Quadratic Funding: The Theory vs. Reality – Why It's Not a Perfect Solution

Quadratic Funding (QF) has gained traction as a mechanism for funding public goods, especially in the cryptocurrency space. Theoretically, under certain assumptions, QF is optimal. However, these assumptions rarely hold in reality. This article outlines several crucial assumptions for QF's optimal functioning: wealth equality, free subsidies, selfish contributors, equilibrium discovery, sufficient budget, diminishing returns, perfect knowledge, and independent agents. When these assumptions fail, QF can yield results far from optimal, potentially transferring wealth from poor to rich or resulting in a net decrease in social welfare. While improved variants attempt to address some issues, achieving QF's theoretical optimality remains a significant challenge.