Funding is a crucial part of any business model whether it be a private business, non-profit business, or any other type, funding plays an important role. For traditional or profit-making businesses there are venture capitals, angel investors, and many other entities but for public goods-related projects, it is hard to raise funds and that is the reason many of such projects does not last long. In this article, we will look into the innovative approach towards the funding of public related projects, the Quadratic Funding. Let's get started...
Type Of Goods
Before diving right into the concept of Quadratic Funding we should understand the different types of goods so that it will be easier for us to understand further. So, the categorization of goods is carried out based on their excludability and rivalry.
Non-Excludable: Non-Excludable means the goods that individuals cannot be excluded from use.
Non-Rivalrous: Non-Rivalrous means the goods that do not affect the availability to others by anyone's use.
Now based on these two concepts we can categorize goods into four main parts as follows:
- Private Goods
Private goods are excludable, which means they are only available to the owner to use.
They are rivalrous too, the availability of such goods get affected if some individual consumes them.
examples: Food, clothes, etc.
- Club Goods
They are excludable, they are only available to a certain group of people.
But they are not rivalrous as they do not affect the availability to others by someone's use.
examples: private parks, cinemas, etc.
- Common Goods
They are non-excludable, which means any individual can use them.
But are rivalrous as the use of such good by an individual affects its availability to others.
examples: Timber, Coal, etc.
- Public Goods
They are non-excludable, which means anyone can consume them.
They are non-rivalrous too, which means the use of any individual does not affect its availability to others.
examples: open-source projects, free education, etc.
As of now, we understood the different types of goods, it is now easy to understand that the Quadratic Funding is a funding mechanism for public goods not for any other type of goods.
Quadratic Funding
Quadratic Funding is a match funding mechanism that helps to fund public good in a democratic way and where the amount of donors matters more than the individual donation amounts. The idea of quadratic Funding was first proposed by the Ethereum founder Vitalik Buterin and Zoe Hitzig. The matching pool is another important part of Quadratic Funding. A matching pool is a pool of funds that are generated from institutions or any other large capital entity, the funds in the matching pool are used to match the individual contributions from the donors for the project funding. The fund matching depends on the number of donors, the number of funds in the matching pool, and the individual donations. It is calculated by the following mathematical formula:
Example:
Let's suppose we have $1000 of funds in our matching pool and three projects participating in the Quadratic Funding round and get the individual funding as follows:
Project A get the funding of $100 from 10 contributors ($10 each)
Project B get the funding of $100 from 5 contributors ($20 each)
And Project C get the funding of $100 but from 4 contributors ($25 each)
Now after the end of the funding round the matched amount for the projects will be as follows:
Project A = $526 i.e 526% of initial amount
Project B = $263 i.e 263% of initial amount
Project C = $210 i.e 210% of initial amount
You can see the power of Quadratic Funding by the % rise of the initial amount raised. And one more thing to notice and I will repeat here is the number of contributors matters more than the amount of contribution.
Note: you can see this calculation and try it by yourself using the Quadratic Funding Calculator.
Quadratic Funding Platforms
Even though the concept of Quadratic Funding is still in the early phase and is still tackling with the scammer but it already has been started to show impacts in the communities, especially in the crypto & blockchain space. Following is the list of platforms where Quadratic funds are in the use and where you can list your project if it passes the criteria of public goods or finds such project and contribute and remember even a small contribution counts!!
- Gitcoin: It is a leading platform that brought the concept of Quadratic Funding into practice. It has already completed the successful rounds of funding through QF. Along with the funding platform, it is also a good platform for people related to web3.0 if you are one of them then it is a great place to hang out!
Grant Amount: $2,300,000
Official Website: https://gitcoin.co/grants/
- Pomelo
Grant Amount: $500,000
Official Website: https://pomelo.io/
Other platforms are clr.fund and downtown Stimulus.
Conclusion
As we started with the statement, funding is an important aspect of any business model and it is way more important to incentivize the projects which are working in the benefit of public good if we are looking for the decentralized world and to achieve that goal more platforms and match pools should be made and common contributors like you and me can support the change in the community.
Hope you found this article informative. You can comment your feedback and definitely share this article. Thanks you support and Time!!
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