Please describe your proposed solution
Problem we are trying to solve
Existing crowdfunding platforms have been criticized for being biased towards wealthy individuals, leading to a lack of representation and diversity of projects. This disparity is understandable, as the amount of donations one can receive depends on their disposable income and the value of their currency in the global market. For instance, it's relatively easy for someone with friends in the US to receive a $100 donation due to higher average annual salaries there. In contrast, finding someone who can donate $100 in Bangladesh is considerably more challenging. This has made it difficult for small, underrepresented open-source projects to receive support.
Therefore, we propose a new approach called extended quadratic crowdfunding. This approach “extends” or improves upon quadratic funding schemes.
What is Quadratic Funding?
Quadratic funding enhances crowdfunding's inclusivity by incorporating a matching pool. While donors can still directly support their preferred projects, matching funds are distributed to projects with more supporters. This approach combines small individual contributions with larger matching sums, ensuring that projects with broader support receive more generous funding. For instance, the quadratic formula would allocate more matching funds to a project with 10 donations of $10 each than to a project with a single $100 donation, as it has more individual supporters.
For more information about quadratic funding, visit <https://arxiv.org/pdf/1809.06421.pdf>.
Extended Quadratic Funding: An Enhancement of Existing Models
So, what is Extended Quadratic Funding? It's an improvement on Quadratic Funding that adds another layer: the "impact score" of individuals. Socious' Impact Score indicates how much an individual has contributed to social and environmental impact. You can find more information about Impact Score here: <https://shinid.notion.site/Socious-Whitepaper-a34132b572d846708c9b5b7335130996?pvs=4>
Extended Quadratic Funding takes into account the contributor's impact score, making the system more equitable. This means that people who have made contributions to improve the world can have more voting power than wealthy individuals. The goal is to create a more decentralized and fair system that promotes inclusive funding for public goods.* By allowing individuals who may not have large sums of money to participate in the funding process, we can increase diversity and enhance the representation of all voices. This, in turn, may lead to a more equitable distribution of funds and an increase in support for public goods.
The decision-making process on extended quadratic crowdfunding platforms is decentralized and transparent. This can help to build trust among users and ensure that decisions are made in the best interests of the community as a whole.
Extended Quadratic Funding complements Project Catalyst
Project Catalyst has played a crucial role in expanding the Cardano community worldwide. However, we've observed that many successful projects originate from regions with high ADA concentrations—North America, Europe, and wealthy Asian countries like Singapore, Hong Kong, and Japan. In contrast, projects from developing regions such as Africa, the Middle East, parts of Asia, and South America often struggle to secure funding. This disparity is understandable, given that voting power is determined by ADA holdings. Our project aims to address this imbalance and foster Cardano community growth in these underrepresented regions.
Detailed Design of the Product
Let us walk you through the key features of our project:
- Sign-up, Login, and OAuth
We enable users to log in via their Socious account using OAuth. This is crucial as it allows users to accumulate their reputation (impact score) across different platforms.
- KYB and KYC using an identity wallet - Hyperledger Identus (formerly known as Atala PRISM)
In Quadratic Funding schemes, it's crucial to prevent individuals from creating multiple accounts, as this could lead to system manipulation and disproportionate allocation of matching funds to projects with few genuine supporters. To address this issue, we'll implement a Self-Sovereign Identity Wallet using Hyperledger Identus (formerly known as Atala PRISM). This ensures that each person can have only one voting account, maintaining the integrity of the funding process.
- Create project flow
In this flow, project creators can outline the problem they aim to solve and present their innovative solutions. To receive funding, they'll need to link their Cardano Wallet in order to record the Cardano wallet address to which the funds will be sent to.
- Explore projects, vote, and donate flow
In this flow, voters can explore various projects and support them either through voting alone or by combining their vote with a donation. Donating enhances the voter's influence, as it increases their voting power and secures more matching funds for the project from the matching pool. To make a donation, voters must connect their Cardano wallet to the platform.
- Calculate impact and claim badges as verifiable credentials flow
By donating to projects, you can earn impact points. The more impact points you accumulate, the greater your voting power becomes. These impact points unlock badges at different tiers, which can be claimed as verifiable credentials on an identity wallet. Higher-tier badges come with certain benefits. We use verifiable credentials to prevent fraud and ensure the system's integrity.
Long-term vision
Our long-term vision is to create a self-sustaining circular economy that continuously generates public goods. In this system, funded projects produce verified impact—such as carbon credits—which trained impact accountants validate. This verified impact is then sold on carbon credit markets or impact trading platforms like OutcomesX, a marketplace for social outcomes. For example, UBS Optimus recently invested $2 million in verified outcomes related to improved education and mental health, benefiting 21 different organizations. The proceeds from these sales replenish the matching pool for the next round of crowdfunding. Moreover, since the efficiency of projects in producing social and environmental impact is verified, funding is optimally allocated in subsequent rounds to projects best suited to deliver impact. This system creates a virtuous cycle where the funding pool is constantly replenished and strategically allocated where it's most needed.
Funding Sources for the Matching Pool
The SOCIO Pool's staking rewards will replenish the matching pool. Individuals who delegate to the SOCIO pool will also earn impact points. Initially, we'll seek sponsors for the matching pool. As we progress, we aim to expand the pool using both SOCIO pool rewards and revenue from selling impact (such as carbon credits).
Extended Quadratic Funding complements Project Catalyst
Project Catalyst has played a crucial role in expanding the Cardano community worldwide. However, we've observed that many successful projects originate from regions with high ADA concentrations—North America, Europe, and wealthy Asian countries like Singapore, Hong Kong, and Japan. In contrast, projects from developing regions such as Africa, the Middle East, parts of Asia, and South America often struggle to secure funding. This disparity is understandable, given that voting power is determined by ADA holdings. Our project aims to address this imbalance and foster Cardano community growth in these underrepresented regions.
Partnerships
We've established partnerships and are in talks with synergistic projects. For detailed information about these partnerships, please visit <https://shinid.notion.site/Partnerships-1213d106030b80f4945dc5c464c5796a?pvs=4>.
Summary
This project builds upon the Proof of Concept project that was funded in Fund 11. The Proof of Concept can be found here. All the interviewees were supportive of this idea and validated the PoC. As a result, we've decided to progress to the next stage, where we will develop an actual product for this project.
In summary, the proposal of Extended Quadratic Funding seeks to remedy the biases and underrepresentation prevalent in existing crowdfunding platforms. This approach builds upon the concept of Quadratic Funding, which uses a combination of small individual contributions and larger matched sums. The extension lies in the integration of an "Impact Score", an assessment of an individual's contribution to social and environmental causes. This means individuals with significant social contributions have more voting power than merely wealthy patrons, creating a more equitable system. Furthermore, the decision-making process is decentralized and transparent, encouraging trust and community-centric decisions. We believe that this system attracts more people to build open-source projects in the Cardano ecosystem.
*In economics, public goods are commodities or services that are provided to all members of a society, either by the government or by a private individual or organization. Examples of public goods include clean air, public parks, street lighting, and public infrastructure like roads and bridges. In the context of this proposal, public goods could also include open-source projects and other initiatives that generate social or environmental benefits.
References:
- Mankiw, N. Gregory. Principles of Economics, 8th Edition. Cengage Learning, 2017.
- Samuelson, Paul A. "The Pure Theory of Public Expenditure". Review of Economics and Statistics (The MIT Press) 36 (4): 387–389, 1954.