PGN Chain: Disrupting the Race for the Bottom in Ethereum's Layer 2 Network
#555
GM,
Today marks the final day of the 18th Gitcoin Grants voting round, with the event concluding at 8 PM (Taipei time) on August 29th. We extend our gratitude to all members who have already participated in the micro-donations voting process. If you haven't cast your vote yet but intend to do so last-minute, please refer to this voting guide for assistance.
Last week, I went through the process of verifying Gitcoin Passport and participating in the micro-donations voting with my family. It took us a total of 2 hours to establish our online identities from scratch and navigate through a 20-minute crash course. Despite the challenges, and the knowledge that we'll have to start from scratch again in 3 months, once you've completed the process, the concepts of decentralized digital identity and crowdfunding for public goods become crystal clear. I recommend that my fellow enthusiasts invite friends and family to join in next time. Now, onto the main topic.
Recently, Gitcoin made a significant announcement about a partnership with Shell, the world's second-largest oil company. Shell will be sponsoring climate solutions in Gitcoin Grants for the next year through matching funds. If micro-donations voting can be considered a form of participatory budgeting, then Shell's involvement can be likened to sponsoring the climate budget for the coming year. For Shell, this move represents an ESG initiative, and naturally, Gitcoin welcomes corporate sponsorships that can attract more projects and individuals to participate.
In addition to relying on external donations, Gitcoin has recently established a novel taxation mechanism called the Public Goods Network (PGN Chain). This article will first introduce what the PGN Chain is and then delve into how Gitcoin utilizes this blockchain to inject more funds into digital public goods.
The Transit Company on the Chain
As illustrated in the diagram below, the current Gitcoin Grants' Ethereum Infrastructure theme is built on the PGN Chain. To support the 28 proposals for public goods within this theme, individuals need to first transfer ETH across chains onto the PGN Chain. This marks the first time that Gitcoin Grants has been hosted on the PGN Chain, and conversely, it represents the first major event for the PGN Chain since its official launch.
The completion of the PGN Chain happened just before the commencement of the current Gitcoin Grants event. However, unlike completely independent blockchains such as Solana, the PGN Chain is built as a second-layer network on top of Ethereum, similar to Optimism and Arbitrum. According to the introduction of PGN:
The Public Goods Network (PGN) is a brand-new second-layer network designed to support public goods. It possesses the same fast, cost-effective, and scalable features as second-layer networks, while also raising funds for the public goods projects you love.
Technically speaking, the PGN Chain is quite straightforward; it is a second-layer blockchain network built on top of Ethereum. It operates in a manner similar to Optimism. The major difference between the two lies in the utilization of funds:
If you want to establish a reliable, substantial, and sustainable income source for public goods, PGN will be your preferred blockchain. Building or using dApps on PGN can generate income for the organizations or consortia behind these applications. PGN will allocate most of the income to funding public goods, rather than delivering profits to venture capital entities. In other words, supporting public goods can be achieved simply by using PGN.
Operating a blockchain can be a profitable endeavor. Taking Optimism as an example, they have averaged around 20 ETH in daily income (approximately $36,000 USD equivalent) over the past 30 days. Generally, second-layer networks with greater user adoption tend to generate more revenue. This income comes from the transaction fees paid by users, which differs from the actual on-chain costs.
Imagine you're sending a USDT transfer on Optimism. Optimism would charge you an equivalent of 1 TWD (Taiwanese Dollar) in ETH as a transaction fee. However, Optimism doesn't immediately include your transaction on Ethereum; it waits a few seconds and collects hundreds of transactions from around the world before bundling them together for on-chain submission.
This process is akin to operating a transit system. If the bus leaves with just one passenger, the transit company would likely go out of business quickly. It requires a sufficient number of passengers to cover operational costs such as fuel, personnel, and tolls, and potentially generate profits to be distributed to shareholders.
On the blockchain, each transaction is like a passenger waiting for the bus. Optimism, Arbitrum, or the PGN Chain serve as transit operators, aiming to safely transport passengers (transactions) to their destination (Ethereum).
The more passengers, the higher the revenue the transit operator (PGN Chain) can generate. Since all these transit operators follow routes leading to the Ethereum blockchain, people naturally opt for the shortest journey time and the lowest fare.
Breaking the Race to the Bottom
In recent years, every emerging blockchain has touted itself as the most efficient and cost-effective to attract developers and users. However, if transit operators are willing to offer subsidies at any cost, it could eventually lead to an economic concept known as the "race to the bottom" — sacrificing quality for competitive advantage. Users might initially feel like winners, but in the end, everyone suffers collectively.
PGN aims to break this race to the bottom. While transaction fees are indeed affordable, PGN doesn't relentlessly pursue the lowest market price; it emphasizes the future use of funds. The operator, Gitcoin, even pledged on the first day of PGN's establishment that if the "transit company" becomes profitable, any surplus will be channeled back to support the development of public goods:
The majority of PGN Chain's earnings will be allocated to public goods projects. After PGN has been operational for 6 months, we will assess and distribute funds based on accumulated data. The exact governance details are still under exploration, and those interested can join the PGN Network Alliance. This alliance will collaborate to manage and determine how these funds should be allocated. Filling block space is a race to the bottom, and at the foundational level of the technical architecture lies the most enduring and easily accepted point of value capture.
PGN refers to itself as a "chain with purpose," and I believe this carries significant meaning.
In recent years, the proliferation of blockchains on the internet has left both users and developers perplexed about which blockchain to choose for their applications. Previously, the expert answer might have been "the more, the merrier," and "the faster, the better" to attract a larger user base and secure a market advantage. However, people's attention spans are limited, and despite the multitude of blockchains, only a handful will eventually gain widespread adoption.
PGN aims to become the preferred choice for supporters of public goods. In other words, while decentralized exchanges like Uniswap exist on various chains, trading on Uniswap on the PGN Chain adds an additional layer of supporting public goods.
Yet, just as not everyone buys fair-trade coffee or animal welfare eggs, those using the PGN Chain aren't all solely motivated by supporting public goods. Many may be interested in potential token airdrops.
Potential Airdrops
Although PGN claims to use operational revenue to support the development of public goods, the specifics of how much to allocate and where to donate have yet to be defined. These decisions won't be solely determined by Gitcoin, but will be discussed collaboratively within the newly formed PGN Network Alliance. This is, in essence, another resource allocation process. While PGN is seeking solutions that don't rely on token governance, the possibility of token airdrops is not ruled out:
Currently, we have no plans for conducting airdrops, but we do intend to explore the best governance solutions for PGN in early 2024. We're interested in identifying governance options that are not token-based, although we are still in the process of exploring various possibilities.
Discussing PGN airdrops might be a bit premature at this point. After all, they need to operate for at least half a year to gauge how much funds can be allocated. However, if governance ultimately relies on tokens, I believe the most likely recipients of potential airdrops would be users who have undergone Gitcoin Passport verification and actively participated in the first PGN event.
Even if PGN doesn't plan to issue governance tokens, users might still be eligible for the next wave of OP (Optimism) airdrops. PGN is a member of the Optimism superchain ecosystem, a blockchain built using the open-source toolkit OP Stack developed by Optimism. Superchains are like airline alliances, where different airlines, such as EVA Air belonging to Star Alliance or China Airlines belonging to SkyTeam, support each other, creating a comprehensive global transportation network.
Being part of the same OP Stack, these blockchains are more easily interconnected and their interests are interlinked. Optimism, as a leading entity within the superchain ecosystem, has previously conducted airdrops twice to reward active users. Therefore, some believe that the early adopters of the PGN Chain might have the opportunity to receive more OP airdrops in the future.
Last week, I took the initiative to transfer some ETH to the PGN Chain via cross-chain bridges to participate in micro-donations voting. I encourage everyone to seize the opportunity to support public goods and potentially benefit from airdrops – a win-win situation.
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