A Social Choice Analysis of Optimism's Retroactive Project Funding

TL;DR

This paper analyzes the governance of Optimism's retroactive project funding, identifies shortcomings, and proposes a computational social choice mechanism to improve decision-making and social welfare in decentralized DAO funding.

Contribution

It introduces a formal framework applying the utilitarian moving phantoms mechanism to enhance DAO governance and funding allocation processes.

Findings

Identifies governance shortcomings in current RetroPGF system

Proposes adoption of a strategyproof, welfare-enhancing voting mechanism

Provides a formal model for improved decentralized funding mechanisms

Abstract

The Optimism Retroactive Project Funding (RetroPGF) is a key initiative within the blockchain ecosystem that retroactively rewards projects deemed valuable to the Ethereum and Optimism communities. Managed by the Optimism Collective, a decentralized autonomous organization (DAO), RetroPGF represents a large-scale experiment in decentralized governance. Funding rewards are distributed in OP tokens, the native digital currency of the ecosystem. As of this writing, four funding rounds have been completed, collectively allocating over 100M dollars, with an additional 1.3B dollars reserved for future rounds. However, we identify significant shortcomings in the current allocation system, underscoring the need for improved governance mechanisms given the scale of funds involved. Leveraging computational social choice techniques and insights from multiagent systems, we propose improvements to the voting process by recommending the adoption of a utilitarian moving phantoms mechanism. This mechanism, originally introduced by Freeman et al. in 2019, is designed to enhance social welfare (using the L1 norm) while satisfying strategyproofness -- two key properties aligned with the application's governance requirements. Our analysis provides a formal framework for designing improved funding mechanisms for DAOs, contributing to the broader discourse on decentralized governance and public goods allocation.