Tunable Quadratic Funding
How the TEC Incorporates Expertise into Quadratic Funding
Token Engineering = Public Good
Since its launch in January 2021, the Token Engineering Commons (TEC) has granted $460,000 to token engineering projects. Token engineering is an emerging discipline for building the safer and more resilient blockchain systems that will foster public trust and adoption of Web3 technologies. As such, it is a powerful new form of public goods aimed at laying the foundation for humanity’s next coordination layer.
The TEC Moves to Quadratic Funding
The TEC recently made an important decision about how we fund token engineering as a public good. Previously, TEC token holders utilized Conviction Voting (CV) to allocate grants funding. We remain optimistic about CV, particularly for communities that want to stimulate lots of grant making from larger funding pools. But we found that it made the passage of funding proposals too easy for the level of grant making we could sustainably support.
In April, we made the decision to test a new approach to public goods grant-making by shifting from CV to the Quadratic Funding (QF) model pioneered by Gitcoin. Our initial step involved allocating $25,000 as matching funds for a dedicated “Token Engineering Round.”
Our goals for the test were twofold: to improve the quality of investments in token engineering public goods and bolster the sustainability of our funding pool. We’ve now had a few months to assess, and the signs are quite good.
Round 1 of the Token Engineering Grants program yielded encouraging outcomes, with over 250 contributions at an average of approximately $25 each. That amounts to an extra $6,162 in funding, on top of the TEC’s $25K matching fund. For TEC token holders, this means more “mission bang” for the buck — 24% more funding for token engineering projects for the same expenditure of Common Pool funds. The matching pool approach also harnesses TEC token holder funds to entice new contributors to this newly emerging form of public goods.
Incorporating Subject Matter Expertise into Quadratic Funding
The strong results of this experiment have solidified the TEC’s commitment to using QF as our primary mode for making public goods grants. But QF wasn’t the only thing we were testing.
QF excels in facilitating inclusive and democratic funding decisions, which is a valuable goal in itself and enhances the overall quality of funding decisions. Nevertheless, challenges arise when this openness is exploited. The most obvious challenge lies in the potential for manipulation and fraud through organized Sybil Attacks. A more subtle and less talked about challenge arises when that openness turns community funding decisions into a popularity contest. Many of us working in Web3 have seen projects with superior organizing capacity swarm token voting in ways that don’t always lead to the most informed decisions.
To address these challenges, we decided to incorporate Subject Matter Expertise (SME) into the voting signal. This was the second part of our experiment. The outcomes were promising, and we now see augmenting QF with SME as an important way to enhance the quality of our investments in token engineering public goods. We also believe this approach holds potential for other communities of practice.
The TEC’s “QF + SME” Experiment
To grasp our experiment, it’s crucial to first understand how QF works. In our case, the TEC allocated $25,000 as matching funds to supplement contributions to the 16 projects participating in the Token Engineering Round conducted in partnership with Gitcoin. As previously mentioned, direct contributions to these projects amounted to $6,162, and our match elevated the total funding to $31,162. Had we simply applied QF, the relationship between contributions (blue) and matching funds (pink) would look like the chart below. As is typical in QF rounds, the matching funds play a significant role in determining the amount received by the recipients. This is what makes Gitcoin and QF such a big deal.
Our next step entailed fine-tuning QF to incorporate Subject Matter Expertise (a “SME Boost”) into our voting signal. The Gitcoin Grants Stack team helped us by making necessary adjustments to their code that enabled us to apply our own customized coefficient on top of the QF allocations depicted in the above chart. We then applied this coefficient boost to donations where tokens within contributors’ wallets indicated a certain level of token engineering expertise. In this initial round, we adopted a relatively straightforward approach by using $TEC tokens and NFT knowledge attestation certificates from the Token Engineering Academy’s Token Engineering Fundamentals course.
The chart below illustrates the results, comparing the original QF match represented by light blue with the SME Boost match denoted by purple:
The results are quite impactful in a number of cases. In projects where there were significant numbers of contributions but less Subject Matter Expertise, matching funds were reallocated away. This occurred in six out of the sixteen projects, with an average decrease of $420. For the remaining ten projects where more expertise signal was detected, we increased the matching funds by an average of $252.
The effects are more apparent using percentage changes. For instance, in the chart below, the first project on the far left experienced a 15% reduction in allocation due to the SME Boost, while the project immediately to its right received a 16% increase.
For a closer look at the results from the Token Engineering Grants Round 1, see this write-up on the TEC Forum.
QF+SME as a Work in Progress
This experiment represents the TEC’s initial endeavor to integrate token engineering expertise into QF. We acknowledge that it wasn’t flawless. The mere possession of $TEC tokens in one’s wallet doesn’t guarantee token engineering expertise. It does, however, increase the probability of possessing such knowledge. On the other hand, the Token Engineering Academy NFT knowledge attestation certificates serve as a more distinct expertise signal. If an individual holds these certificates in their wallet, they have demonstrated an agreed-upon level of proficiency in this emerging engineering discipline. Moving forward, our efforts will involve incorporating additional expertise signals and refining them over time. The goal is to develop a “wise crowd” to help the TEC optimally allocate our funding pool to maximize mission impact.
It is also noteworthy that the process of earning a Token Engineering Academy NFT would be relatively challenging to automate with a bot. Consequently, it functions as a “proof of humanity” that raises the “cost of forgery” and bolsters Sybil resistance for QF.
What’s Next
The TEC’s Token Engineering Grants program aims to support promising token engineering projects that might struggle for attention in more generalized grant programs. By functioning as a community-owned economic commons, the TEC drives funding into a powerful form of public goods that is still not widely recognized, even within Web3 communities.
Token engineering is a highly technical field with the potential for large-scale societal impact. As a seed funder for this critical new form of public goods investment, our ability to identify promising projects deserving of community funding is of utmost importance. Quadratic Funding plays a vital role in this endeavor, and we believe that incorporating Subject Matter Expertise is equally important. Over time, we will enhance the sophistication of these voting signals through knowledge proofs, such as those from the Token Engineering Academy, and through ongoing research efforts like the Token Engineering Stakeholder Study and our longer-term goals of building a reputation system for this burgeoning field.
As the TEC enhances its collective intelligence regarding the key factors driving the advancement of token engineering, we become a valuable signal for making capital allocation decisions in this field. We are moving into a role known in traditional philanthropy as a regranting entity. In regranting, larger organizations collaborate with smaller, specialized entities to more effectively target their grant-making towards specific solution areas. Web3 funders interested in making grants to token engineering as a public good can regrant through the TEC by becoming a matching fund partner in our QF rounds, or by simply buying into the TEC’s Common Pool. As this field continues to grow, so will the funding we can provide for this crucial work.
Looking ahead, Round 2 of the Token Engineering Grants program is scheduled to commence in August. If you have a recommendation for a token engineering project, please direct them to our Token Engineering Grants page. For foundations or other funding sources interested in partnering with the TEC to fund token engineering as a public good, please reach out to us at grants@tecommons.org.
We would like to express our sincere thanks to ENS and the ENS Public Goods Working Group for their generous support in making this experiment possible and to the Grants Stack team at Gitcoin.
Authors note: since the original publication, the TEC has named this approach, “Tunable Quadratic Funding,” or “TQF.”
