[RFC] DEEFF :: Decentralizing Ethereum Ecosystem Funding Flows

[owocki]

TLDR

1. Problem Statement:

The current EF funding model is overly centralized and faces multiple challenges (finite treasury, limited effectiveness, regulatory constraints, lack of accountability), making it a single point of failure and stifling broader ecosystem growth.

2. Proposed Solution:

Shift towards a more modular and decentralized funding approach with multiple legal entities across various jurisdictions. This pluralistic model would enable many funders and implementers to collaborate openly, offer tax benefits, and foster transparent accountability mechanisms.

3. Roadmap & Next Steps:

Focus on decentralizing key funding domains—security, dev tooling, and academic grants—while conducting research on sustainable long-term models, transitioning away from grant reliance, and addressing the operational and strategic pain points of builders in the Ethereum ecosystem.

Objective

The objective of this research workstream is to approach the current issues with the EF funding allocation in as constructive a way as possible, and to sketch out an alternative, more decentralized, path.

This document could be an agenda for whomever is ED of the EF in 2025.

Why do this?

Below is an expanded view comparing the Current Approach (illustrated by the EF model) with a Recommended Approach that is more modular, accountable, and pluralistic in its funding and governance.

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Current Approach (EF)

1. Single Point of Failure

   • Relying on a single entity (like the EF) means if it fails, stalls, or shifts direction, the entire ecosystem suffers.
   • Centralized decision-making increases vulnerability to political or regulatory pressures.
   • It also means that decision making is opaque to the community if the EF is opaque.

2. Finite Treasury

   • A single treasury with limited funds cannot sustainably support long-term initiatives or diverse projects without running dry.

3. Limited Effectiveness

   • Concentrated decision-making can lack the nuanced insights that come from a more distributed, domain-specific approach.
   • Projects outside the foundation’s scope or expertise can be overlooked or underfunded. For example, the app layer / adoption layer is frequently undersupported by the current EF.

4. Credible Neutrality Requirements

   • A single foundation often strives to appear neutral, which can limit its willingness to take bold risks or engage with more specialized or controversial initiatives.
   • Efforts to remain “above the fray” can reduce responsiveness to community needs.
   • The credible neutrality requirements lead to fear of being seen as picking “winners,” which disincentives the need to fund many projects in a broad, experimental landscape.

5. No Tax Benefits for Funders

   • If the entity is not structured in a way that grants tax deductions, it discourages potential donors looking for a legitimate write-off.
   • Limits philanthropic participation from individuals or organizations that require tax incentives.

6. Regulatory Constraints

   • Operating in one primary jurisdiction can create compliance bottlenecks.
   • A single legal structure may not fit the varied regulatory landscapes or funding vehicles needed to support a global community.

7. Bias Towards Personalities / Protocol Layer

   • Decision-making can inadvertently revolve around certain high-profile figures or favored projects, leading to favoritism or perceived conflicts of interest.
   • Funding may skew towards protocol-layer development, overshadowing broader ecosystem or community-level needs.

8. Leadership Vacuum

   • Central authorities often hesitate to overstep or lead assertively, creating ambiguity in strategic direction.
   • Lack of clearly defined roles and processes can cause stagnation or power vacuums in critical decision areas.

9. Lack of Accountability (No Learning Loop)

   • Without clear oversight or feedback mechanisms, there’s minimal incentive to course-correct after missteps.
   • Failing projects or initiatives go unanalyzed, resulting in repetitive mistakes.

10. Solutionism

• The EF is mired in technology, not in what the market needs, leading to it over-prescribe top-down “solutions” without fully engaging local or domain-specific expertise.
• The approach can be too simplistic or idealistic, lacking the nuance and pragmatism necessary for success in market.

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Recommended Approach

1. Modular, Accountable Domains

   • Break funding and governance into multiple specialized teams or organizations, each focused on a particular domain (e.g., research, community grants, protocol security).
   • Put subject matter experts from the community in charge of funding decisions in each domain.

2. Funders Make Decisions Through Localized or Domain-Specific Expertise

   • Each domain or hub can have a specialized review board, ensuring decisions come from people who understand the space deeply.
   • This reduces the bias that comes from a single foundation’s limited perspective.

3. Many Legal Structures, Many Jurisdictions

   • Forming multiple entities worldwide allows funders to choose the jurisdiction and structure that best suits their needs (e.g., nonprofits, cooperatives, or specialized DAOs).
   • Diversifies regulatory risk while offering greater compliance flexibility.

4. Tax Benefits

   • Certain structures (like registered nonprofits) can confer tax advantages to donors, incentivizing larger or more consistent contributions.
   • Attracts a broader philanthropic base, including institutional funders - DEFI protocols and L2s.

5. Practical & Pluralistic

   • Instead of a single treasury, create a “marketplace” of potential funders (L2s, nonprofits, corporate sponsors, whales) and implementers (teams, DAO-led projects, grassroots initiatives).
   • This diversity dilutes central control, encouraging more experimentation and resilience.

6. Marketplace Between Many Funders & Many Implementers

   • Multiple funders can set priorities aligned with their own mission or community interests, while implementers present proposals that match these priorities.
   • Direct funder-to-project connections foster more transparent relationships and accountability.

7. Built-In Feedback Loops & Accountability

   • Splitting governance across multiple entities encourages cross-checks and peer evaluation.
   • Clear metrics, reporting standards, and regular evaluations enable continuous learning and adaptation.

8. Sustainable, Long-Term Focus

   • By diversifying funding sources, each domain has a better chance of continuous support.
   • Reduces the pressure on any single body to “pick winners” or exhaust its treasury prematurely.

9. Global Coordination & Accessibility

   • Multiple, smaller legal and governance structures are more agile in adopting new technologies, forging local partnerships, and testing innovative funding models (e.g., quadratic funding, local DAOs).
   • Encourages local ownership and empowerment rather than top-down directives.

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By moving from the Current Approach—a single centralized entity with a limited treasury and rigid constraints—to a Recommended Approach—a modular, pluralistic network of funders and implementers spread across multiple jurisdictions—we unlock greater resilience, accountability, and inclusivity.

This new model not only broadens the pool of donors (thanks to tax advantages and diverse legal structures) but also fosters innovation through healthy competition and collaboration among specialized teams.

What

Dedicated domain allocation means carving out specific, separately managed funding pools or structures for distinct focus areas (such as security, dev tooling, academic grants, etc.) with clear accountability and expertise in each domain. This modular approach ensures each area has a dedicated team or legal entity responsible for effectively deploying resources, thus reducing single points of failure and improving transparency, oversight, and impact.

Dolmains to study:

• Security
• Protocol Resarch
• Academic Grants
• Argot + other “spinouts”
• Dev Tooling

Rough Research Roadmap

We propose the following roadmap for the community.

1. Thesis definition - theory of change (you are reading this now)

2. How do decentralize Security funding

   1. Bug bounty program
   2. Red guild and SEAL
   3. Research

3. How do decentralize Dev Tooling Funding

   1. How do you weight the value of devtools (needs vs impact?)
   2. Is a member guild the correct allocation mechanism?
   3. Drips?

4. How do decentralize Academic Grants

   1. Funding sources?
   2. Domain expertise?

5. Inventory of Whales ( >$1billion treasury and their funding priorities)

6. Patterns of Grant Reliance

7. Challenges in Securing Long-Term Funding

8. Transition from Grants to Sustainability

9. Builder Insights: Operational and Strategic Pain Points

Conclusion

In conclusion, shifting Ethereum’s funding flows toward a more decentralized, modular approach is not just about reducing reliance on a single entity—it’s about creating a resilient, pluralistic ecosystem that can adapt, learn, and thrive over the long term.

By establishing distinct domains with accountable teams and multiple legal structures, the community gains the flexibility, tax benefits, and increased transparency needed to ensure meaningful, sustained impact. This roadmap invites collective ownership, encourages active participation from diverse funders and implementers, and provides a clear path to fostering a healthy, collaborative environment for all facets of Ethereum’s future growth.

[owocki]

@thedevanshmehta might find this interesting