Quadratic Funding in Web3

Quadratic Funding in Web3

Play To Earn Games | 08 May 2024 12:19 UTC

Understand Quadratic Funding in Web3

Back in the day, getting funds for open-source and decentralized projects in a traditional way wasn’t always easy. Besides crowdfunding, researchers have put forward a new way to get funds. Especially, in Web3, there is a new way that can help a lot of Gamefi projects to win grants and funding. This article will discuss quadratic funding and how this new mechanism helps Web3 projects raise funds. Presently, open-source developers are generating significant economic worth. In the future, open-source software (OSS) will make it easier to make high-precision services that don't rely on surveillance and allow users to move their data from one platform to another. Developing such products will demand the devotion and skill of committed developers. However, the actual challenge lies in incentivizing developers sufficiently to build and sustain these open systems.

What is Quadratic Funding?

You might be thinking about having mathematics or Algebra knowledge to understand it. Well, the good news is that this is not the case, it is simple to understand. Apart from its name, Quadratic Funding is a groundbreaking technology with the potential to bring positive change to the way communities gather funds for various causes, rendering the process more equitable and democratic. Hence, the question arises - what precisely is Quadratic Funding? 

According to Gitcoin, "Quadratic Funding" is the most mathematically effective approach to financing public goods within a democratic community." This statement might sound puzzling, but it is not too complex, and you do not need an Einstein brain to grasp the concept.

Understanding Quadratic Funding

To put it simply, a Quadratic Funding campaign comprises three key players: the ordinary citizen, the major donor, and the grantee - an individual or an initiative that is seeking funds for their project. The grantee presents a proposal for which they require funding, such as developing a new DeFi protocol to offer banking services to rural and remote communities, and their project becomes a part of the pool of all other proposals.

Afterward, the common citizen can peruse all the grant proposals. Moreover, they will choose the ones they desire to endorse by contributing a small amount. The captivating feature of this scheme is that even the most meager donation, for instance, $1, can make a substantial difference. This is where prominent donors play a crucial role.

To better understand, let’s illustrate an example here. Let’s say, there are two projects, project A and project B. Project A has 10 donors comprising common people, each donating $1. The total funding will reach $10 for A. Then we have project B with two donors donating $6 each, amounting to $12. According to Quadratic Funding, project A will receive more matching funds than B despite raising less. 

This magnifies the influence of minor contributors, ensuring that they have a say in how community funds are allocated. It also guarantees the initiatives with the most extensive backing secure the financing that they merit.

How does Quadratic Funding help in Crowd Funding in Web3?

Although Quadratic Funding is still relatively new, it is gaining tremendous momentum. Gitcoin Grants is a prime illustration of the potential of Quadratic Funding. It has garnered extensive backing from the Ethereum community and major contributors like az16.

The outcomes have been extraordinary, with the Ethereum community alone amassing over $4 million USD through Quadratic Funding campaigns, and this is just the beginning. Quadratic funding can and should be implemented by communities worldwide to impartially distribute funding for public goods and charitable projects.

Community foundations and local groups often host fundraising campaigns, where they match the funds raised, typically $1 for $1. Nevertheless, this could signify that an individual contributing $1000 would receive the same match as a thousand individuals who each donate $1, even if the latter campaign has significantly greater community backing.

Furthermore, as mentioned earlier, Quadratic Funding employs a unique formula to determine how contributions are matched. This formula guarantees that matching is unbiased and free from external interference. It is solely based on mathematical calculations.

Finally, and perhaps most crucially, Quadratic Funding presents an incredible opportunity to rally community members around public good causes by providing them a voice, regardless of their financial status. Quadratic Funding is the ultimate fundraising tool for financial inclusivity. It could get millions of people to donate to fundraising campaigns who might not have done so before. Many feel down realizing that their contribution would have minimal impact. Simply put, it makes each person's contribution have the most impact possible, which encourages more people to join in.

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