Quadratic Funding — A Better Way to Fund Public Goods

What is Quadratic Funding?

Quadratic Funding is the mathematically optimal way to fund public goods in a democratic community. It amplifies the donations made by a large community over the contributions made by a small group with big pockets.

  • Non-rivalrous, which means that use by one member does not decrease availability to others
  • Non-excludable which means that everyone should be able to access it
A knowledge resource for public goods
  1. Individuals crowdfund donations toward public goods
  2. These individual contributions are matched by funds from a government, private philanthropist, or grants program.
  1. Individuals contributed capital to projects A, B, and C
  2. After the round, for project A, the square root of each contribution was summed and this sum was then squared. Let us call this number, the QF variable
  3. A similar process was carried out for projects B and C
  4. Now, project A’s share of the pool was calculated as a weighted average its QF variable
  5. The capital was distributed to the other projects through the same mathematical model

Benefits of Quadratic Funding

So as categorized and explained above, public goods are open for everyone to use, and usage by one will not impact the availability for others. In this scenario, Quadratic Funding helps prevent “Tragedy of Commons”. Any individual who sees some incentive in using a public good has no way to exclude others from consuming it, resulting in overconsumption, inefficient use of resources, and ultimately resource depletion.

Use Cases

The Vickrey-Clarke-Groves mechanism is one of the earliest known models idealizing quadratic voting. Since then, the Colorado State Legislature has experimented with this voting mechanism and the Taiwanese presidential hackathon was judged through quadratic voting.

Gitcoin has provided US$ 19.8mn in funding to thousands of teams
  • Ether.js was given US$ 226 more than GSN even when it had fewer donors and had raised just 13% of the amount as compared to GSN.
  • A likely explanation for this is that the 68 supporters of Ether.js uniformly donated for the project while there were few people in GSN’s community who donated very large amounts, while the others contributed tiny capital.
  • Unfortunately, we do not have the granular data to substantiate this claim. However, we do believe that something along the lines of this donation pattern occurred for these two projects.

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Woodstock Fund

Woodstock Fund

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Woodstock is an emerging technology investment fund focused on investments in Blockchain and DLT Projects. Website: woodstockfund.com