Quadratic Funding: Your Opinion Matters Again

Market Update

The rally I thought would happen last issue didn’t happen. We’re still going down. People are calling it a ‘crab market’. Sure it’s going sideways, but it’s threatening to break down even further.

I found a great website to practice trading: Bitcoin Flip. You can long and short with leverage, and as you watch the price fluctuate, observe what your mind says to yourself. It’s no coincidence that good poker players do well in trading.

1. Have a system for determining when you’ll go long/short.
2. Have a system for determining how much profit/loss is enough.
3. The market has 2 modes: trending and ranging. You’ll have a different system for each of these modes.
4. Lots of small losses and a few big wins are normal. Think about VCs. They do all that research, and still rely on a few investments to stay profitable.

I’ll figure out more on my own and write about it later.

News Curio: Shapeshift Dissolves Itself

Shapeshift is a company that makes crypto wallets that are easy to use (like Exodus!) and lets you easily exchange coins within it. Today the company announced it is dissolving and becoming a Decentralized Autonomous Organization.

What does that mean?

It means all its code will become public, the company won’t exist anymore, and instead of the founders+investors deciding what to do, whoever has FOX tokens can now vote on how to spend the treasury and what to do.

Obviously this is big. Read all about why and how here.

Banks are in Trouble

Former Wall Street Playboys (now BowTiedBull, they used to work on Wall Street) wrote about how banks make money, and why they’re in for a world of hurt (thanks to DeFi).

You know how when you walk into a shop that sells glasses to order contact lenses, they just log into some website that you could’ve gone to and click order…. when you could’ve done all that yourself and had it shipped directly to your house, but for less money?

What if banks were reduced to exactly that, thanks to DeFi?

Quadratic Funding – your opinion matters again

Let’s say a decision has to be made within a group of people.

1 person 1 vote

Sounds fair but the minority never gets heard. It’s the tyrannic rule of the majority. Imagine 1 sheep, 5 wolves voting on whether or not to eat the sheep.

You can buy votes

The wolves don’t care so much about eating the sheep (they can eat other things) but the sheep really wants to stay alive, luckily now it can spend lots of money to express its strong desire.

But what if the sheep was the richest by far (as wealth is wont to be distributed). Then the whole voting process is a farce.

So in voting, we need to balance “strength of preference” with “majority opinion”.

How about a system where the nth vote costs n:

Buying 1 vote will cost you 1.
Buying 2 votes will cost you 1+2=3.
Buying 3 votes will cost you 1+2+3=6.
etc.

Turns out we need something like this to decide where funds should go.

Gitcoin Grants works like this:

1. Collect donations from a group of large companies and put them in a pool.
2. At the same time, run a crowdfunding campaign for some projects. People can donate to projects they find most interesting.

The end of the whole campaign looks like this:

Money collected from big companies: $1000

Money collected from crowdfunding:

Project 1	$1+$1+$1+$1+$1
Project 2	$1+$5
Project 3	0

The $1000 collected from the big sponsors would then mostly go to Project 1, because it has more supporters. Even though Project 2 had a large contributor. And of course, the Projects receive the community’s paltry contributions as well.

The weights are calculated thusly:
Project 1: (sqrt(1)+sqrt(1)+sqrt(1)+sqrt(1)+sqrt(1))²
Project 2: (sqrt(1)+sqrt(5))²
The actual equation is more complex to prevent people from coordinating to game the system/putting an upper limit on how much larger the Match Amount can be, but obviously you can still take advantage of the fact that sqrt(1) is 1.

You can read about it here or run the code yourself.

OK so why are you telling us this. Who cares? Which token is gonna pump next?

The point is that crypto can do so much more than just make you rich. It can make it worthwhile to vote again, for example. Society can agree upon new ways to work together, and iterate faster to fix problems that come up (see the section Pairwise-bounded quadratic funding vs traditional quadratic funding).

Haven’t we known that the public’s opinion is disconnected from what the government does in like, forever?

Ethereum is the only coin where these idealists, playing with ideas of governance, funding, societal change gather. I am not kidding. Gitcoin Grants is basically their way of distributing funding to Ethereum’s infrastructure (think about veins, distributing funds/blood to different parts of the body).

So yes, if you want to hear what coin will pump next, it’s ETH. But I hope you learned more than that today.