of planes.

But once you have a business like an airline creating demand for planes, the profit motive incentivizes such a supply chain to emerge.

The same logic applies to all other commercial goods (in contrast to consumer goods) in the economy.

If non-excludable goods can capture value when a Coordination Structure is present, while excludable goods cannot capture value in the absence of a Coordination Structure, it’s not the excludability of goods that allows them to capture value, it’s the existence of Coordination Structures that create demand for them.

How then do we apply these insights to developing a Coordination Structure for public goods? That would be the subject of my next post