Overview
The public goods funding movement faces an existential question: where does the money come from? The first era of web3 public goods funding (2018-2024) was powered largely by flush protocol treasuries and native token grants -- sources that were abundant during bull markets but structurally unsustainable. As treasuries contract and token prices fluctuate, the ecosystem must develop new, durable funding sources or risk a collapse in the infrastructure that millions of users depend on. By 2024, an estimated $500 million or more was distributed annually across various public goods funding mechanisms, but the composition and reliability of those flows is shifting dramatically.
The Historical Model: Treasury-Funded Grants
The dominant funding model of the 2018-2024 era was straightforward: protocols launched tokens, accumulated large treasuries denominated in their native tokens, and allocated portions of those treasuries to ecosystem grants and public goods funding. Ethereum Foundation grants, Gitcoin matching pools, Optimism RetroPGF, and dozens of ecosystem grant programs all drew from this pattern.
This model worked brilliantly during periods of token appreciation. When ETH, OP, ARB, or other tokens were rising, treasuries grew in real terms even as they distributed funds. But the model has a structural flaw: it is pro-cyclical. Treasuries swell during bull markets (when builders least need funding) and contract during bear markets (when funding is most critical). And as token supplies unlock and early contributors sell, many treasuries face long-term depletion regardless of market conditions.
The Wells Are Drying Up
By 2025-2026, the sustainability crisis became impossible to ignore. Several major ecosystem grant programs reduced their budgets or paused entirely. The phrase "the wells are all dry" captured a growing anxiety: the first generation of funding sources was exhausting itself, and replacements were not yet at scale.
Web3 funding fatigue compounded the problem. Builders who had participated in multiple grant programs reported burnout from repetitive applications, shifting evaluation criteria, and uncertain renewal. Funders expressed fatigue from evaluating hundreds of similar proposals. The entire ecosystem was showing signs of strain from a funding model that required constant re-application rather than sustainable revenue.
Five Emerging Funding Sources
The next era of public goods funding is converging around five categories of more sustainable funding sources:
1. Yield-Based Funding (Octant Model)
Protocols like Octant (built by Golem Foundation) stake endowment assets and direct the yield toward public goods. The principal is preserved while staking rewards fund grants. This creates a perpetual funding source that is less sensitive to market cycles, though still dependent on staking yields and the underlying asset's value.
2. Revenue-Based Funding (Deep Funding Model)
Projects allocate a percentage of protocol revenues to public goods. This aligns funding with actual economic activity rather than speculative token value. The percent-for-public-goods model -- where protocols commit 1-5% of revenues to ecosystem funding -- is the simplest implementation. Crowdstaking extends this by allowing users to direct their staking rewards toward public goods projects of their choice.
3. In-Protocol Funding (MEV and Fee-Based)
Several proposals have explored embedding public goods funding directly into protocol economics. MEV-for-public-goods would redirect a portion of maximal extractable value -- currently captured by searchers and validators -- toward ecosystem funding. EIP-1890 and EIP-6969 proposed mechanisms for directing a share of transaction fees or contract deployment fees toward public goods. These approaches are technically elegant but face governance challenges: who decides how in-protocol funds are allocated?
4. Off-Chain and Institutional Capital
As public goods funding matures, it is attracting interest from traditional philanthropic foundations, government innovation funds, and impact investors. This capital comes with different expectations (reporting requirements, impact measurement, compliance) but also offers diversification away from crypto-native volatility.
5. Coalitional Funding
The coalitional funding model, emerging as a 2026-era primitive, coordinates multiple funders around shared priorities. Rather than each funder running independent programs, coalitions pool resources and coordinate allocation strategies. This reduces duplication, increases leverage, and creates collective intelligence about ecosystem needs. The model draws on mechanism design theory to align incentives across funders who may have different objectives but overlapping interests.
The Sustainability Transition
The transition from episodic, treasury-funded grants to continuous, diversified funding sources is the defining structural challenge for public goods funding. The 2024 landscape, where over $500 million flowed through various mechanisms, demonstrated the scale of demand. But much of that flow was concentrated in a small number of large programs (Optimism RetroPGF, Ethereum Foundation, Gitcoin Grants) that face uncertain futures.
The reform agenda for 2026 and beyond centers on three principles: diversification of funding sources to reduce dependence on any single treasury, sustainability through yield-based and revenue-based models that do not deplete principal, and coordination across funders to reduce duplication and increase collective impact.
