Optimism staked a significant amount of its token supply on builders. That’s a bold bet.
The story of how they arrived here starts with researchers burning through runway, watching public goods work die from funding gaps, while they scraped together donations just to make it.
After my last piece on Base's grant programs, I realized I'd only told part of the Optimism story. The comparisons focused on Retro Funding without giving proper weight to the journey that made those programs possible.
I took that feedback to heart and decided to explore an idea I've had in mind for some time: a three-part series on the entirety of OP Grants, from their early history (this piece) to current funding models (Retro Funding and the OP Grants Council).
So here it is. Let's dive in and learn more about the origins of OP Grants, setting the stage for the future pieces to come.
Origin Story
When most people think about Optimism's funding programs, they jump straight to its flagship Retro Funding Program or the Optimism Grants Council. Both are well-known and established in their own right, but understanding where these programs originated and why they're designed the way they are requires going back to their beginnings.
The story of OP Grants doesn't start with a TGE or OP distributions at scale. It starts with researchers scraping together foundation grants just to make it, watching as public goods work went unfunded because the incentives were misaligned.
The team that built what would become 'The Superchain' spent years piecing together donations to survive. That experience of watching the gap between impact and funding was formative in how they thought about being the change they wanted to see in the world.
The pre-Collective era revealed the potential of an engine that could turn protocol revenue into public goods funding. The "Impact = Profit" principle that defines Optimism today didn't emerge from CT; it came from researchers burning valuable runway to survive while watching valuable work go unfunded because the funding gaps were massive.
The early grant story explains why Optimism staked nearly half its token supply on builders.
The Plasma Group
The journey begins with Plasma Group, a nonprofit research organization founded in January 2019 by Karl Floersch, Jinglan Wang, Ben Jones, and Kevin Ho. They were building on the Plasma concept: a scaling solution outlined in a 2017 paper by Vitalik and Joseph Poon, which proposed creating Layer 2 networks to scale Ethereum, similar to how Bitcoin's Lightning Network works.
While dozens of L2s now run on top of Ethereum today, in 2017, the idea of scaling through secondary networks was still experimental, a novel approach to solving blockchain's fundamental capacity constraints.
But behind this technical success was a harsh funding reality. The team was burning through funds, unsustainable for a nonprofit building public infrastructure. As Jinglan Wang later described the constant struggle of piecing together dozens of small donations just to make payroll.
The funding sources during this period reveal just how patchwork the early ecosystem was. Beyond the small donations Wang referenced, the team secured just enough grants to keep the research alive:
The Ethereum Foundation stepped up as an early backer, providing multi-month ESP R&D grants for what they called the "Optimistic Virtual Machine," the research track that would eventually become a foundational component of “The Superchain.”
Community funding also played a role. They participated in Gitcoin Grants Round 1, seeking community support. The results were modest but meaningful: Plasma Group raised $1,593 from 126 small donors, with the Ethereum Foundation matching part of it from a $25k quadratic funding pool. Wang noted:
"Those donations helped keep us going, but it's not just the money: it's a sense of community and a show of support."
The funding mix also included undisclosed four- and five-figure gifts from ConsenSys, OmiseGO, Matic, and additional EF donations that sustained the Plasma Group through 2019. The diversity of these sources underscored just how patchy the funding landscape was at the time.
The math was still unforgiving: burning cash just to survive while building public goods that would benefit the entire Ethereum ecosystem. The team was building infrastructure that would benefit thousands of developers and millions of users, but the funding mechanisms available couldn't sustain that work. Traditional grants required lengthy applications, bureaucratic approval processes, and convincing funders to bet on promises rather than proven impact (sound familiar?)
The breakthrough came in October 2019 with the Unipig demo at DevCon 5, the first public demonstration of Optimistic Rollups processing. The demo processed approximately 2,500 trades at a rate of roughly 250 transactions per second, demonstrating that smart contracts can operate on Layer 2 while maintaining Ethereum's security guarantees.
The Plasma Group lasted one year. On January 9, 2020, they announced their closure, stating: "This week marks the first anniversary of Plasma Group. It will also be the last." True to their public goods ethos, they donated their remaining funds to Gitcoin, noting:
"We believe Gitcoin is doing some of the most critical and underrated work not only in the blockchain space but also in the greater space of public goods."
(I’m super biased, but would have to say I agree!)
The experience shaped everything that followed. They had proven that valuable public goods could be built, but the traditional funding model couldn't sustain the work.
This would become the philosophical foundation for everything that followed: the "Impact = Profit" principle wasn't born from CT debates; it emerged from smart people witnessing valuable work go unfunded because these unsustainable models were prevalent everywhere.
From Recipients to Pioneers
The same month Plasma Group closed, they reformed as Optimism with $3.5 million in funding from Paradigm and IDEO CoLab Ventures. The contrast was stark: this single funding round represented more capital than they'd raised in the entire nonprofit era combined.
But what they'd learned from grant dependency had taught them something: if you build sustainable revenue streams, you can fund public goods at scale without relying on the misaligned systems they'd lived through.
This is where the seeds of RetroFunding were sown. The foundation was already there; they'd experienced firsthand how traditional funding mechanisms failed public goods builders. But they needed a systematic approach.
Optimism mainnet launched on January 15, 2021, initially as a permissioned network, meaning only whitelisted projects could deploy. The first major integration was with Synthetix, which had been testing on Optimism since September 2020. This controlled rollout allowed Optimism to battle-test with real value at stake, but it also created competitive pressure.
Optimism's earliest outward grants came through its sponsor tracks at ETHOnline 2020 (October 1-31, 2020, with a $25k prize pool) and the Scaling Ethereum hackathon (April 9-May 14, 2021, with bounties exceeding $25k). At Scaling Ethereum, more than 200 hackers utilized the beta OVM, and projects such as Gelato-Ops and DeFi Saver earned Optimism-funded prizes. These events marked the first time protocol revenue flowed to external builders rather than just the core team, a meaningful shift from internal development to ecosystem funding.
More quietly, Optimism ran a gas-refund program that reimbursed L2 fees for pioneer apps like Synthetix and Uniswap. By December 2021, total refunds exceeded $1 million.
While this conservative approach ensured stability, it also meant losing ground to competitors. Arbitrum launched with open access in August 2021 and quickly gained momentum. By the time Optimism removed its allowlist in December 2021, they were playing catch-up. They needed more than just technical scaling to compete; they needed to differentiate through ecosystem funding.
The competitive pressure accelerated their funding innovation timeline.
Testing "Impact = Profit"
In July 2021, Optimism introduced RetroPGF with a blog post co-authored by Vitalik Buterin. The commitment was ambitious: "All profits from Optimism Mainnet, before the decentralization of the sequencer, will be used to fund public goods for the Ethereum ecosystem." But the mechanism itself was elegantly simple.
The core insight: "It's easier to agree on what was useful in the past than what might be useful in the future." This directly addressed what they'd lived through at Plasma Group. Traditional grants required convincing people to fund promises. RetroPGF would reward proof.
October 2021 marked the first practical test, as RetroPGF Round 1 distributed $1 million to 58 projects out of 76 nominations, months before the formal governance launch. The selection comprised 24 badgeholders (8 from the Optimism team and 16 community members), although ultimately, 22 participants cast votes. They used quadratic voting to allocate funding, and the median allocation was $14,670, while the top 10% received over $36,919.
You can check out an interactive dashboard I made of the initial results (using Claude's new Artifacts Feature) here: https://claude.ai/public/artifacts/6b897b5f-60be-4928-a27a-7a7d255854fe
The results validated the approach. Projects like ENS, Hardhat, and Truffle received funding based on demonstrated impact on Ethereum and early Optimism development. These projects hadn't applied for Optimism grants; they were simply being rewarded after the fact for general ecosystem impact.
However, the round also revealed challenges. Vitalik's analysis identified issues: "Every major Optimism retro winner was a technology project," despite no explicit bias, revealing unconscious preferences among badge holders. Geographic limitations disadvantaged projects like ethereum.cn, a Chinese Ethereum education project that couldn't be properly evaluated because "out of the current badge holders, the number that satisfy [Chinese evaluation] requirements is basically zero."
While competitors focused on technical metrics, Optimism was proving that protocol revenue had the potential to fund public goods. The initial $1 million scale was modest but meaningful, being large enough to matter to recipients and small enough to contain the risk if the mechanism failed.
Most importantly, this wasn't just an experiment; it was the foundation for funding that would scale to support hundreds of builders across multiple chains. But that would require governance infrastructure capable of handling grants at an unprecedented scale.
The Collective: Systematic Grants Infrastructure
The April 26, 2022, launch of the Optimism Collective established the governance infrastructure necessary to transform grant experiments into a systematic funding approach. The OP token launched with 45% of the total supply dedicated to ecosystem funding, comprising 25% for the Ecosystem Fund and 20% for RetroPGF. Over 4.29 billion OP tokens were earmarked for grants and incentives.
In addition to pioneering new approaches with ecosystem funding, the Optimism Collective also introduced a novel bicameral governance with design elements that integrated funding considerations and decision making:
The Token House would manage the Governance Fund, which would provide direct grants for ecosystem needs, facilitate strategic partnerships, and support growth initiatives. This became the foundation for what would evolve into the Optimism Grants Council.
The Citizens' House would focus exclusively on retroactive public goods funding, letting RetroPGF evolve from annual experiments into continuous evaluation systems.
This separation addressed a core problem: different types of funding decisions need different evaluation methods. Prospective grants require assessing ecosystem gaps; retroactive funding requires measuring proven impact.
The governance mechanics revealed their grants-first approach: the Phase 0 "OP Stimpack" earmarked 230 million tokens, accompanied by a powerful incentive OP-native projects received a 3x allocation multiplier, incentivizing teams to build exclusively on Optimism.
This was an ambitious experiment in ecosystem building. The multiplier approach seemed straightforward enough: reward native builders, but the execution would teach Optimism lessons about incentive design that would shape the funding programs that followed.
Between the shutdown of Plasma Group in January 2020 and the launch of RetroPGF-1 in October 2021, there was no full-blown Optimism-run grant program. The funding in that gap was external R&D grants from the Ethereum Foundation and others, community micro-grants through Gitcoin CLR, and prize pools, along with gas rebates, run by Optimism PBC to attract developers to the experimental infrastructure. Everything after the Collective launch, including the Season 0 Stimpack, Governance Fund "Intent" seasons, Grants Council rounds, and larger RetroPGF distributions, belongs to the post-Collective era that Parts 2 and 3 will explore.
From Survival to Scale
Going from Plasma Group's month-to-month grant dependency to managing over 1 billion OP tokens for ecosystem funding was more than just financial growth. It showed that the systemic funding problems plaguing traditional grant systems could be fixed.
By April 2022, Optimism could point to a concrete impact: approximately $1.1 billion in gas savings for users and $24.5 million in sequencer revenue earmarked for public goods funding, demonstrating that "Impact = Profit" was more than just a philosophy.
What they'd learned from grant dependency was that sustainable public goods funding required sustainable revenue streams. Protocol fees from sequencer operations could fund ecosystem development at scale without relying on the grant application processes they'd struggled through. By the time of the Collective launch, Optimism could boast having generated $24.5 million in revenue, all slated for funding the ecosystem.
But building funding mechanisms at scale would require solving problems no one had tackled before: How do you measure impact objectively? How do you balance retroactive rewards with the needs of a proactive ecosystem? How do you maintain community legitimacy while distributing millions?
The challenges identified in the first $1 million RetroPGF round — geographic bias, expertise limitations, and evaluation methodology problems — weren't obstacles to overcome. They were the research agenda for building better funding systems that would eventually support hundreds of builders across the Superchain.
Peace,
Sov
PS: A complete timeline of this story can be found at the link below:
https://claude.ai/public/artifacts/755fe20e-405e-4c72-8657-3b829c0d1570
This was Part 1 of 3 in the Optimism funding retrospective series.
Part 2: "A Retro on RetroFunding" - how a $1M experiment evolved into sophisticated impact measurement, examining what shaped its development, and analyzing the transition from annual rounds to continuous evaluation that now supports hundreds of builders across the Superchain.
Part 3: "The Grants Council" - documenting the evolution from Token House governance experiments through the formation of a dedicated grants infrastructure, comparing the proactive funding model against retroactive rewards, and evaluating how these parallel systems created one of the most comprehensive ecosystem funding apparatuses in crypto.