Understanding Quadratic Funding

by | Aug 17, 2021

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Let’s start not with the concept of quadratic funding, but why are we talking about a funding mechanism in the first place? Well, the answer is – because the crypto ecosystem is not just about technology or a get-rich-quick scheme. It’s an ideology that believes in the ethos of a democratic society and decentralization of power. Therefore, today, we’ll discuss and understand the concept of quadratic funding and how it can improve the methodology of funding public goods.

What is Quadratic Funding?

Quadratic Funding was first proposed by Vitalik Buterin in his blog posts and in a paper that co-authored with Zoë Hitzig and Glen Weyl. Quadratic funding is a mathematically optimum way to fund public goods in a way in which the number of contributors matters more than the actual amount of money. 

Now, the question arises why do we need to fund public goods in a way in which the number of contributors matters more than the actual amount funded? Well, that’s because it decentralizes the power and pushes it away from whales or other powerful entities that might manipulate the funding mechanism.

For example, in most developing nations, a privileged minority of people can afford to own a car while the majority of the urban population is forced to suffer the consequences such as urban and transit planning biases towards car owners, traffic hazards, noise, hazardous quality of air, and lack of space. Yet, the governments and municipal corporations keep funding highways, over-head bridges rather than investing in public transportation.

That’s why we need the quadratic funding to raise the voices of the common people and improve our democratic society. The idea of quadratic funding is built upon the belief that small donors as a whole might have greater collective insight than a centralized institution.

How Does it Work?

To understand the working of quadratic funding, we need to understand the mathematical formula for quadratic funding. The formula for quadratic funding as per the paper is – The amount received by the project is (proportional to) the square of the sum of the square roots of contributions received.

Therefore, the working of quadratic funding can be understood through a key point i.e., matching pool. A matching pool is a money pool funded by individual contributes and is often being matched by a matching partner such as a government, a corporation supporting public goods.

Now, let understand the use-cases of Quadratic Funding

Use-cases of Quadratic Funding

When it comes to the already existing use-cases of quadratic funding – it all started with the Ethereum blockchain that is considered a public good. As of now, Gitcoin is a platform to build and fund open web leveraging the quadratic funding formula. The platform matches the funds contributed by individual contributors by using the quadratic funding methodology.

Thus, ensuring that projects that receive the most number of individual contributors get the highest matching amount from the platform. If you want to learn more about the importance of web 3.0, check out – All You Need to Know About Web 3.0

In the upcoming articles, we’ll dig deeper into the concept of quadratic funding, look at its pros and cons, new use-cases, and improvements.

Head of Content Marketing @ HyperLinq. His love for Chai and mountains precedes everything. Often wonders about things like, "why $1 earned through leverage feels 100x better than $1 earned selling your time?"

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