city3’s mission is to create more just socio-economic systems powered by crypto for existing real world communities. As part of this effort, we recently partnered with Gitcoin to bring quadratic funding to the city of Oakland.

Quadratic funding (QF) is a democratically scalable way of funding public goods, where matching capital is distributed based on a quadratic formula that makes the number of contributors matter more than the amount raised.

We originally set out with three broad questions outlined in our announcement:

• Is supporting an organization that you care about an effective incentive for someone to set up a web3 wallet?

• What can quadratic funding tell us about the way people value civic organizations?

• Will small dollar contributors feel they’ve made a significant contribution?

In this article we highlight two major takeaways from the experience:

1. To optimize positive results, we should identify the types of decisions and/or public goods that thrive when QF is applied. We recommend a stronger alignment with the two problems QF is designed to address: information asymmetry and the free rider problem.

2. Governance experiments need to prioritize building trust, accessibility and diverse representation. Funding real-world public goods comes with its own set of challenges, but existing tools are not designed for offline communities. This is an open call for more QF projects “in the wild”.

Overview and results

During Gitcoin Grants Round 14 which ran from 8-23 June 2022, 7 Oakland nonprofits raised $3,799.07 from 454 contributions and 249 unique contributors. $15,000 has been set aside for matching, funded jointly by city3 and the Oakland Fund for Public Innovation.

Although contributing to the round was open to anyone, we hosted a series of virtual governance workshops aimed at assisting locals with setting up a non-custodial crypto wallet and Github account, and then navigating Gitcoin’s checkout process.

During these workshops we saw firsthand how most web3 tools are simply not designed for offline communities, let alone mobile-first users.

Yet despite the friction, several residents expressed surprise that crypto could be used in this way. For those interacting with crypto for the first time, there was something viscerally meaningful about seeing a $5 donation get matched with $30 for an organization in their community. Those already familiar with crypto expressed a desire to see more of these initiatives:

“I am currently working full time for a DAO, and it's cool how global it is, but would love to get more involved [with] local web3/crypto efforts.”

Exact numbers on local participation are not available, but by combining Gitcoin’s profile location data with the number of people who attended our governance workshops and/or responded to our feedback surveys, we estimate that 20% of contributors were Oakland residents.

Clearly, there exists some critical threshold at which representation either justifies or undermines the entire quadratic funding process. This also highlights why education and accessibility are so important, and ought to be considered integral to any effective quadratic funding program.

Consider a hypothetical grants round with higher-stakes decisions. While outside funding might still be useful to maximize funds raised, would we still weigh votes equally between locals and non-locals? We’re excited about the early although untested solutions that attempt to solve this, such as intersectional social data (see RadicalxChange) or geo-spatial weighting (see Astral Protocol or Foam).

Where does quadratic funding matter most?

In their 2020 paper, Building Radical Cities, Paul Healy and Matt Prewitt identify QF as one of several mechanisms to better calibrate political expression at the city level. QF has been a popular choice for distributing public grants in the cryptosphere. For example, Gitcoin Grants Round 14 saw record breaking numbers: over 44,000 contributors donated $1.7M which will be boosted by a $3.2M matching pool.

Just as QF supports “long tail” crypto projects – novel, small initiatives that otherwise would not be able to accumulate startup capital – we set out to test whether the same could be applied to long tail “real-world” projects, particularly civic organizations that play a critical role in serving their communities. While several offline projects have raised funds with Gitcoin in the past, this was the first time matching was targeted at a specific geographic community.

We are incredibly proud to have worked with Oakland nonprofits doing important work ranging from tech mentorship to supporting gang-impacted youth. And while we believe that nothing bad happens when impactful community organizations get money they deserve, in hindsight we do question whether funding local nonprofits was the most useful application of this governance tool.

The benefit of QF lies not so much in matching large sums of capital to small donations as in surfacing the nuance of community preferences in order to produce the best possible allocation outcome for decisions involving competing public goods.

Here we turn to the two problems QF is most cited to solve:

1. QF solves an information problem. In a world of scarce resources, the government (or more broadly, the public) does not always know how much of a certain good to provide

2. QF solves a free rider problem. Those who benefit from public goods often underpay or don’t pay at all because there is little incentive to make small, individual contributions.

We believe we could have done a better job of scoping the problem space and designing our QF program to directly address these areas. For our next experiment, we may consider these questions as part of our decision making framework:

1. What are some examples of competing public goods that we find difficult to prioritize in the local city budget?

2. What are some areas of public resource allocation that people frequently complain feels unrepresentative and/or unfair?

3. What are some alternative governance models already being applied in the community (e.g. participatory budgeting, neighborhood council advisory boards) – are they willing to try a new approach?

A call for more quadratic funding “in the wild”

Some of our biggest coordination challenges exist at the city level. While there is growing interest in new governance models enabled by web3 technology, we haven’t seen these implemented outside of a few examples. In other words, whether quadratic funding is indeed democratically and economically optimal is yet to be tested at scale.

This presents a massive opportunity to combine the best of tokenized governance with decisions that tangibly affect the communities we live in. Several organizations are already doing work that makes this possible:

• Gitcoin

• Endaoment

• Change

• RadicalxChange

• Clr.fund

• Protocol Labs

We hope to see more crypto tools designed to serve real-world communities. For this to happen, we simultaneously need to invest in pre-existing social infrastructure that has a long legacy of making our cities more just, more livable and more resilient.

Conclusion

QF is only as impactful as it is accessible and only as useful as it solves critical problems that could not be solved through simpler means.

The Oakland local cause round was the first of many programs city3 will be launching to bridge web3 innovation with the needs of real-world communities. Just as crypto crowdfunding has expanded possibilities for seeding public goods, we have a unique opportunity to shift resource allocation within our cities.

Follow us on Twitter to stay up to date with our work.

Thanks to [Lane Rettig](https://Lane Rettig), Ale Borda and Jeff Emmett for reviewing this post.

Over the next 50 years, cities across the world have a unique opportunity to create more prosperous, just, and regenerative communities beyond our current extractive systems of financial, social, and government organization. 

New coordination technology will play a critical role in shaping this. However, while on-chain, tokenized governance challenges us to rethink resource allocation at scale, we need to see more use cases outside of the current crypto context.

We’re excited to announce that city3 is partnering with Gitcoin to pilot the first citywide local cause round for Grants Round 14.

Applying crypto powered governance to existing city dynamics allows us to pilot a transition to a more just governance structure for real world communities. Quadratic funding to support local non-profits is our first foray into community governance, and we’re starting with Oakland.

Quadratic Funding meets cities

Quadratic funding (QF) is a powerful mechanism for resolving collective action problems – namely the monopoly that financial capital holds over decision making power. By weighting matching allocations by the number of donors rather than the amount donated, we’re testing new models for direct democracy to take hold in our communities. 

This is an important improvement to existing participatory budgeting models as QF enables a more nuanced expression of public preference over simple winner-take-all majorities. It pushes power to the margins and brings more democracy into public good funding decisions.

This local cause round marks a first of its kind and, we hope, the first of many. Alongside carving new models to fund civil society, we hope to answer these questions:

• Is supporting an organization that you care about an effective incentive to onboard to web3?

• What can quadratic funding tell us about the way people value civic organizations?

• Will small dollar contributors still feel like their voice matters?

We’re certainly not the first to try this. The Colorado Democratic Party has experimented with quadratic voting, as has the government of Taiwan. In Boulder, Colorado, quadratic funding was used to distribute $30K+ to businesses most affected by the pandemic. 

We, are however, the first to apply real-life QF with a fully crypto-native experience — and we expect there to be lots of learning and opportunities for improvement. The reality is that there are still major technical barriers to using crypto for this kind of experiment, including lack of internet connectivity, poor usability and legacies of exclusion. We believe that QF can create more democratically optimal outcomes, but only if we find ways to foster democratically optimal inputs.

Our approach

Our approach has been rooted in building with community, particularly those who were left behind from the last web2 wave.

Drawing from our deep ties in the community, we began organizing in Oakland in Q3 2021. In Q2 2022, we hosted several crypto onboarding sessions with the aim of reaching those who otherwise would not be exposed to this technology. 139 people received pre-funded non-custodial crypto wallets for the first time, 84% were traditionally underrepresented, and signed our OAK Founding statement. 

We then hosted in-person kickoff sessions with local non-profits to help explain QF in a more intimate environment. Most people were surprised to hear that crypto could be used in this way, and even more so that they could reach Oakland residents through these new funding avenues. The 7 non-profits participating in this round have had a profound impact on their communities:

• The Hidden Genius Project mentors more than 1,000 young Black men each year to overcome existing barriers and accelerate their careers in tech.

• The East Oakland Collective offers homeless services and solutions, economic empowerment and community action for Black residents.

• Community Kitchens is a free meal program for Oakland’s most vulnerable community members. Every day they bring together over 50 local restaurants and 10 community groups to distribute meals to  the unhoused, at-risk youth, and shut-in or low-income seniors.

• Homies Empowerment provides spaces where gang-impacted youth can heal and thrive. They run a community school for youth who have been pushed out of traditional schools as well as a community care center and several food access programs.

• The Bay Area Mural Program brings local artists together with community stakeholders to turn bare, blighted or graffitied walls into artistic landmarks that address communal issues.

• Agency Oakland works to create, facilitate and sustain spaces for artists and creatives in Oakland. They offer subsidized rates and production support for local arts and culture organizations and individuals who want to use their 10,000 square-foot activation space.

• Adamika Village provides direct outreach to individuals and families impacted by community violence. They do this through healing circles, funerals, rights of passage ceremonies, missing people search and rescues, and hood patrol.

See each non-profit’s full profile here.

The Oakland Fund for Public Innovation came on as a matching round partner given their willingness to engage private partners to innovate, test and scale ideas that enhance Oakland.

We also partnered with Endaoment to reduce the friction for non-profits withdrawing crypto donations. Endaoment is a public charity that allows US nonprofit organizations to accept legally compliant, tax-advantaged crypto donations as cash in their bank.

Who we are

At city3, we’re building the tools to make web3 work for our cities. Some of our biggest coordination challenges exist at this level – our cities and too many of the people within them suffer from environmental injustice, economic exclusion, and social stratification. 

We believe the next 50 years will be critical for physical communities to determine a new political and economic path, one rooted in collective stewardship, economic resilience, and human empowerment.

For this to happen, we need better technology that serves our cities. We’re here to build it.

1. Participate in the Gitcoin round and support Oakland’s local organizations

2. Follow city3 on Twitter to stay up to date with our work

3. Follow OAK on Twitter to stay tuned with city3’s first localized project