Quadratic funding (QF) is a capital allocation mechanism that allows a community to give its preference for a project. It amplifies each donation, ultimately benefiting projects with a large number of supporters. However, there is a risk of system manipulation in QF system. Here, blockchain technology can address this issue and restriction with the current system. Smart contract development can automate the complete funding process.
In this article, we will explore quadratic funding, its functions, advantages, and the blockchain role in QF.
Quadratic funding is a form of crowdfunding that encourages equitable and inclusive funding for public goods like open-source software, scientific research, and public art initiatives. It ensures that donations from a large community have a greater impact than contributions from a small group with significant resources.
An example of platform using quadratic funding is Gitcoin. This platform funds open-source projects, mainly in web3. Since 2017 it has funded about $64m in open-source development.
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Quadratic funding aims to match small donations with a larger pool of funds. Big donors are frequently favoured in traditional fundraising. But, it is not the case with quadratic funding. This approach ensures that everyone has an equal say in deciding which public services to support.
Also, quadratic funding is a financial inclusion tool in fundraising as many individuals with fewer donations skip the funding process.
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Blockchain technology can offer a secure and reliable record for donations and funding distribution. It deals with a few of the drawbacks and problems with the quadratic funding structure.
Blockchain-based smart contracts can automate the funding process. They can reduce the risk of manipulation and ensure fair and transparent distribution of funds.
Further, blockchain technology also facilitates quadratic funding in the future.It can streamline the process of tracking and transferring funds for project contributions with digital tokens that represent each contribution. Users can utilize these tokens to provide a clear representation of a contributor's interest in a project or overall financing pool.
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Blockchain technology can resolve efficiency flaws associated with quadratic funding model. By guaranteeing transparency, decentralisation, and fairness in the distribution of cash, this technology offers the foundation required for adopting quadratic funding.
Interested in developing a blockchain-enabled quadratic funding platform? You can hire smart contract development company to get make quadratic funding more efficient. Our blockchain developers can assist you. Reach out to us to get started with your project.