Quadratic Funding: a tax system supporting public goods

GM,

Lately, I've been quite fascinated with the topic of public goods. Not only is it closely related to Blocktrend, but there are also many useful tools and highly praised media in our daily lives that, due to incompatibility with the current business environment and a lack of public funding, end up having to bow out.

The "FTX Creditor Inquiry Tool," which was discussed in yesterday's Blocktrend podcast, is a prime example. An open tool for everyone to use, the higher the traffic, the more people it serves, but the next month's bill will also be considerable. Who should pay for the maintenance of public goods has always been a difficult question to answer. We can't always rely on Google to waive cloud fees or have governments allocate funds and take over, like in the case of the "Mask Map."

The "Quadratic Funding" event hosted by Gitcoin offers a novel solution to this age-old problem. Unlike the RetroPGF grant that Blocktrend applied for previously, where everyone could only passively watch the voting by the Optimism Civic Chamber members and wait for the results, the latest round of Quadratic Funding, the "Gitcoin Grants Beta Round," will be open for everyone to participate from April 25th to May 9th. Everyone can decide how the funds should be allocated.

In this article, I will first explain what the Quadratic Funding is, and then discuss how everyone can help support the public goods they care about.

User Pays

Last week, after sending out the RetroPGF article, I received a letter from a member, an excerpt of which is below:

Hi Ming-En Hsu, I have been a long-term subscriber... Because of my long-term subscription, I can understand and appreciate your dedication, so I have been paying to support you... Many times I don't have time to read the articles or don't have the habit of listening to podcasts. For a while, I had no time to read the articles and had to temporarily unsubscribe. Later, I felt uncomfortable and thought I should still pay – supporting you means supporting more people to learn about the various aspects of the crypto world.

I personally strongly disagree with the idea of free. As long as it's free, few people will cherish it and no one will appreciate the effort put into it... Your effort should be compensated accordingly to maintain balance. But whether or not you offer it for free, I will pay. I support all your efforts, and they should be met with equal response.

These words express the thoughts I have been unable to articulate during the recent bear market period – please support us by paying even if you don't read the content.

In the past few months, the crypto market has been turbulent, with significant price drops. Every now and then, I receive letters from members asking how to cancel their payments. Usually, I ask for the reason for cancellation to see how we can improve and do better. However, the answers I often get are that the content is excellent, but the readers are temporarily uninterested in the crypto world or simply don't have time to read.

I understand that readers have their own considerations when canceling subscriptions, and it's hard to know what other factors are at play just from a few words. But if the reason for canceling is just not reading for a while, I'd like to reply, "Please continue to support us by paying even if you're not reading."

Of course, I never dare to say that because it's impolite and goes against the logic of "user pays." After all, many people initially subscribe to Blocktrend because they are blocked by the paywall and reluctantly give it a try. If there were no paywall on the website, why bother paying after reading?

But in reality, this forces public goods to become a commodity transaction.

People like to go to the park to relax and enjoy a weekend afternoon. But the fact that parks allow everyone to enter and exit freely doesn't mean they are really free; instead, the "entrance fee" is included in the taxes people pay to the government. People pay taxes to the government, the government allocates funds for maintenance, and people can freely access the park. Otherwise, theoretically, only visitors willing to pay cleaning fees would be allowed to enter the park. But that wouldn't be a park; it would be an amusement park.

Parks are not "goods" that people need to pay for only when they use them but are "public goods" that need to be supported regularly even if they are never used. Public goods on the Internet should be treated the same way.

The member who wrote the letter didn't have too much money to spend on things they don't use. Deep down, they already see Blocktrend as a public good, not a user-pays commodity. If Blocktrend is a public good, they should continue to pay even if they are not using it – subscribing is not necessarily for personal use but to give more people a chance to learn about the crypto world.

That said, I still dare not claim that Blocktrend is a public good. Although two-thirds of Blocktrend's content is made publicly available every week, one-third still requires a "ticket." This is not only due to concerns about running out of funds, but also because there is a lack of a mature "tax system" on the Internet to support the long-term operation of public goods.

Starting next week, Blocktrend will participate in the Gitcoin Grants Beta Round fundraiser, aiming to encourage everyone to get involved and learn how this new tax system works. This also hopes to stimulate online "amusement park" operators to consider the possibility of transitioning into "parks."

Tax System

According to Gitcoin's introduction:

We are excited to announce the Gitcoin Grants Beta Round as the second set of Gitcoin Grants Quadratic Funding test rounds that will run on the new decentralized Gitcoin Grants Stack. Planned for April 25th to May 9th.

As part of our ongoing efforts to decentralize and democratize the grant funding process, we have been transitioning from a centralized grants platform to a decentralized protocol that enables multiple grant rounds to run concurrently on-chain.

I will break down Gitcoin fundraising into three roles: large donors, Quadratic Funding, and individual voters. Large donors contribute money to provide matching funds for public goods. Individual voters use small change to vote, allocating matching funds to designated public goods through Quadratic Funding.

In the physical world, the large donors who provide matching funds are governments. Governments allocate funds to public goods based on budget proposals from administrative agencies, which are then reviewed and decided upon by representatives of public opinion. However, the mode of operation in the digital world is quite different.

There is no government in the Web3 world. The large donors for Gitcoin fundraising are organizations like the Ethereum Foundation, or Coinbase exchange, a16z venture capital, Mask Network, and so on. But the method of allocating funds to public goods is not reliant on public opinion representatives' review; instead, it is determined by each user's voting with their small change.

Taking Blocktrend's participation in the "Web3 Community and Education" category as an example, there will be a total of $200,000 in matching funds. These funds are provided by large donors, but they only contribute money; the specific allocation of funds depends on the collective wisdom of the crowd.

Individual voters must use cryptocurrencies in their MetaMask wallet to vote on budget allocation. If you donate 1 USDT to Blocktrend, Blocktrend will not only receive your 1 USDT but also obtain a portion of the $200,000 matching funds. In other words, Blocktrend will receive two amounts of money – the voting small change and the matching funds.

When voting, the number of people is more important than the amount of money. If 10 people each donate 1 USDT, Blocktrend can receive more matching funds than if only 1 person donates 10 USDT alone. Although Blocktrend receives 10 USDT from the voting small change, the amount of matching funds they receive differs significantly. Therefore, starting next week, I will actively ask everyone to help vote 🙏 This is the essence of Quadratic Funding's design.

Quadratic Funding is a "tax system" designed specifically for public goods. If 10 people are willing to donate 1 unit to Blocktrend, it is more like everyone collectively contributing to maintaining a park – everyone contributes, but each person contributes a small amount. Conversely, if only 1 person is willing to donate 10 units to Blocktrend, it is more like a commodity transaction, with only a few people willing to pay to use it. Quadratic Funding prefers to allocate matching funds to public goods supported by the majority, rather than commodities.

At this point, some people might be curious. When Blocktrend applied for RetroPGF, they promised to give all the OP rewards to paid members, encouraging people to subscribe. So, will there be any rewards for helping Blocktrend get matching funds with small change votes this time? The answer is absolutely not.

Differences between RetroPGF and QF

Although both RetroPGF and Quadratic Funding are tools to help public goods obtain income and sustain their operations, the logic behind them is entirely different.

RetroPGF focuses on increasing economic incentives, turning public goods donations with an initial investment return rate of 0 into a potentially profitable smart investment. As long as the review committee deems Blocktrend's influence significant enough, early "investors" have the opportunity to receive a cryptocurrency worth more than their initial subscription fee. People do not need to change any behavior, and the operation can work as long as Blocktrend successfully applies.

In contrast, Quadratic Funding is more optimistic about human nature and involves a higher level of participation. People must first recognize Blocktrend as a public good and understand that setting up a paywall is an inevitable choice in this era, leading to the current situation of a few specific days with "free admission."

Furthermore, people need to recognize that Quadratic Funding is a tax system designed specifically for public goods to support their development. Quadratic Funding is not like filing taxes, which the government mandates participation in. Everyone must strive to overcome the temptation to "free-ride" and actually donate small change to help public goods receive matching funds.

Seeing this, everyone might still be eager to participate, but using the MetaMask wallet to vote on Gitcoin is ultimately not as simple as swiping a card for payment, and blockchain transaction fees are also an issue. All things considered, if one in ten people is willing to overcome all difficulties and complete the small change voting, it would be a blessing.

Since Quadratic Funding is designed for public goods issues, and the method of allocating funds is like a "participatory budgeting" citizen vote, Gitcoin strictly prohibits all applicants from offering any form of reward to donors to avoid "bribery." Therefore, I would say that by voting through Gitcoin, you are actually helping Blocktrend accelerate its transition from a commodity to a public good.

The more matching funds Blocktrend receives, the more paywalls I will dismantle, making the website's content more open. This complements RetroPGF. RetroPGF attracts readers to subscribe with potential investment returns, while those who would rather miss out on profit opportunities than pay for a subscription can choose to donate the equivalent of a bus or subway fare each quarter to help Blocktrend receive Gitcoin matching funds.

Public matters should be supported by the public. Information desires to flow, and media should inherently be a public good. The more people hope for free and open content, the more they should prepare their small change (and withdraw it to their personal wallets) and participate in this Quadratic Funding round. This time, you are not paying for amusement park admission but rather supporting the development of public goods and ensuring that parks remain open to the public as "taxes."

Blocktrend is an independent media sustained by reader subscription fees, and its content does not accept commercial collaborations. If you think Blocktrend's articles are good, please feel free to share them. If you have the capacity, you can also support Blocktrend's operations through regular contributions. If you want to browse past publications, you can refer to the article list.