Circle Research Examines the Debate Around Ethereum’s Funding Model

Michael LaVere
  • Circle Research analyzed the methods of funding for ethereum development. 
  • Proposed ETH block "tax" (EIP-2025) was recently struck down after pushback from the community. 

The Circle Research group has published a new report examining a proposed funding model for Ethereum’s development, which would include adding a leveraged amount to ETH blocks over the next 18 months. 

Proposed ETH Funding

Circle Research, the analysis wing of crypto financial services company Circle, published a new report on Aug 2 regarding the current model of funding for ethereum development. 

The report was in response to a recent core developer call, during which a proposal (EIP-2025) was discussed to leverage 0.0055 ETH on each block for the next 3.1 million blocks in order to fund ETH 1.x development. The block leverage would occur over the next 18 months, which would line up with the timetable for the release of Ethereum’s monumental Istanbul update, sometimes referred to as Ethereum 2.0.

While most of the ethereum development focus has been on the transition to 2.0, the core devs are concerned with updating the existing framework (ETH 1.x) in the meantime, in order to better bridge the transition. However, ETH 1.x support has run into the problem of lack of funding, which has hampered development. 

As Circle points out, the issue of funding is critical in large-scale projects such as ethereum which must balance generating innovation with a decentralized development team, 

“Projects and developer teams developing the Ethereum of both today and tomorrow need to be both open source and well-funded, two aspects that are often at odds with one another.”

Circle found there was heated debate between core devs and ethereum supporters over instituting a model of funding that utilized a predetermined portion of block rewards. Supporters of the proposal were largely in the camp of those who stood to benefit from the funding, with a greater proportion opposing the plan, including a majority of Twitter users. 

Community Backlash

EIP-2025 was eventually retracted, but not before stirring the Ethereum community to greater consideration over developer funding at the cost of what many viewed a block “tax.”

Circle Research determined the primary criticism against the proposal was “complications in changing existing issuance policy” and the “dangers of setting an untested precedent.” Ethereum users also feared the policy could prompt the creation of a contentious hard fork. 

However, Ethereum users are attuned to the requirement of funding for continued development. 

According to the report, 

“Despite opposition to increasing issuance to fund one-off efforts, most contributors to the discussion agreed that investment across Ethereum research and development beyond funds provided by the Ethereum Foundation is vital for long-term sustainability.”

Circle Research reports that alternative methods for funding have been proposed, including allocation of voluntary donations, community-based investments and the creation of GitHub bounties. 

While the Ethereum Foundation has already outlined its plan to spend $30 million over the next twelve months--$9 million of which will go to the current ETH 1.x iteration--the cryptocurrency’s ecosystem is in need of a clearly defined model for funding going forward. 

As stated in the report, 

“We aren’t sure if EIP-2025 was even technically sound, but it spurred an important and arguably healthy discussion around the challenges of introducing such a form of funding when it’s not in the community/network’s DNA.”

Supporting cryptocurrency development while maintaining the autonomy of a open-source system will continue to be a challenge for ethereum and large-platform projects in the coming years.