Sheldon Anthony IO

Quadratic funding is an exciting new way for blockchain startups to raise funds. Its democratic and fair structure is a departure from traditional funding models that favor large donors. Gartner forecasts that the business value generated by blockchain will grow rapidly, reaching $176 billion by 2025 and $3.1 trillion by 2030, and over 1,500 new open-source code contributions were collected. ^[1] By understanding quadratic funding, business owners in the blockchain world can explore new ways of fundraising and secure the financial backing necessary to succeed in the competitive market.

Blockchain projects are often initiated as community-driven initiatives that embrace transparency and decentralization. However, when it comes to funding allocation, the traditional forms of fundraising often favor influential investors and neglect small-scale participants. This results in an uneven distribution of resources among different members of the community, which can affect the project's long-term sustainability. Moreover, this often creates a power asymmetry, where influential investors can influence the decisions of the project, and steer it in their favor. 

In order to promote more financial inclusion, the UNICEF Venture Fund onboarded eight new startups. A total of over 50% of these companies were women-founded or led, and the Fund expanded its portfolio to Rwanda and Iran with this cohort. Throughout the investment period, UNICEF provides technical and business development support and provides access to UNICEF's work in the countries. The technology infrastructure they've developed will enable UNICEF to benefit from the technology infrastructure developed, as well as identify strategic avenues for further supporting and scaling their work. A key reason UNICEF selected each company in this cohort is that they are building pathways to financial inclusion, as well as that their solution can address cross-cutting challenges identified by UNICEF's program divisions, including enhancing access to resources, accountability, community engagement, and improving funding efficiency.  They have seen staggering results in just over six months. A total of $3.6M in follow-on funding was raised, 23k+ users were served, more than 122k financial transactions were facilitated, 200+ mentor hours were logged with UNICEF and subject matter experts, and over 1,500 new open source code contributions were collected.^[2]

Quadratic funding is a type of crowdfunding scheme where more emphasis is placed on smaller donations from a large number of backers. The idea is to provide more support to projects that have higher community support rather than those that have a few large backers. The more backers there are, the more funds are allocated to a project. This is calculated by taking the square root of the total amount of money donated by each backer, then adding these square roots together to get the total 'quadratic votes'. This total is then multiplied by a matching pool set up by the crowdfunding platform, which boosts the amount of money allocated to each project based on the total number of "quadratic votes" it receives. This formula ensures that projects that have a broad base of smaller supporters get more funding than those that have a few larger donations. The impact of quadratic funding is yet to be fully realized, but it has already shown immense potential in funding blockchain startups. It reduces the influence of large donors and gives more power to communities. This allows smaller projects to get the funding they need to compete in the market and ensures that new entrepreneurs have a chance to succeed. It creates a level playing field for all projects, regardless of their size or backing. It also ensures that entrepreneurs are not unfairly influenced by a few large donors and can operate with more autonomy. 

Quadratic funding has been utilized in numerous blockchain projects, and it has been successful in most cases. One example is the Ethereum Name Service(ENS) project, which used quadratic funding in 2019 to raise over $150,000 in funding. ENS is an open-source project that allows users to create human-readable domain names on the Ethereum blockchain. Quadratic funding requires a high level of participation and contribution, which may be difficult to achieve for projects that are not well-known or have a limited or niche appeal. It also requires a high level of technical knowledge in blockchain and smart contracts to use it effectively and efficiently. More and more business owners are turning to blockchain projects for their secure and transparent transaction processes. Business owners are using this model to generate initial capital, maintain control over their business, and promote transparency in financial decision-making. It presents a powerful opportunity for businesses that are looking for alternative forms of financing.