Ethereans are Disrupting Donations in a Literally Radical Way

Hello defiers! Here’s what’s going,

  • Gitcoin is disrupting public goods funding; a data-based look at four rounds of grants

  • Stablecoin transfers increasingly surpass ether transfers on Ethereum

  • Argent implements MakerDAO’s DSR

and more!

This Public Goods Funding Experiment is Working

Public goods funding is being disrupted with a literally radical experiment.

If you’re in the Ethereum bubble, you should know I’m talking about Gitcoin Grants. Gitcoin, a ConsenSys-backed project, has helped fund blockchain-based teams with $3.3 million since its November 2017 launch. Of these, over $700,000 have been through grants, using a novel mechanism called quadratic funding. It’s the first time this system has been used at this scale.

Gitcoin is a marketplace where developers and projects could find each other; those in need of talent set up a specific job and developers complete it in exchange for pay, or a so-called “bounty.” The goal is to end up with a “jobs mesh” for the open source ecosystem, in which people can be simultaneously employers and employees to many other employees and employers, respectively. So far, Gitcoin has helped 1,983 projects reach 32,352 developers.

Quadratic funding

But grants have started to outpace bounties after Gitcoin implemented quadratic funding. In other words, in this capitalistic and libertarian leaning crypto space, donations started to become a bigger source of funding than employers paying for work. That’s because this mechanism –encompassed by a larger philosophy for organizing decentralized ecosystems of public goods called Liberal Radicalism– has two major traits that traditional donations and charities typically lack:

  1. The community decides how funds are allocated

  2. Small contributions from individuals are amplified (here’s the key innovation)

The result is:

  • More people are incentivized to participate

  • There’s protection against collusion

Here’s how it works: Grants from individuals are matched with donations from big donors like the Ethereum Foundation and ConsenSys. But unlike a linear matching that’s commonly done by corporations for example, for employees charity donations where they’d do a 1-to-1 match or double the amount, quadratic funding adds the square root –or radical, hence the name– of all donations, and then squares the result.

The first Gitcoin Grant round was in February 2019, with a matching pool of $25,000 from the Ethereum Foundation, ConsenSys, and a few others, and had $13,242 in total contributions from 126 individuals. Matching pools, number of contributors and projects funded have increased round to round, with the recent Round 4 closing out at more than $340,000 donated a 27 percent increase from Round 3, and almost ten times larger than Round 1.

The big jump in Round 4 may be explained by the success of the previous round, and also by the addition of funding for media projects. This opened up the system to a different area and group of people, but also by its very nature, media projects participating gave more coverage to the system, helping drive more donations. The community also started to better understand how quadratic funding works, realizing that small donations could actually make a big impact, which increased participation. The number of contributors more than doubled from the previous round, and they also contributed to a larger number of projects on average.

There was controversy about whether @antiprosynth’s Twitter account and Richard Burton’s private Telegram chat should be receiving funding. And of course, no publicity is bad publicity. Vitalik Buterin wrote a great review and proposed negative voting for the community to reach consensus on which projects to fund.

Tornado Cash, a privacy tool for Ethereum transactions, was the project to receive the largest amount of funding as $3,648 from 308 contributors, resulted in matching of $27,135. It’s an example of how this mechanism can become a sustainable way to bootstrap a business if it can continue receiving funding, hopefully of similar magnitude, every quarter, when new rounds are launched.

The Ethereum community has proven this quadratic funding works as it aligns communities’ incentives. Hopefully, it can be exported to the outside world and help fund other public goods. A fifth round is expected to start in March. I missed the boat this time and didn’t participate in the media category — hope to change that then.

Stablecoins Flippen Ether Transfers on Ethereum

The gap between stablecoin transfers and ether transfers on Ethereum has continued to widen, with stablecoin transfers far outpacing those of ETH, wrote Ryan Watkins of Messari.

The flip happened mid 2019, largely driven by USDT, the stablecoin partially backed by U.S. dollars, Watkins said. Tether, the largest stablecoin at $4.6 billion, has many versions; the main one used to be issued on Omni, a Bitcoin-based platform. That changed last year, the Ethereum version surpassed the Bitcoin-based one. With all that Tether volume moving to Ethereum, it pushed stablecoin-driven transactions to top ether transactions.

Image source: Messari

That’s not a bad sign for ether. In the case of Tether and anything else being built and transacted on Ethereum, ether is still being used to pay the computation cost. In addition to “fuel” for the network, ether is being increasingly locked up to create a stable derivative of itself, namely Dai. These ether-based derivatives are then transacted, while the utility of ether lies in being the collateral.

In the future, it could be possible that few transfers happens with ether itself, and instead, it’s used to back an ether-based financial system, like gold was to the dollar. In this case, ether would gain in value, even as number of ether transactions dwindle.

Argent Integrates DSR

Argent smart wallet integrated with MakerDAO’s Dai Savings Rate. The wallet, which is non-custodial and has a key recovery system, is aiming to make it easier for its users to start earning interest on their Dai holdings via Maker’s DSR system (which is now yielding almost 8 percent).

Our integration is about simplicity. We’ve stripped away all the complexity from the process. We even pay the gas for you.

DeFi has a data availability gap that nobody is talking about: Ganesh Swami

Ganesh Swami of Covalent says keeping track of DeFi data is a nightmare and proposes a solution for traders wanting to keep track of leveraged trading profits via MakerDAO.

Compound is alleging a DeFi startup stole its code: The Block

Compound Finance says dForce stole its copyrighted code – an assertion that appears to be supported by information on GitHub, The Block reported.

This team is experimenting with loans backed by non-fungible tokens as a way to reduce collateral needed.

The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access at $10/month or $100/year, while free signups get only part of the content.

Click here to pay with DAI.There’s a limited amount of OG Memberships at 70 Dai per annual subscription ($100/yr normal price).

About the author: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. (Pre-order The Infinite Machine here). I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively cove