Gitcoin Revives Debate Over Quadratic Funding with New Dev Protocol

Gitcoin's new quadratic funding offering is stimulating fresh debate about the novel mechanism.

By: Samuel Haig Loading...

Gitcoin Revives Debate Over Quadratic Funding with New Dev Protocol

Gitcoin, an Ethereum foundation-supported platform for public goods funding, has revealed it is working on a new offering designed to help protocols incentivize ecosystem development dubbed Aqueduct.

The key: Enabling projects to employ automatic quadratic funding rounds, which uses a novel voting mechanism intended to produce outcomes that equitably balance the interests of a wide variety of stakeholders. The move has triggered fresh debate about the utility and design of quadratic funding.

The protocol was announced on Jan. 13 by Paradigm developer Dave White and fellow Aqueduct contributor, Gitcoin’s “Owocki.” White described the forthcoming protocol as “a new ecosystem growth engine.”

No Human Intervention

“Aqueduct incentivizes ecosystem development for your project with a single line of Solidity, and unbundles the work of protocol creation from the work of ecosystem support,” he tweeted, He said “no human intervention” is required to use the protocol.

While some crypto commentators are praising the Aqueduct devs for their work, others believe economic signals are not the only information that should be considered when determining how funding should be allocated across the crypto ecosystem.

Some believe the quadratic funding model could be improved. Venture advisor Kristof Lommers criticized quadratic voting for assuming that monetary contributions are the sole mechanism used to determine the value of a project.

“The real question is whether financial contribution is the ideal type of signal you want in this case,” Lommers tweeted. “Isn’t there a mechanism to take into account the relative activity you play in the protocol without much weight to your financial means? […] If person x spends each night in the Discord and is a true believer in the community.”

He added that a “protocol-community reputation score” could provide an alternative signal.

Daily Gwei podcast host Anthony Sassano praised Aqueduct’s developers, stating he would like to see more crypto projects able to raise funds from a variety of actors including the community, “rather than having to sell a large chunk of tokens to VCs.”

The news comes as the inflationary rewards programs that fuelled the growth of 2020’s ‘DeFi summer’ have come under fire from developers working in the sector. Developers balked at handing over significant shares of their token supplies to effectively rent mercenary liquidity that will likely dump the rewards and leave once incentives have stopped or more profitable opportunities to provide capital become available.

The recent emergence of ‘DeFi 2.0’ protocols also seek to innovate more sustainable ways for DAOs to incentivize adoption and manage treasury funds.

Greater Influence

Gitcoin’s grants have popularized quadratic voting as a means to fund public goods across the Ethereum ecosystem. The team is currently in the process of completing its 12th grants round, having conducted quarterly fundraising events since launching in 2017.

Quadratic funding allows large actors to purchase votes and exercise greater influence than smaller players in absolute terms, but the cost of acquiring each consecutive vote is squared. This means that smaller entities can collectively punch above their weight in elections, with large players having to spend far greater resources to individually command the same influence.

As such, elections give greater weight to the collective first preferences of smaller entities, while large actors will experience diminishing returns when attempting to purchase greater voting power. Until Gitcoin, academics predominantly explored quadratic voting within the contexts of democratic elections and corporate governance.

Initial Foray

Projects seeking to bootstrap development using the protocol must transfer a portion of revenue or inflation in their Aqueduct. Once the sum of tokens deposited reaches a predefined threshold, assets are then distributed to ecosystem developers through an automated quadratic funding round.

Higher contributions will also come with “high-touch” services from Gitcoin. Its DAO takes a percentage fee as compensation. “A $100K Aqueduct might include human-in-the-loop anti-fraud, while a $10M Aqueduct might come with a full-time support team,” said White.

“This is only a rough design sketch, and there are likely many problems to be solved before it can become a reality,” he added.

Vitalik Buterin, Ethereum’s chief scientist, described quadratic voting as “an initial foray into a fundamentally new class of social technology which has the potential to overturn how we make many public decisions.”

“The ultimate effect of these schemes rolled out in their full form could be as deeply transformative as the industrial-era advent of mostly-free markets and constitutional democracy,” he said in a December 2019 blog post.