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EOS can do better than quadratic funding

Article originally posted on voice.com, xposting here for people who don’t/can’t use Voice

Quadratic Funding

A recent Block.one grant awarded to EOS Nation and EOS Asia has the EOS community discussing the possibility of creating a Gitcoin-like crowdfunding platform for open source software development. Gitcoin uses the innovative concepts of quadratic funding to greatly improve upon earlier methods of coordinating open-source software funding.

Quadratic funding is a concept derived from quadratic voting, which is an attempt to “incorporate intensity of preference and knowledge” in the weighting of votes. The general idea behind quadratic funding is for a platform to award a match on funding equivalent to the square root of the donation amount. For example: if a project is to receive $100 dollars worth of donations, the optimal way to accrue the funding is through 100 individual donations of $1, as opposed to one donation of $100. Each donation is matched at a level equal to the square root of the amount. Each $1 contribution would therefore get an additional $1 match (Square root of 1 is 1), whereas a single $100 donation would get a $10 match (Square root of 100 is 10). This is a powerful concept, and it incentivizes maximizing the total number of project donors. This solution limits the effect of the observation that wealth accumulation follows a pareto distribution, since the wealthy in such a funding system have an ever-diminishing influence on their ability to allocate platform funds to their project of choice. It strikes the balance between one-dollar-one-vote, and one-person-one-vote:

Can EOS do better than quadratic funding? I believe we can.

Measuring Success

Ultimately, quadratic funding is one possible solution to the question of how to reach consensus on how to allocate limited resources to fund projects. But what is the goal of funding projects at all, and how can we measure how successful the projects are at achieving that goal? If there is no particular goal, and therefore no single way to measure success, quadratic funding may very well be the optimal strategy to allocate funding. However, if the goals of the funding are made explicit, and if there exists an ability to objectively measure the extent to which the stated goal is achieved, alternatives arise which may demonstrate measurably better success. For example, if we want to fund the development of open source projects that bolster the EOS ecosystem, and we agree to measure the success of EOS based on the token price of EOS relative to any other asset, then I hope to demonstrate that quadratic voting is suboptimal.

Stake-time Weighted Funding

The alternative to quadratic funding could be called stake-time weighted funding, a concept derived from stake-time weighted voting (introduced by Dan Larimer in his October 2019 article titled, “Blockchain Governance Proposal”), which is an attempt to incorporate the intensity of one’s preference in the weighting of votes on the block producers for a specific blockchain network. Stake-time weighted funding allows a voter to incorporate time, in addition to money, into their on-chain representation of how much they value a public good. If the core system token for a blockchain network is a currency token, as opposed to a utility token, as is the case for the EOS token ever since the introduction of the EOS Powerup Model which now decouples network utility from EOS ownership, then the success of the blockchain network can largely be measured by the valuation of the system token relative to other assets. Therefore, the game-theoretically optimal way to allocate vote weight on a blockchain network is not to arbitrarily quadratically discount the vote weight of the wealthy, but rather to allow each token to individually represent a vote weight proportional to the amount of time it has been locked (or staked). The tokens which have been locked for a longer time objectively represent a longer-term interest in the success of the blockchain. If a “whale” account is unable to commit to locking their wealth long-term, then their vote weight will be discounted based upon market-determined rates of interest in the blockchain.

A network using stake-time weighted funding could agree to allocate a percentage of its inflation to this project funding system (or “WPS”: Worker Proposal System). Inflation would be automatically awarded to the projects which accumulate the most vote weight in a particular period. We could optionally add an additional stake-time pool which would collect the direct funding of a project. For example, if an account votes for funding a project and directly sends their EOS to support that project, it could be considered a “stake” in the “infinite” stake-time pool, and could be counted as a vote with a weight proportional to the voter’s ownership in that “infinite” pool just as the vote is calculated for any other stake-time duration.

Conclusion

Stake-time weighted funding is not a universally applicable funding mechanism, and many (even most?) communities and public goods which require self-empowerment via funding may be best-served by using quadratic funding. However, if the funding is specifically for a blockchain network community, then stake-time weighted funding should be preferred for the following reasons:

  1. It appropriately weights token votes based on the extent to which the token is invested in the long-term success of the blockchain as measured by token value.
  2. It has a clear and natural mechanism from which the platform matching could be funded (inflation of the network token which allegedly benefits from the funding).
  3. It does not suffer from the need to “trust” that accounts are owned by unique individuals (It is not susceptible to a Sybil attack), since the vote weight is by token rather than by account.
  4. In the case of EOSIO project funding, the necessary smart contracts are already partially completed by Block.One (the eosio.token smart contract which allows for staking into stake-time pools).

Therefore, regarding this new funding platform, it may be best to limit the scope to the funding of one particular blockchain community, like EOS, and in doing so we would unlock the ability to use stake-time weighted funding and gain the aforementioned advantages. As the new platform is explicitly open-source, it would still achieve the goal of benefiting all EOSIO-based blockchains, who could simply choose to deploy the platform on their own blockchain.

I know a lot of work has already gone into the creation of this new funding system, and so if the sunk costs don’t allow for a pivot to stake-time weighted funding, then I would propose that we ensure no EOS inflation is used to fund this platform (which will fund projects not necessarily related to EOS), and we (the community) should independently pursue the creation of a WPS based on stake-time weighted funding.

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