An article series on Ethereum institutions (past, present, and future) and their political economy.
Ethereum as Protocol Polity: The Case for Founding-Period Funding
The header image references Thomas Hobbes' book Leviathan.
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Over the years, I've used different lenses to frame Ethereum's political economy: a complex software commons¹, an ocean, or a commoditization machine. Other observers often compare Ethereum and its funding challenges to existing digital utilities: OSS projects, Linux, or ICANN. I believe these comparisons are category errors.
In this article, I argue that Ethereum's current political economy more closely resembles an early-stage polity: "a group of people with a collective identity, who are organized by some form of political, institutionalized, social relations and have a capacity to mobilize resources." We should start applying this framework to our funding of shared resource stewardship: software, network, and asset. This will help cover immediate critical gaps, de-risk our medium-term growth, and ultimately prepare us for the long future: infrastructure attempting to become "new nature".
Intro and Outline
Structural Differences
Polity Funding in the founding years
Applying this to Ethereum
Conclusion: A Polity descending into New Nature
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Several structural characteristics mark Ethereum as distinct from OSS projects, Linux, and ICANN, pointing toward polity as a more productive frame.
Monetary sovereignty: Ethereum issues its own native asset (ETH), controls monetary policy through issuance curves and EIP-1559's burn mechanism, and runs its own financial system.
→ Digital utilities like ICANN or Linux are incapable of issuing native money-like instruments.²
Permissionless coordination on shared state: Shared state gives blockchains outcomes similar to what physical proximity gives dense urban centers: serendipitous economic, social, and political interactions, infra & standards reuse. This is the basis for network effects. Shared state plus programmability gives users credible commitment devices; adjudication, dispute resolution, and arbitration systems; entity formation; delegation, access control, and permissioning infrastructure.³ Smart contracts are a self-executing system for outcome enforcement, which governs EVM property rights.
→ OSS projects do not need to know about the local state a user creates, Linux distros running on a machine may only be concerned with the local user state, ICANN domain changes require interacting with known actors like registrars.
Network sovereignty: Ethereum is not operated or headquartered in any single jurisdiction. It cannot be compelled by any single state to change its protocol rules. That is sovereignty in a meaningful sense, arguably more than many small nation/city-states exercise in practice.⁴
→ ICANN operates under US jurisdiction and has been subject to government preferences: it was a contractor to the USG until 2016, has been compelled to seize domains, and cancelled the launch of .xxx TLD in 2007 under pressure from the Bush admin.
Capital and labor markets: Ethereum has internal capital markets (DeFi, staking yields, token issuance) and labor markets (protocol developers, validators, application builders competing for talent). Nation-states have economies, utilities have customers.
→ ICANN has a system of fees, but no unintermediated markets. Linux sees productization/monetization through commercial entities, but has no embedded capital circuits embedded within the Kernel.
Shared resource funding has structural gaps. Ethereum's interdependent resources are provisioned through thoughtful methods, to ensure we maintain important protocol guarantees.⁵ So far, we have not found the right blend of funding models to provision these resources sustainably and scalably, whether through the EF's premine, Protocol Guild, or other mechanisms. Governments and state capacity⁶ exist specifically because of market failures to provision shared resources: systems of law, utility infra, transit, etc. Markets are good at particular kinds of provisioning: Uniswap liquidity, or the chain's finality brought about by economic actors pursuing the auto-adjusting yield curve. Longterm research and neutral coordination for protocol features are very unlikely to be produced by any market mechanism. In theory, client implementations can be provisioned by market-engaged commercial entities, but historically they have not proven sufficiently monetizable to cover the costs of maintenance. Whenever shared resources come closer to being produced by markets, they run the risk of being influenced by short-term, self-interested, extractive market participants. We should understand the risks of overly internalizing these influences.
→ ICANN and Linux govern much narrower resources, and their systems of provisioning reflect that. ICANN's fee systems all flow back to a single org. The Linux Foundation is funded through board seats, which give some discretionary control of the treasury. Improvements to the Kernel codebase are largely funded through a process of commercial-contestation. By this, I mean self-interested for-profits improve the parts of the kernel most relevant to their interest, turning it into a space of contention where entities compete for infrastructural and political influence.
These five characteristics and conditions make polity-style funding norms relevant.
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Every durable polity front-loaded infra investment instead of spreading it out over many years.
Timing of funding is critical. Nation-states do not spend at a steady-state rate throughout their existence. Founding periods have historically required disproportionate upfront investment: post-war Germany's reconstruction, South Korea's industrialization in the 1960s-70s, and the US Interstate Highway System. These all share the same structure: front-loaded institutional and physical investment that compounded over decades.
Singapore case study. When Singapore became independent in 1965, its GDP was approximately $970M and GDP per capita was around $500. It was a poor city with no natural resources, no hinterland, and no obvious reason to survive as an independent state. Lee Kuan Yew's government responded with infrastructure investment that was aggressive even by the standards of development economics at the time. Government capital expenditure in the late 1960s ran roughly 8-12% of GDP, compared to the 2-5% typical of developed nations and well above what peer economies in Southeast Asia were spending. Specific investments were made before the economic activity to justify them existed. This included industrial complexes, the Port of Singapore, educational overhauls, and more. By 1980 Singapore's GDP per capita had grown to roughly $5,000, and by 2024 to over $88,000. The infrastructure investments of the 1960s and 70s were preconditions for all of that.
Singapore had no natural endowments and had to build its competitive position entirely through deliberate institutional investment. Ethereum has no natural monopoly, no regulatory moat, no captive users. Both had to earn everything through the quality of their institutional guarantees.
Defense spending should scale with assets, not revenue. Nation-states do not budget their military as a percentage of tax revenue.⁷ Instead, defense is budgeted relative to what they are defending: natural resources, economies, urban hubs, and quality of life for citizens. Ethereum secures hundreds of billions in assets today and ideally trillions in the future. Consider what it would cost to lose and rebuild this settlement capacity, deep liquidity, and robust network uptime.
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Software infrastructure is cheaper than physical, but the same structural logic applies. Even with the first decade behind us, Ethereum's founding period is happening now.
Path dependence in protocol design. Ethereum's core architecture is still being actively shaped.⁸ Scaling, PBS, alternate state tries, account abstraction, zkEVMs, privacy, and security are foundational decisions with potentially decades of lock-in (see strawmap). A city choosing where to lay its road grid is straightforward to do well early, but extraordinarily expensive to redo later. For a protocol polity, these are constitutional choices. Underfunding the people with the expertise to make these protocol decisions should not be viewed as a present-day budget saving.
Compounding returns on early investments. If the ecosystem grows to match our ambition, $1mm spent on protocol security today protects a much smaller asset base than the same $1mm will protect in ten years. The investment compounds forward. A security failure or downtime today, while reputational trust is still being established, is more catastrophic than the same failure in a mature system with deep institutional legitimacy.
Case in point: Client diversity has maintained Ethereum's perfect uptime. It has direct costs, both fiscal and in terms of speed of network upgrades. The tradeoff is abundantly worth it to establish institutional trust necessary for a new protocol polity.
Talent loss is harder to recover from in early stages. When a core protocol developer leaves or a team has their funding cut, they take institutional knowledge that took years to accumulate and cannot be quickly replaced. This is more manageable in a mature system with deep bench strength, smaller structural changes, and low churn. Our expert protocol maintainers should be neutral, laser focused on our many challenges, removing tech debt, and effectively on retainer.
Norms established early persist. Coordination failures are worst before a community has developed the mechanisms to address them. Early investment in funding infrastructure like Protocol Guild, formal grants programs, and institutional funding commitments help to establish precedents and expectations that compound forward. The window to establish those norms is open most broadly in the early years.
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The typical frames Ethereum is often compared against (OSS projects, Linux and ICANN) tend to misdirect our intuition. A shared-state blockchain with monetary & jurisdictional sovereignty, and internal capital markets is structurally different from a digital utility. These differences demand that we be more thoughtful about how we fund its political economy and the shared resources which it stewards.
We should seriously weigh the abundant historic precedents, which prove the benefits of founding period funding. Singapore spent 2-4x the steady-state infrastructure benchmark during its critical decade; its GDP per capita grew 176x over the sixty years that followed. Looking back decades from now, I hope our investments today will appear as a prescient preparation for the adoption which follows.
Protocol Polity is the right frame for our present moment, but also a temporary one. As Ethereum continues to mature, we will turn to other anchors. Venkatesh Rao has proposed the concept of "New Nature", a destination the commons framing in the intro was gesturing toward.
New Nature is regimes of reality governed by technologically mediated laws that are nearly as inviolable, immutable, and persistent as those of nature
New Nature prompts us to think about protocols settling deeper into civilizational rhythms: quieter, more dependable technological systems. Ethereum is very well positioned to achieve this, but only if we match our ambition with the sustained investment in this critical founding period.
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Footnotes
Capital and enclosure in software commons: Linux & Ethereum - the origins of my category error conclusion start here in 2024
Some may argue that ETH is at best a proto-money, that we are just drafting off of the superior properties of USD stable analogues, and simply extending US hegemony. We'll see how it plays out! Topical: before the Singapore dollar was established in 1967, the currencies of other larger nations were in use: Spanish/Mexican silver and Indian rupee (1826–1844), Straits dollar (1845–1939), Japanese military yen (1942–1945), Malaya and British Borneo dollar (1953–1967), Singapore dollar (1967–present)
Excellent list Spencer!
This doesn't preclude government actions from influencing the system, as we saw after the Tornado sanctioning.
software, network, asset via multipolar, transparent, open governance to create guarantees like permissionlessness, censorship-resistance, neutrality, non-extraction, anti-capture, the broadest benefit for the broadest public
State capacity: the ability of a government to accomplish policy goals, provide services to the public. "Higher state capacity has been strongly linked to long-term economic development, as state capacity can establish law and order, private property rights, and external defense, as well as support development by establishing a competitive market, [and] infrastructure."
This is the same misframing seen in ideas to fund shared resources via ETH-burn redirects.
Image: pace layering - Stewart Brand