FAQ

Public goods
What are public goods?
Who creates public goods?
What are municipal public goods?
Who creates municipal public goods?
Participatory budgeting
What is participatory budgeting?
What are the good sides of participatory budgeting?
What are the challenges with participatory budgeting?
Quadratic funding
Why quadratic funding?
What is quadratic funding?
How does quadratic funding work?
The process
How are the points calculated?
Improvement: Pairwise coordination subsidies
What are the experiences with quadratic funding?
What motivates donations?
Direct use
Altruism
Benefits for donors
What types of public goods are a good fit?
Web3
Why use web3 tooling?
Which web3 tooling are we using?

Public goods

What are public goods?

Public goods are commodities or services that are provided to all members of a society, typically by a government, without profit. They are characterized by being non-excludable and non-rivalrous, meaning that individuals cannot be effectively excluded from using them, and use by one individual does not reduce availability to others.

Who creates public goods?

Public goods are typically created and maintained by governments, public institutions, or non-profit organizations, although some public goods may also be provided by private entities or through public-private partnerships.

What are municipal public goods?

Municipal public goods are those provided at a local or city level. Examples might include local parks, public libraries, or community centers. They are generally funded through local taxes and are managed by local government bodies or community organizations.

Who creates municipal public goods?

Municipal public goods are typically created and maintained by local governments, community organizations, or through public-private partnerships within a specific municipality.

Participatory budgeting

What is participatory budgeting?

Participatory budgeting, is a process where citizens participate directly in the decision-making process of budget allocations in their community or organization. It is designed to promote transparency, accountability, and community engagement. Like any approach, participative budgeting has its advantages and challenges.

What are the good sides of participatory budgeting?

Enhanced Transparency: It promotes transparency in the allocation of resources, as community members can see where and how funds are being used.
Increased Accountability: Government officials or organizational leaders are held more accountable for their budgetary decisions when the public is actively involved.
Community Engagement: It fosters a sense of community ownership and involvement in the decision-making process.
Better Allocation of Resources: Since the community is directly involved, resources are often allocated to projects that are truly needed and desired by the majority.
Improved Trust: When people see their suggestions being implemented, it can lead to increased trust in local government or organizational leadership.
Educational Opportunity: It serves as an educational tool, helping community members understand the complexities of budgeting and the trade-offs involved in decision-making.
Promotes Civic Responsibility: Engaging in the budgeting process can instill a sense of civic duty and responsibility among participants.

What are the challenges with participatory budgeting?

Time-Consuming: The process can be lengthy, requiring multiple meetings, discussions, and deliberations.
Potential for Conflict: Diverse opinions can lead to disagreements and conflicts among community members.
Complexity: Budgeting is a complex process, and not all community members may have the expertise or understanding to make informed decisions.
Representation Concerns: There's a risk that only certain groups or individuals may dominate the process, leading to unequal representation.
Implementation Difficulties: Even after a budget is agreed upon, there can be challenges in implementing the projects or initiatives.
High Costs: Organizing and facilitating participative budgeting sessions can be costly, especially if external facilitators are hired.
Risk of Tokenism: If not done genuinely, participative budgeting can be seen as a mere formality or token gesture without real impact.
Limited Scope: Sometimes, only a small portion of the budget is open for public participation, which might not satisfy community expectations.

Quadratic funding

Why quadratic funding?

When a large group needs to make a decision, it needs to use some type of voting system. The voting results show the preferences of the group.

The results can be more or less representative of the true preferences. This depends on the voting system mechanics and the turnout. A good voting system is the one that provides a better representation and encourages high turnout.

Turnout is usually higher when the stakes are higher and voting is easy.

The only way to increase the representation of individual voter preferences is by using a more expressive voting system.

Example of a less expressive system is the one where each voter can cast a single “yes” vote for one out of many options, although more than one option will be chosen in the end.

Quadratic funding presents itself as an innovative solution to the limitations of traditional voting systems in large group decision-making.

What is quadratic funding?

Unlike conventional methods that rely on a simple one-person-one-vote model, quadratic funding introduces a more nuanced approach that not only captures individual preferences but also addresses the challenge of low voter turnout.

In a quadratic funding model, participants allocate support to their favored projects by contributing funds, and the influence of their support grows quadratically with the number of participants endorsing a particular project.

This approach not only encourages financial contributions, reflecting the intensity of preferences, but also ensures that diverse and less popular projects can garner substantial support.

By incorporating financial contributions into the decision-making process, quadratic funding not only magnifies the representation of individual voter preferences but also fosters a more inclusive and dynamic system that can lead to the flourishing of a broader range of initiatives.

In essence, quadratic funding aligns the interests of participants with the collective goal of efficiently allocating resources, making it a promising alternative for decision-making in settings where traditional voting systems fall short.

How does quadratic funding work?

The process

There are multiple steps in quadratic funding process.

Matching fund creation
Project submission
Collection of donations
Points calculation
Funding allocation

Matching fund creation

How are the points calculated?

Quadratic funding uses a simple formula named CLR formula:

V {p \atop i} \Bigg( \bigg( {\sum_{ \begin{subarray}{l} j \end{subarray}}} {\sqrt{\smash[b]{c {p \atop j} }}} \bigg )^2 \Bigg ) - {c {p \atop i}}

${c {p \atop j}}$

This represents the money given by a person (let's call them "Person j") to a specific community project (let's call it "Project p").

${\sqrt{\smash[b]{c {p \atop j} }}}$

We're measuring each person's donation to a project in a special way. Think of it like turning the donation into "support points", where even small donations can have more "points" than you'd expect.

${\sum \atop j}$

Here, we're adding together all the "support points" from everyone who donated to "Project p". This gives us a total "support score" for the project.

$\bigg( ... \bigg )^2$

Next, we take the "support score" and multiply it by itself to boost it. This step ensures that projects with lots of supporters get a lot of bonus money.

$V {p \atop i} - {c {p \atop i}}$

This part tells us how much bonus money the project gets because of the donation from a specific person (let's call them "Person i"). But, it also subtracts that person's original donation to show the "extra" or "bonus" amount they've helped bring in.

To sum up, this formula calculates the bonus money each community project receives based on the support it gets from the townspeople. Projects with many supporters, even if they give a little, are highly valued and get a lot of the bonus funds.

Total Matching Pool = €10,000
Donated = €3,000
Total = €13,000

Project	A	B	C
Donated amount	€1,000	€1,000	€1,000
Number of donors	2 (€500 each)	5 (€200 each)	20 (€50 each)
Matched amount	€740.74	€1851.85	€7407.41
Matched amount %	~74%	~185%	~740%
Total received	€1,740.74	€2,851.85	€8,407.41

Improvement: Pairwise coordination subsidies

There is a potential flaw in the CLR subsidy formula and in 2019, Vitalik Buterin proposed a solution to make it more robust. The CLR formula is used to determine funding for projects based on contributions from multiple agents. Each agent contributes a certain amount to a project, and the project receives a subsidy that is a function of these contributions, multiplied by a subsidy coefficient $k$ .

The challenge identified is that the CLR formula assumes that the contributing agents are completely uncoordinated, which is not always the case. This assumption can be exploited. For example, if two agents coordinate and contribute a large sum to a fraudulent project, they can extract a disproportionately large subsidy, undermining the fairness of the system.

To address this, a modification to the CLR formula is proposed in the paper:

Instead of a single global subsidy coefficient $k$ , it proposes using a distinct coefficient $k_{i,j}$ for each pair of agents. This coefficient would reflect the level of coordination between the two agents. The more funds two agents contribute to the same projects, the more coordinated they are presumed to be, and thus the lower their $k_{i,j}$ would be set.

This approach aims to reward genuine, uncoordinated contributions while limiting the subsidy for those who are coordinating their efforts.

Subsidy formula for a project p:

k \times \left[ \left( \sum_{i=1}^{n} \sqrt{c_i \rightarrow p} \right)^2 - \sum_{i=1}^{n} c_i \rightarrow p \right]

Subsidy calculation with two coordinating agents:

k \times \left[ \left( 2\sqrt{M} \right)^2 - 2M \right] = 2kM

Pairwise coordination subsidy for agents $i$ and $j$ :

k_{i,j} \times 2\sqrt{c_i \rightarrow p} \sqrt{c_j \rightarrow p}

Adjustment of $k_{i,j}$ based on coordination level:

k_{i,j} = \frac{M}{M + \sum_{p} \sqrt{c_i \rightarrow p} \sqrt{c_j \rightarrow p}}

Subsidy calculation for $k$ coordinated agents:

For k agents contributing W:

k_{i,j} \times 2\sqrt{W}\sqrt{W} = 2MW / (M + W)

Total subsidy limit:

k \times (k - 1) \times M

What are the experiences with quadratic funding?

What motivates donations?

There are three main sources of motivation for donating to public goods in web3 which we can replicate for urban public goods funding:

Direct use
Altruism
Benefits for donors

Direct use

Most obvious motivation for an individual or an organisation to donate to a public good is if they get to use the public good. Most often, donors have already been using the public good and want to fund its further improvements.

Altruism

Altruism is another common motivation. Some people and organisations are willing to donate for common good regardless of their own benefit. Depending on their inclinations, they will donate to less funded public goods or to those that they find the most credible or the most impactful.

Benefits for donors

The third motivation is based on the fact that all donations are public and anyone can see where the donations to each public good came from. As anyone is able to distinguish those addresses, anyone can also grant some benefits to donors. This is commonly done by the round organiser, grantees and donors. Often, however, these addresses are granted with benefits by unrelated entities randomly, for a long time after the donation, who just want to market their product or a service to this social group or just get them to become members of their community.

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