Budget Board Proposal for Retro Funding for Season 8

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Please note: this proposal has been edited. You can find previous versions as Appendix.

Summary

As part of the citizens house missions budget, the Budget Board is providing a final proposal for community review.

We recommend a maximum budget of 5M OP for Retro Funding over Season 8. Overall, this represents a 69% decrease from Season 7’s budget of 16M OP. The rationale for reducing the budget at this time is that the macro picture remains challenging and there is still work to be done to demonstrate Retro Funding’s effectiveness over the long run.

We propose the following allocation of budget across the three proposed missions in Season 8:

  • Developer Tooling: minimum of 3.65M OP
  • Onchain Builders and OP Stack Dependencies: up to 1.35M OP combined

We leave the exact split across the latter two missions to the discretion of the team(s) executing the missions.

Strategic Rationale

Retro Funding is a core component of the Optimistic vision. It aims to retroactively reward the builders who have created the greatest impact on the Superchain.

As the Budget Board, our mandate is to set a Retro Funding budget that:

  1. Effectively rewards high-impact contributors
  2. Sends priorities to up-and-coming builders
  3. Maintains financial sustainability for the Collective

Methodology

The Budget Board worked on various iterations of the Retro Funding budget. We considered the macro context, the total allocation of funds to the citizens house, the scope and effectiveness of past Retro Funding missions, community sentiment, and members’ own expertise and insights. Additional details and versions of the proposal are available as Appendices.

Ultimately, the Budget Board reached unanimous consensus (6/6) to move forward with a total Retro Funding budget of up to 5M OP for Season 8.

There was less alignment on the breakdown across the three missions. However, all members agreed that the Developer Tooling mission should receive 50% or more of funding, with a weighted average recommendation of 3.65M OP. The Board felt it was best for the remaining amount of 1.35M to be allocated at the discretion of the teams executing the missions.

Proposal

Our final proposal is the following:

  • Season 8 Total: up to 5M OP
  • Developer Tooling: minimum of 3.65M OP
  • Onchain Builders and OP Stack Dependencies: up to 1.35M OP combined

Here are some examples of allocation scenarios that would satisfy these constraints:

  • 3.65M OP to Developer Tooling; 1M OP to OP Stack Dependencies; 0.35M to Onchain Builders
  • 3.65M OP to Developer Tooling; 1M OP to Onchain Builders
  • 5M OP to Developer Tooling

We appreciate the community’s ongoing engagement and support throughout this process.

Appendix

Appendix A - Updated Proposal (2025-07-14) ## **Summary**

As part of the citizens house missions budget, the Budget Board is providing a current draft proposal for community review.

We recommend a maximum budget of 20M OP for Retro Funding over Season 8. Overall, this represents a 25% increase from Season 7 in OP terms and a 31% reduction in ETH terms.

We propose the following allocation of budget across the three proposed missions in Season 8:

  • Onchain Builders: 8M OP
  • Dev Tooling: 8M OP
  • OP Stack Dependencies: 4M OP

We will gather feedback over the next week before bringing a final proposal before governance to vote on.

Strategic Rationale

Retro Funding is a core component of the Optimistic vision. It aims to retroactively reward the builders who have created the greatest impact on the Superchain.

As the Budget Board, our mandate is to set a Retro Funding budget that:

  1. Effectively rewards high-impact contributors
  2. Sends priorities to up-and-coming builders
  3. Maintains financial sustainability for the Collective

Methodology

The Budget Board initially developed a formula to guide scaling or reducing the Retro Funding budget. This drew on OP-ETH conversion math from the DAO Operating Budget and the mission scoring rubric from the Token House Budget. The formula produced a preliminary Season 8 recommendation of 24M OP (you can review in Appendix B at the bottom of this post), which the Budget Board ultimately felt was too high.

Further deliberation surfaced three important concerns:

  • Retro Funding isn’t ready for aggressive scaling. The formula used a heuristic based on dividing initial OP allocations by a projected runway, which felt misaligned. There was broad agreement that Retro Funding should not scale quickly without a clearer framework for when and how to do so. Open questions include: “Should Retro Funding be anti-cyclical?” “How should it relate to predictive funding like Token House grants?” These are topics that the Budget Board intends to explore during Season 8.

  • The OP Stack Dependencies mission budget seemed too high. This mission last received funding in Season 6 via direct voting. Given the introduction of a new funding algorithm, it seems prudent to allow time for design and testing. As such, we recommend cutting the budget by 50% relative to Season 6 and treating Season 8 as a reintroduction phase.

  • Confidence in scoring inputs varied. While we explored confidence-weighted scoring to the mission scoring rubric, this added unnecessary complexity. Ultimately, we agreed all three missions are strategically important, but found insufficient signal to prioritize one significantly over the others.

In response to these concerns, the Budget Board settled on a proposal of 20M OP for Retro Funding Season 8.

Lastly, the Budget Board emphasized that the Retro Funding missions should treat these allocations as maximums, not targets. We encourage reserving 25–50% of each budget as “dry powder,” especially for rewarding interop-related impact discovered later in the season.

Proposal

Here is our consolidated proposal for funding each Retro Funding mission through Season 8.

Most Recent Budget Average Score Season 8 Budget Comments
Onchain Builders 8M OP (Season 7) +1.9 8M OP We envision reserving at least 25% (2M OP) for interop-specific rewards
Developer Tooling 8M OP (Season 7) +2.6 8M OP We envision reserving at least 25% (2M OP) for interop-specific rewards
OP Stack Dependencies 8M OP (Season 6) +2.5 4M OP We envision a 3 month build time and holding back as much as 50% (2M OP) to ensure suitable projects are found
Total 16M OP (Season 7) +2.3 20M OP

We welcome feedback from the community and look forward to finalizing the proposal through open governance.

Appendix B - Original Proposal (2025-07-07)

TL;DR

As part of the citizens house missions budget, the Budget Board is providing a current draft proposal for community review. We aim to have this finalized 7/9.

We recommend a budget of 87M OP (~ 19,893 ETH) for Retro Funding over the next year (Seasons 8/9). This represents a +10% increase in ETH terms versus last year’s spend and a 99% increase in OP terms. Our recommendation is driven by the fact that the program is on a positive trajectory but the OP price has weakened relative to ETH over the second half of the past year.

Strategic Rationale

Retro Funding is a core component of the Optimistic vision. It aims to retroactively reward the builders who have created the greatest impact on the Superchain.

As the Budget Board, our mandate is to set a Retro Funding budget that (1) effectively rewards existing builders, (2) sends a clear signal about high-impact contributions to up-and-coming builders, and (3) keeps the Collective on a financially sustainable trajectory. We do not get into the details of setting budgets by season or category of Retro Funding.

Methodology

We have created an initial methodology for sizing the Retro Funding budget. The methodology consists of two steps:

  • First, we assess the quality of the trajectory that Retro Funding is on. We use a five-point scoring rubric to determine an uplift / discount factor - a percentage by which we believe the budget should be increased / decreased. A factor of -10 would yield a 100% reduction in budget (ie, zeroing) while a factor of +10 would yield a 100% increase in budget (ie, doubling).

  • Then, we make adjustments to the budget based on the OP-ETH ratio. We use OP-ETH because the Collective’s revenue is in ETH and Retro Funding is in OP. Currently, this is unbounded, and based on a 6-month lookback period.

The methodology is designed to encourage expansion of Retro Funding following periods of strong performance and a contraction during periods of weaker performance.

Analysis

Our net score for the past year is +1. This factor translates to a recommended increase of +10% in ETH terms.

You will see our analysis and scoring for each factor below. In general, we have been conservative and assigned an initial score of 0 wherever results are ambiguous or flat.

Factor Score (-2 to +2) Explanation
Fund availability +2 859M OP (20% of genesis supply) reserved; ~76M OP (9%) committed to date; 91% of initial allocation remains. The Board felt that the program still has a strong runway. Source: [PUBLIC] OP Token Unlock (Estimated)
Program effectiveness 0 Season 7 added data-driven impact metrics and monthly rewards; ROI visibility is rising, but causality remains hard to prove. The Board felt that it was too early to measure the effectiveness of Season 7 given the current round is still underway. Source: S8 Retro Funding Missions
Governance risk -1 Citizens’ House expansion (~150 to >1,000) is the first major change in three years and therefore comes with potential risks. The Board took a conservative view in the short term although in the long term this change is intended to reduce platform risk. Source: Governance in Season 8: The Next Phase — The Optimism Collective
Collective revenue 0 Sequencer fees up 5% YoY (6,955 ETH vs 6,653 ETH), effectively flat after inflation. The Board saw this as a neutral signal. Superchain Health Dashboard
Macro context 0 Superchain share of crypto TVL grew from 3% (Jul 2024) to 4.5 % (Jun 2025). The Board felt a market share of at least 5% would be necessary to warrant a +1. Superchain Strategic Focus Dashboard

Budget Calculation

We now apply this uplift factor (+10%) to arrive at a budget proposal for the next year:

  • Sum last year’s spend: 43,853,186 OP
  • Convert to ETH at 6-month TWAP: 18,085 ETH (43,853,186 OP x 0.0004124 ETH/OP)
  • Apply a 10% uplift factor: 19,893 ETH (18,085 ETH x 1.10)
  • Convert back to OP (spot): 87,411,829 OP (19,893 ETH / 0.0002276 ETH/OP)
  • Round to 87 million OP

Detailed exchange-rate worksheets are available here. The dates used for the 6-month TWAP calculation are January 1 to June 30, 2025.

This amount represents 10.1% of the total tokens reserved for Retro Funding, and would bring the Collective’s cumulative spend on Retro Funding to ~20% by July 2026. We believe this is sustainable given that the Collective is entering Year 4 and is able to support another ~8 years of Retro Funding at these levels.

Next Steps

  • 9 Jul 2025: Final draft posted
  • 22 Jul 2025: Onchain vote opens
  • 1 Aug 2025: Season 8 Retro Funding opens; first set of rewards released in early September
Appendix C - Budgeting Formula (WIP)

The following is provided as documentation of the initial approach to build a more fine-grained budget calculator for each mission. Note that this exercise yielded a value of 24M OP vs the 20M ultimately proposed by the Budget Board.

Budgeting Formula

Mission Scoring Rubric

First, we assume that every mission proposed has some significant level of importance, so these scores reflect and skew up or down relative to historical benchmarks (e.g., -5 score doesn’t mean something is “bad”).

We then score missions based on a set of three criteria. Scores are an average of Budget Board members’ inputs:

  1. Strategic Importance: How much more or less influential do we expect this mission to be towards long-term Optimism success.

    1. ROI Confidence: A governor on spend. Is this mission highly experimental, or do similar missions have a strong record of proven results?

    2. Funding Intensiveness: Another governor on spend. If the mission is naturally more funding intensive than prior benchmarks (e.g., new infrastructure spend, increased competition), then the budget may need to be larger.

The following is a summary of our scores for each mission and the resulting uplift/discount factor. Each rubric point translates to a 10% budget adjustment, with +10 doubling and -10 zeroing the previous mission budget. A total of 5/6 budget board members cast votes.

Season 6 Funding Season 7 Budget Average Score
Onchain Builders 8,000,000 OP 8,000,000 OP +1.9
Developer Tooling – 8,000,000 OP +2.6
OP Stack Dependencies 8,000,000 OP – +2.5

Overall, we see an average score across the three missions of +2.33, i.e., a recommended increase of +23%.

Budget Adjustments

Next, we make an adjustment to the base budget in consideration of various macro changes between Season 7 and Season 8. These adjustments come from objective measurements (see details below), but here are the high level trends:

  • The price of OP relative to ETH has decreased
  • The amount of OP allocated to Retro Funding in Season 7 has been below our “10 year runway” calculation
  • Collective revenue growth has been flat in ETH terms
  • The Superchain share of crypto TVL has increased

Ultimately, we arrive at a budget adjustment factor of 1.21 or +21%.

Detailed Calculation Steps

Detailed calculation steps are also available in this worksheet.

Inputs

First, we calculate a price inflator to account for the relative increase (or decrease) of OP in ETH terms

  • OP to ETH ratio as of June 30: 0.0002276
  • 6-month TWAP (Jan 1 to Jun 30): 0.0004124
  • Price inflator: 1.81 = 0.0004124 / 0.0002276

Then, we calculate an inflator cap by averaging three macro indicators:

  • Fund availability: 59%

    • Total Retro Funding token allocation: 858,993,459 OP
    • Committed as of 19 Jun 2025: 76,400,000 OP
    • Target runway: 20 seasons (10 years x 2 seasons per year)
    • Baseline OP per season: 39,129,673 OP = (858,993,459 - 76,400,000) / 20
    • Last season’s budget: 16,000,000 OP
    • Utilization ratio: 0.41 = 16,000,000 / 39,129,673
    • Unutilized share: 0.59 = (1 - 0.41)

  • Collective revenue growth: -0.2%

    • Collective revenue over Season 7: 3,300 ETH
    • Collective revenue over Season 6: 3,358 ETH
    • Relative change: -0.002 = (3300 - 3358) / 3358

  • Superchain share of crypto TVL: +18%

    • Share of crypto TVL in June 2025: 4.5%
    • Share of crypto TVL in December 2024: 3.8%
    • Relative change: 0.184 = (4.5 - 3.8) / 3.8

The average of these three factors is 25.27%.

Finally, we combine the price inflator with the cap as follows: (1.81 - 1) x 0.2527 + 1 = 1.21.

Outputs

The final budget of 23.8M OP is derived from the following calculations:

  • Season 7 Budget: 16M OP
  • Mission Scoring Rubric: +23%
  • Budget Adjustment Factor: +21%

We allocate the total budget pro rata based on the score for each mission. The table below summarizes these figures.

Most Recent Budget Average Score Proposed S8 Budget
Onchain Builders 8M OP +1.9 6.3M OP
Developer Tooling 8M OP +2.6 8.8M OP
OP Stack Dependencies 8M OP (S6) +2.5 8.6M OP
Total 16M OP +2.3 23.8M OP

Additional Resources

5 Likes
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GFX typically tries not to insert itself into Citizens House affairs, given our prominence within Token House and a desire to respect the separation of powers.

But it seems like the discussion should directionally be around how much to reduce retro funding. This is not a program that has, to our mind, consistently demonstrated good value. 87m OP is approximately a 5% inflation over the current circulating supply of OP according to Coingecko. It is also a staggering $47m in USD terms.

To put that in perspective, this amount of funding could:

  • purchase an entire bank in the US which could be used to provide banking and ramping services to the Superchain
  • create a governance-owned stablecoin in US or other currencies
  • build or grant to user-facing apps that onboard new users directly
  • just be burned, reducing emissions overhang

The burden of showing that retro funding is superior to simply burning the OP in a cost-benefit analysis should be included in this proposal, particularly with years of playing whack-a-mole with projects that exploit retro funding without even a solid narrative of how they contributed to Optimism’s sequencer revenue, user retention, or TVL secured.

9 Likes
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Two updates here:

  1. For S8, the role of the Budget Board is to propose budgets for missions already scoped by the Foundation. But fully agree with your assertion @GFXlabs that future versions should have some concept of a BATNA / alternative use of funds.

  2. Immediately after posting we were advised that we should limit the proposal to just S8 and include detail on the split among the three proposed categories of Retro Funding, ie, Onchain Builders, Dev Tooling, and OP Stack Dependencies. We will preserve the original post but offer an updated version shortly.

3 Likes
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We resonate with the logic and share the perspective that increasing Retro rewards without a clear upside for the Optimism Collective is likely to be net-negative for the long-term health of the Superchain ecosystem.

Our team is actively exploring potential Ecosystem Fund structures with multiple DAOs we collaborate with, aiming to enable convertible grants and investments that provide direct ownership and upside to onchain treasuries.

It could be highly impactful for the development of the collective to work toward a proposal to create a Superchain Ecosystem Fund running in parallel with the Retro Funding programs.

Early research has shown that we can leverage builder data points—such as OSO and Karma GAP progress—to gain valuable insights into project and builder traction, which can help the Superchain Ecosystem Fund make better and more aligned allocations.

We are happy to craft the thesis for an Ecosystem Fund to be evaluate in addition to Retro Fund, burning tokens and other potential paths.

3 Likes
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Just buying risk-free Treasury bills and notes with this tranche of retro would nearly fund governance expenses at currently proposed levels in perpetuity.

The appropriate time to discuss whether retro funding should even continue or be repurposed for something else is now, while funding is coming up for renewal.

4 Likes
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Informative and amazing.

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I agree with @GFXlabs on a majority of there points, especially with some builders exploiting the retro funds and not really bringing any value to the superchain ecosystem. However , some aspects that @ccerv1 brings up, ie the increase from 150 op to over 1000 op might warrant some consideration since there has been no increase in over 3 years for citizen house expansion to occur. @GFXlabs also brings up low risk treasures as a viable option to fund optimisms collective by the yields gained from the treasuries. That idea would be very similar to what tether does backing there coin with the treasuries and there yields. Just my small two cents

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Just calling attention to the fact that the original proposal above has been updated: [UPDATED] Budget Board Advisory Proposal for Retro Funding for Season 8

1 Like
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Agree with treating numbers as allocation maximums vs targets so we are allocating capital as efficiently as possible.

Just because we have it does not mean we need to spend it
I do not think we should be using fund availability as a factor in determining how much retrofunding to allocate this year. I think the allocation should be based on the other factors your outline relating to the effectiveness of the program and the opportunity ahead.

2 Likes
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I’m writing in my personal capacity as a contributor to the Collective - my views do not represent the views of the Optimism Foundation as a whole.

It’s exciting to see the Budget Board bring structured analysis and proposals to how we think about Collective spend.

I propose we reduce the Retro Funding budget for S8 by 75%, to 5m OP, for the following reasons:

  • The overall crypto market is down. While we try not to talk about OP price, the market’s current status also affects the treasury’s power. Rather than holding the impact of our grant sizes constant throughout market movements, we should consider decreasing grant size while the power of OP is diminished, and saving the dry powder in the Treasury for when one OP can achieve more on a unit economic basis.

  • Retro Funding is hard to measure. The retroactive nature of the program means it’s harder to draw a causal link between grants made by the program and real ecosystem outcomes. By design, we’re rewarding past impact! But we need to continue getting smart about how we quantify the positive effect this has on the Superchain ecosystem as a whole. I remain excited about the work OSO is doing to help us understand the positive effects of Retro Funding, but it seems prudent to downsize from past spend until we reach a higher level of rigor and confidence.

  • Our capital allocation systems should evolve. We’re in the process of re-thinking how the Collective’s capital allocation and treasury management systems should work to maximize Optimism’s success. In anticipation of those discussions, it makes sense to reduce token emissions where we’re less certain of programs’ effectiveness.

I also agree with comments above that suggest cost-benefit against alternative use of funds, as well as treating these as maximum targets rather than required spend.

Funding positive impact and public goods is central to Optimism’s mission and values. Reducing the budget does not negate that – I view a more conservative budget this Season as a way to ensure the Collective can be successful over the long term. The Superchain must continue to grow in order for Retro Funding to become a sustainable economic flywheel, and we should be prudent and rigorous about how token allocations support that overall growth.

4 Likes
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Thank you for these thoughts. Something that would be very helpful for the Collective, if not the Budget Board, is to have someone explain the opportunity cost of Citizens House budgets. The common understanding is that the Citizens House Missions Budget comes from the Retroactive Public Goods Funding allocation, which included 20% of the token supply at launch. Is there a mechanism by which this allocation would or could change through governance?

There are two ways to view opportunity costs: timing and purpose. Your post touches on the timing point directly. A token allocated today can’t be allocated tomorrow; and the Collective could decide to discontinue allocation in perpetuity from the 20% budget designated for retroactive public goods funding.

Others have indicated alternative uses and you touch on that as well. It is difficult to see what alternative uses (other than later retro missions) there could be if the budget for retroPGF is static and unalterable. Alternative missions within the same paradigm (e.g., retroactive rewards to Mission Y instead of Mission A) would obviously be an alternative use, but that is a difference of a smaller kind than using tokens for direct / prospective purposes.

If the allocation is mutable, then that would present an important additional dimension to the analysis. It is possible this point has been clarified elsewhere, but it would be helpful to make it available here as well.

The Budget Board is considering possible alternative proposals, including a potential proposal to defer a Citizens House budget for the Season (meaning 0 for Season 8) until there is a broader debate amongst the Collective.

As a non-voting member, I take no view on the appropriate figure, but I want to make sure the Collective understands the alternatives.

4 Likes
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Based on the Season 8 governance updates, it appears we’re moving toward a system where stakeholder groups (tokenholders, end-users, apps, and chains) will have veto power over budget proposals through the new optimistic approval process.

If we defer Citizens House budgets now, we need to consider whether this creates a precedent that could systematically underfund retroactive public goods in favor of more immediate, measurable initiatives that might appeal more to certain stakeholder groups.

Do you anticipate structural pressure toward reallocating funds from retroactive public goods to more immediate growth-oriented initiatives?

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You are correct – to date, the social expectation has been set that 20% of the total initial token supply will be used for Retro Funding, and that remains true for Season 8.

Perhaps it is worth having a holistic conversation as a community about the opportunity cost of those tokens, and how to make sure we can stay true to Optimism’s values around funding public goods while also managing the Collective’s treasury in a way that maximizes chances for success in Season 9 and beyond.

I think a reduced budget rather than no budget is the best option. We’ve learned that consistency matters a lot to Retro Funding recipients, and there’s a real cost to skipping a Season after we’ve worked hard to make rewards reliable for projects. It is difficult to turn something back on and regain momentum from a dead stop. I also don’t want to send the signal that Retro Funding is anything other than a core part of Optimism’s growth philosophy; the debate here is more about sizing, effectiveness, and measurement than it is about the program’s importance in the long-term.

6 Likes
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The Budget Board has made a final proposal. It is now reflected at the top of this post. Previous drafts remain as Appendices.

Thank you to everyone who provided feedback and helped the Budget Board arrive at its recommendation.

1 Like
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The best explanation I’ve seen about public goods was given by Arjun about a year ago. You can check it here.

He explains how, through breakthrough innovation and many iterations, something can evolve into a utility, a public good. I think this ties directly to Bobby’s suggestion of a holistic approach: how we fund and support initiatives through their early stages until they’re mature enough to sustain themselves without ongoing funding.

The real challenge, then, is twofold: how do we identify and fund promising initiatives to help them reach that public good stage, and how do we recognize when they’ve matured enough to no longer require treasury support? That framing could help us better align funding decisions with both innovation and sustainability.

1 Like