Introduction
Quadratic
funding ensures that equitable and transparent distribution of funds that come
with the decisions based on the will of the community rather than the interests
of a few affluent donors. This type of funding incentivizes small contributions
from a large number of individuals. The quadratic funding and blockchain technology are often intertwined.
What is Quadratic Funding?
The quadratic
funding distributes funds in a way that is proportional
to the level of community support. It uses a mathematical formula to match
contributions from individual donors, with larger matching funds going to
projects with more widespread appeal. The quadratic funding amplifies available
resources by calling on members of community to donate money that acts as votes
and decides where the funds would be allocated. The broader the support, the
bigger is its match.
How Blockchain
Technology Aid in Quadratic Funding?
Most often, the blockchain
platforms provide an ideal environment for implementing quadratic funding
mechanisms. Using the mathematical formula, this type of crowd funding pools
together small donations from many people and matches them with a larger amount
of funding from a central fund. Here are several ways in which quadratic
funding and blockchain technology intersect:
1.
Transparency and Immutability:
Working
as a decentralized and distributed ledger, the blockchain ensures transparency
and immutability in transactions. This is mainly due to the recording of all
contributions and allocations on the blockchain. The recorded blockchain data
provides an auditable and tamper-resistant history of funding, providing an
opportunity to incentivize even the smallest of donors in crowd funding.
2.
Smart Contracts:
The
features of blockchain such as smart contracts, self-executing code can be used
to automate quadratic funding processes. The rules and formulas governing the
quadratic funding distribution can be encoded in smart contracts found in
blockchain technology platform. The adoption of this technology reduces the
need for intermediaries and ensures the operation of the intended funding.
3. Tokenization:
Blockchain creates
tokens that can represent ownership or participation in a project. Quadratic
funding models can leverage tokens generated by the blockchain platform to
track contributions, voting power, and rewards of contributors. Participants
may receive tokens proportional to their contributions, and these tokens can
confer voting rights or additional benefits that they can avail whenever the
opportunities arise. The tokens can also be used as currencies. The
tokenization allows the contributors to monitor the transfer of funds to other
projects or persons while keeping track of their personal efforts.
4. Decentralization:
Quadratic funding
aligns well with the principles of decentralization. Blockchain networks are
decentralized by nature, avoiding central points of control. This aligns with
the goal of quadratic funding to distribute resources based on community
consensus rather than relying on a central authority. The decentralization allows for greater inclusivity, transparency, and
fairness in allocating funding for public goods and projects. The blockchain
technology increases the availability of
quadratic funding for smaller, less-resourced groups and the participation of
more diverse communities through the process of decentralization.
5. Global
Accessibility:
Blockchain enables
global participation in funding initiatives, which is required even for
quadratic function. Anyone with an internet connection can contribute to the
quadratic funding project, and the transparent nature of blockchain allows
contributors from around the world to verify the legitimacy of the funding
process. The globalization approach
addresses global challenges and promotes collaboration among diverse
communities by leveraging the power of quadratic funding.
6. Crypto
currencies:
Sometimes, the quadratic
funding uses cryptocurrencies for contributions. Blockchain platforms often
have native tokens or support various cryptocurrencies for the benefit of the
contributors. This allows them to participate using digital assets. The use of
cryptocurrencies streamlines the contribution process and reduces friction
associated with traditional payment methods. The cryptocurrencies facilitates micro-transactions
that allow the contributors to make fractional contributions without facing the
constraints of traditional finance.
7. Community
Governance:
Blockchain-based
quadratic funding models can incorporate decentralized governance mechanisms
that are controlled by multiple stakeholders based on the consensus arrived at.
Token holders may have voting rights to collectively decide on the allocation
of funds, ensuring that the community has a say in supporting projects or
initiatives and they go to the deserved ones. The stakeholders in the community
can decided based on their voting to decide the recipient of the collected
fund.
8. Experimentation
and Innovation:
Blockchain
technology platform offers a fertile ground for experimenting with new funding
models give viable frameworks. Projects like Gitcoin Grants on the Ethereum
blockchain have successfully implemented quadratic funding. This innovative
model showcases the potential for innovation in the intersection of blockchain
and crowd-funding.
Conclusion
By combining
quadratic funding principles with blockchain technology, it's possible to
create more transparent, all-inclusive, and community-driven funding mechanisms
for a wide range of projects and public goods. The non-centralized
working model allows the contributors to have a say on the fund they have
raised together. They can keep track of the fund that they have raised together
and look at the transaction history as the records are digitized.