How Can $1 Turn Into $27? Quadratic Funding Explained

Public Goods

Quadratic Funding is the mathematically optimal way to fund public goods in a democratic community where the number of contributors matters more than the actual amount funded.

  • Open-source projects — projects and protocols built on publicly accessible infrastructure such as the Internet or the Ethereum blockchain, or useful libraries that can facilitate work of other software developers.
  • Free education — education available to everyone, for example, a newsletter, a podcast or a Youtube channel on decentralized finance
  • Free services — ethical hacking — finding vulnerabilities in open source projects

Quadratic Funding

Quadratic funding is a concept that extends ideas from quadratic voting to a funding mechanism. Both concepts were widely discussed by Vitalik Buterin in his blog posts and a paper that he co-authored together with Zoë Hitzig and Glen Weyl.

  • Project A got $1,000 in funding from 5 contributors ($200 each).
  • Project B also received $1,000 but from 2 contributors ($500 each).
  • Project C received the same amount — $1,000 — from 20 contributors ($50 each).

Incentives

Quadratic funding also creates amazing incentives for smaller contributors over the bigger ones a.k.a whales. An individual supporting a project would see diminishing returns on bigger contributions, with the small contributions getting the highest matches percentage-wise.

  • $1 — their $1 is matched by $26.97 which is almost 2700% — 27x of the contributed amount
  • $5 — would be matched by $59.8 — around 1200% — 12x of the contributed amount
  • $20 — would be matched by $117.77 ~ 590%
  • $100 — would be matched by $253.68 which is 253% of the contributed amount.

Projects

Quadratic funding, although quite a new concept, is already making a big change. There’s been over $2M distributed to public goods.

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