If you’ve been exploring the web3 grant scene, you’ve likely come across the term quadratic funding. But what is quadratic funding, and how does it work? Let’s take a look!
Quadratic Funding Defined
Quadratic funding (also known as plural funding) is a new approach to crowdfunding public goods that democratizes access to funding and supports small projects that have the potential to make a big impact. Quadratic funding was originally proposed by Vitalik Buterin in collaboration with Zoë Hitzig and E. Glen Weyl (you can read their proposal paper here). It was created based on the idea of “quadratic voting,” which is a system that allows individuals to have a more proportional say in decision-making based on their level of commitment.
Quadratic funding uses a two-pronged approach for raising and distributing money, including crowdfunding and matching funding pools. The key is how the matching funding pool is dispersed. Unlike traditional crowdfunding, quadratic funding uses a unique algorithm based on the number of people supporting a project and the size of their contributions. This means that even small projects with a few backers or many small contributions can receive funding.
Before we move on, it’s important to understand the term “public good.” Public goods are available to everyone. They are non-rivalrous and non-excludable. In other words, no one is excluded from using the good, and many people can utilize the good at the same time without the availability of the good being reduced to others. Some examples of public goods in the web3 space include open-source software projects, decentralized networks, and public blockchain infrastructure.
How It Works
Using the quadratic funding approach, the more people who support a project, the more funding it will receive. This system is designed to counteract the “rich get richer” phenomenon that often occurs in traditional crowdfunding, where well-known projects receive the majority of funding while smaller projects are left behind.
- It starts with a matching pool of funds typically raised from larger organizations, corporations, or wealthy individuals.
- The crowdfunding round is initiated, where the general public can support projects of interest.
- Upon completion of the crowdfunding round, the matching pool is dispersed. Matched amounts are calculated by using the quadratic funding formula, where the amount received by the project is proportional to the square of the sum of the square roots of contributions received.
Yikes, that sounds complicated! Luckily, there are calculators available that do the math for you. Here is one to play around with to see an example of how it works: WTFisQF calculator. Here is a brief example and explanation using the above calculator:
Leveling the Playing Field
One of the key benefits of quadratic funding is that it helps to level the playing field for small and underrepresented communities, making it easier for them to secure funding for their projects. This is especially important for projects that address social or environmental issues, which may not be as popular or well-known as other types of projects but still have the potential to make a significant impact. By allocating funding based on both the number of backers and the size of their contributions, quadratic funding ensures that everyone has a fair shot at securing funding for their projects, regardless of their popularity or size.
Quadratic Funding Organizations & Platforms
Gitcoin: Gitcoin’s mission is to build and fund digital public goods to create the future of the open web. Every quarter Gitcoin’s Matching Partners donate a pool of approximately $1–3M, and Gitcoin deploys those funds based on the results of a crowdfunding campaign using a QF formula.
Clr.fund: Clr.fund is a protocol for efficiently allocating funds to public goods that benefit the Ethereum Network according to the preferences of the Ethereum Community. They strive for credible neutrality, decentralization, permissionlessness, trustlessness, and pseudonymity.
Pomelo Grants: Inspired by Gitcoin, Pomelo is an open-source crowdfunding platform where contributions are matched from a pool of funds provided by the EOS Network Foundation.
Downtown Stimulus: Downtown Stimulis provided economic relief for local businesses in Boulder, Colorado. This project no longer appears active, but you can check out their Twitter page, where they documented the project and provided article links.
Donating to projects raising money via quadratic funding is one the best ways for your donation to have a larger impact. You can spread the love across many projects and know that each contribution is getting that project closer to its fundraising goal. As a builder or creator, you, too, can apply to be a part of grant rounds at the organizations mentioned above! Be sure to check them out, support the projects that inspire you, and help move the web3 ecosystem forward.
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The content is for informational purposes only. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer of a security, token, or application. This is not investment or legal advice. Please do your own research.