Quadratic Funding

TL;DR

INVENTED BY VITALIK BUTERIN,
GLEN WEYL, AND ZOE HITZEG

Quadratic Funding is a crowd-funding mechanism
that amplifies available resources by inviting community members to make donations (big or small) that
act as votes on where to allocate funds.

Quadratic Funding uses quadratic voting to aggregate individual preferences and democratically
allocate funding to public good. Matching funds are
distributed to recipients more based on the number
of contributors rather than the amount contributed,
ensuring that projects with a larger base get more
funding.

QF encourages wide participation and aligns funding
with the broader preferences of a community, so
it’s useful for allocating funding democratically and
for accurately revealing the preferences of a large
group.

WHO SHOULD USE IT?

Quadratic Funding is particularly well-suited for communities that can provide a matching pool and have
members decide on the allocation of the matching
funds. This includes:

DAOs

Decentralized Autonomous Organizations (DAOs) with large
treasuries: Quadratic Funding
can help DAOs allocate their
treasuries towards public
goods that benefit the broader
community, aligning incentives
and fostering a more participatory decision-making process.

Networks & Network States

Networks and network states
that rely on community participation and collaboration can
benefit from Quadratic Funding
by incentivizing the development of public goods that improve the network’s infrastructure, security, or usability. By
allowing network participants
to vote on funding allocation,
blockchain networks can harness the collective wisdom of
their communities to support
projects that drive long-term
growth and adoption.

Large Protocols

Established blockchain protocols with substantial treasuries can leverage Quadratic
Funding to incentivize the
development of public goods
that benefit the protocol’s
ecosystem. By allowing token
holders to vote on project
funding, protocols can ensure
that resources are allocated
towards initiatives that contribute to the protocol’s growth
and success.

Quadratic Funding is particularly
valuable for groups that expect to run
multiple rounds over time and leverage the preferences revealed by their
community.
By iteratively funding public goods
projects based on community input,
these groups can continuously adapt
and refine their funding strategies,
ensuring that resources are allocated
towards initiatives that consistently
provide value to the community.

FUNDING STRATEGY

Who is eligible to receive funding from the pool?

Public goods projects submit an application to be
included in a Quadratic Funding round. These applications are typically reviewed by program managers:
the group of people tasked with operating the round.
Eligibility should be determined by some preset
requirements. Projects that are accepted through
this application process are then eligible to receive
individual contributions from community members
and their share of the matching pool.

Who is eligible to allocate?

Community members, usually represented by token
holders. These are the “voters” in this case, but they
vote by donating tokens to the projects they want
supported, in proportion to how much they want to
support that project.

How are payouts calculated?

Payouts are calculated after the voting window has
closed and all the contributions are in.

The share of the matching pool that each project
gets is equal to the sum of the square roots of
their contribution amounts. As a rule of thumb, the
number of contributions a project received is used
to determine their share of the matching funds. This
is what makes QF so democratic: it’s the number of
community members who support a project that determines how much funding it will receive. Libraries
like Pluralistic.js or the Allo Starter kit can help in
doing these calculations.

Note that calculations are generally done off-chain
because the math required would otherwise incur a
high gas cost.

How is the pool distributed?

After calculating the matching pool distribution in
the previous step, the managers of the QF round
then distribute the pool. In Allo Protocol (Gitcoin’s
capital allocation protocol), they upload this distribution to the strategy, then distribute it to the accepted
projects in one transaction.

HOW DOES IT WORK?

1. Someone who wants to support a community sets up a funding pool.

This could be a wealthy philanthropist that wants to give
back, or a local government
that wants to support community projects.

2. Projects that service the community sign up.

These projects could be anything that helps the community (businesses or local civic
groups).

3. A crowdfunding campaign is run where each contribution is matched by the matching pool.

HERE’S THE COOL THING ABOUT QUADRATIC FUNDING. THIS IS THE ONE WEIRD TRICK THAT MAKES QF INTO A FUNDING POWERTOOL.

Each crowdfund contribution is matched. The match is
based more on the number of contributors than the $
amount given.

Quadratic Funding uses quadratic voting to determine how
funds are allocated. Instead of voice credits (as in quadratic
voting), donating to a public good is how you cast a vote;
the amount you donate is your voice or voting power.

WHAT MAKES IT POWERFUL?

We’re giving money to causes supported by everyday people. This creates crazy matching multiples for
popular projects.

When you give $1 and a community project gets $100, lots of people open their wallet and participate.

A regular crowdfunding campaign wouldn’t get as many contributions from as many people. What’s better?

Give a $1 and the project gets $2?
Give a $1 and the project gets $100?

How can I use QF for my community?

If you want to learn more about how you could run a QF round on Allo Protocol to fund what matters for your community, reach out here.

To dig into the more than $62M of impact Gitcoin has faciliated using QF, visit impact.gitcoin.co.