How Quadratic Funding works

The goal of the Community Ecosystem Fund (CEF) is to invest in the Ren ecosystem, as ecosystem growth will benefit the Ren community. A key challenge is being able to fulfill that goal in a decentralized organization.

Quadratic Funding (QF) is proposed as one of the core mechanisms the Ren community can use to effectively and fairly allocate funds, because it optimizes for democratic decision-making while also being very simple to implement.

Details

A technical walkthrough on QF can be found here, which I recommend everyone interested to review:

https://maximilianr.github.io/quadratic-funding-rounds/report.html

In short, QF will tend to make proposals that have votes cast from more people win out over proposals with only a few backers, even if those few are whales.

It’s a very effective tool from a governance perspective because it is open to participation from everyone, and everyone will have influence even if they are only running one or a few nodes, and only requires the community to vote once for all the proposals in one go. It also makes it very easy to filter out bad proposals as all proposals would be competing against each other, where likely only the good proposals would attract voting power from the majority.

The aim is to have funding rounds quarterly, as this allows funding to accrue in the CEF, and it gives time for multiple good proposals to form and then compete against each other, and it doesn’t burden the community with too much regular voting.

Limits on grants are necessary, since the QF formula gives you a variable payout size depending on the outcome of the vote, and we need to make sure that money is not wasted on a proposal that is unable to lift of the ground, as most ideas need a certain amount of funding to be viable. For that reason proposals need to include a target request, from which you get a minimum and maximum. The minimum would be target ÷ 2, where if the QF does not assign the proposal more than half of what the target is, no funding will go to that proposal. And the maximum would be target * 2, which is the maximum funding that could go to the proposal.

Because the CEF will be composed of many different assets, but there are complexities around handling multiple asset types with QF, proposals will need to set the target in USD, and prior to the QF round, funds will need to be exchanged into an appropriate stablecoin.


The rough timeline for how QF rounds are structured:

  1. Submission period open for 2,5 months
  2. Submission stops, all the proposals are announced, and community gets time to inspect all of the proposals for 1 week
  3. Votes are open for one week
  4. Votes are counted in the QF way, and results are announced shortly after (Snapshot/Scattershot won’t show the final results since it does not factor in QF)
  5. Payouts follow

Repeat 4x per year

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Thanks for the write up, very instructive.

One question I have though, does this not incentivize operators to register their nodes on separate addresses, as this would yield a higher voting power?

It’s possible yes, but it’s more work voting from multiple addresses, and if anyone tried doing this now by deregistering their nodes and re-registering on multiple addresses, they would lose darknode rewards plus they would lose their voting power time bonus from staying registered. And if we still believe this is a problem, we can use computer-assisted techniques that Gitcoin is working on to combat it: How to Attack and Defend Quadratic Funding - Gitcoin's Blog

And if we have clear on-chain proof that someone has split up their nodes on separate addresses to abuse this voting system, we can nerf their voting influences to be whatever it would be if it all came from one address instead (or also slash the voting power of that individual if we believe it is malicious). As long as everything is transparent and agreed by governance in the open.

And either way, if one individual here and there tries to abuse QF, the beauty of QF is that the majority rules, so for example if one person tries to vote like three-five persons instead, if he/she is voting for a bad proposal trying to get it accepted, it’s still not likely to be accepted, because the majority will weigh much more than any influential individual or small group of people.

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