In 2021, 50+ startups went public.The combined value of their exits is in the hundreds of billions.The prospect of an exit allows for risky startups to receive speculative investment.But no such exit exists for nonprofits, open-source projects, and research... yet
1/ What if there was a way to introduce exits into the funding of public goods?What if you could invest in a project and be rewarded based on how much public good it created?This is what impact markets do and it's a game changer for public goods funding.
2/ The three key players in an impact market are:- Funders (grant institutions, philanthropists)- Creators (researchers, people creating public goods)- Investors (people who care about impact but also want to make money)
3/ Today, each of these players face risks/challenges when it comes to public goods.Funders don't know if the projects they fund will succeed.Creators find it difficult and time-consuming to raise money for projects.Investors have no way to make bets and get rewarded.
4/ Impact markets allow funders to fund retroactively, when the success of a project is clear.Let's look at a simple example of how an impact market might work:
5/ Imagine a funder interested in nuclear fusion.They promise $1 million to anyone who can make progress on the issue.A team of scientists (creators) thinks they can contribute, but they need money to fund their research.
6/ An impact investor believes in the team and wants to help.The investor might offer the team $100,000 in exchange for 75% of the prize.If the project succeeds, the funder pays $750k to the investor and the rest to the scientists.
7/ If the project fails, no harm done.The speculator invests with the understanding their investment might fail.The funder saves time and money by not committing to a fruitless project.
8/ The "exit" promised by the funders prize money creates incentives for speculators to provide the necessary up-front capital for funding public goods.
9/ Investors with private information or strong convictions can make bets and get rewarded if their bets are correct.Creators now have new avenues to secure funding.And funders no longer carry the risk of wasting money on failed projects (no more pay and pray this works).
10/ All this sounds like a great idea, but who is working on making it a reality?
11/ Hypercerts are a tool for building scalable impact reward systems.A hypercert is an impact claim with:- what work has been done (or will be done)- impact generated by the work- timeframe of the work and impact- rights the owner of the hypercert is entitled to
12/ This solves many of the logistical issues associated with impact markets.Hypercerts offer a transparent and open way to answer who did what, when they did it, and what impact they had.
13/ Hypercerts are tokenized certificates stored on the hypercert ledger.The ledger functions as a data layer for impact markets, allowing relevant players to identify and attribute impact.
14/ Hypercerts use the EIP-3525 standard, making them semi-fungible.This allows impact to be shared among many contributors—for example, 70/30 or 50/30/20.
15/ At its core, a hypercert is an on-chain claim of impact and detached from the funding and evaluation process.This allows funders to incorporate hypercerts into their existing workflows and use the methods that work best for them.
16/ For example, funders can use a variety of funding mechanisms including grants, bounties/prizes, and retroactive evaluations.Hypercerts also allow for an open evaluation process, whether it is quantitative, qualitative, on-chain, or off-chain.
17/ So how might a creator use hypercerts?Creators seeking funding can mint + issue hypercerts that grant the owner a percentage of any rewards the project receives.
18/ Investors can buy hypercerts, from the creator or on secondary markets, to provide initial funding and speculate on the project.A funder could partner with a panel of experts to evaluate the project's impact.
19/ If successful, the funder would buy up the hypercerts as a way to reward impact.Any holders of the hypercerts would be able to sell to the funder in exchange for the reward.
20/ An open, transparent, and composable system for rewarding impacts is game-changing. Fundamentally, impact markets allow you to make money from producing desired impact.
21/ Previously, the market would only reward you for delivering economic value.This greatly limits the scope of problems that people are incentivized to solve.Instead of profit as a proxy, impact is the new measurement of value.
22/ In summary:
- Impact markets are a new primitive for funding public goods
- They offer creators, funders, and investors new ways to contribute to and create impact