The Impact of Funding Fragmentation on Ethereum's Growth

Over the last four years, Ethereum has undergone significant transformations, evolving from a network handling 15 transactions per second to a robust ecosystem processing thousands of transactions with greatly reduced costs. The introduction of Layer 2 solutions and rollups has enabled Ethereum to scale without compromising its decentralized principles. However, this growth has led to a new challenge: fragmentation. Today, Ethereum consists of over 50 Layer 2 networks, each operating as a siloed ecosystem, resulting in a complex user experience with multiple networks to navigate and assets to bridge. This fragmentation is mirrored in Ethereum's funding landscape, making it difficult for builders to secure sustainable funding and stifling innovation. To address this, Ethereum needs to adopt blockchain-based funding mechanisms that align with its community-driven and experimental nature. Traditional funding programs often focus on early-stage projects, neglecting the long-term needs of Web3 builders. Blockchain-powered funding models, such as RetroPGF, which rewards projects based on their proven impact rather than speculative potential, are better suited to Ethereum's ecosystem. This model pools funds from DAOs or ecosystem contributors and distributes them retroactively to projects that have demonstrated value, ensuring that critical infrastructure receives the support it needs. Another promising approach is quadratic funding, which distributes capital based on the breadth of community support, leveling the playing field for smaller projects and grassroots initiatives. By tokenizing the value of public goods projects, founders can open their projects to a broader pool of supporters, democratizing access to capital and reducing reliance on traditional funding sources. On-chain ownership, which involves tokenizing work and leveraging blockchain's transparency, allows creators and builders to establish direct relationships with their supporters, eliminating intermediaries and ensuring that value flows back to those who believed in them from the start. To source funding for these initiatives, strategies such as making funding Ethereum common goods a condition of being a Stage 1 or Stage 2 rollup or redirecting the Ethereum Foundation grants program towards solving this issue can be explored. Ultimately, Ethereum's fragmentation is a funding challenge that can be addressed by adopting blockchain-powered funding models, aligning incentives, amplifying community support, and democratizing access to capital.