Hello there, beautiful soul.
Saw few questions rolling around, figured to refresh my mind and help you learn together with me. What better way to close out this weekend. So, let’s break down what happens and how it happens that enables projects to be selected for funding. Here’s the break down of that mechanics. Let me know if I missed anything.
Here is tweet to retweet, or reddit to upvote.
Stage 1: The Tally
Every challenge category has a set budget that will be distributed to select projects. This budget was determine during Challenge Setting vote by the Cardano Community in the fund prior.
At the tally - the following happens.
All ‘YES’ votes are counted (all voting power combined) and all ‘NO’ votes are counted (all voting power combined) for every individual proposal.
What is one vote? One vote (one voting power) = 1 ada. This means a wallet registered with a balance of 1,000 ada has 1,000 voting power available. A wallet can vote ‘YES’ or vote ‘NO’, and therefore apply their voting weight to the final tally of any given proposal.
E.g. if a proposal had 10,000 ‘YES’ votes combined, and 5,000 ‘NO’ votes combined - the final tally for this proposal will be 5,000 ada FINAL votes. According to this - all proposals are then ranked.
The formula would be as follows:
Higher the number of FINAL votes, the better. Proposals are ranked according to FINAL votes - top voted proposals first, least voted proposals last.
This is as far as tally is concerned. What happens next? Funding algorithm.
Stage 2: The Approval Thresholds
There are two unique thresholds that every voted upon proposal must meet before it is considered as approved but (not yet funded). Both must be true.
Threshold #1 - at least 1% of all total registered voting power must cast a vote on this proposal
- For example, in Fund8, total registered voting power was 3,680,777,012 ADA. 1% of that is 36,807,770.12 ADA - this amount of ADA must express combined 'YES" or ‘NO’ vote to be eligible. In other words, sum (not the difference) of all ‘YES’ and ‘NO’ votes must be EQUAL or MORE to 1% of all registered voting power eligible to cast a vote.
- Note: if only half of all registered voting ada casts a vote, and other half does not participate in actual voting despite being registered - 1% takes into account all registered only. Not participating ada. It’s a security threshold parameter.
- The formulate would be as follows:
- IF(YES+NO>=one_percentage) - proposal meets the threshold #1
Threshold #2 - there must be at least 15% more ‘YES’ votes than ‘NO’ votes as a difference between the two
- The formula would be as follows:
- IF(YES/NO>=1.15) - proposal meets the threshold #2
- The formula would be as follows:
Stage 3: The Funding Allocation
Once a proposal has satisfied all of the above, funding allocation begins.
Fund resources are finite and not all approved projects can be funded.
There is a total budget set for every challenge category. This was set by a public vote in a preceding fund under Challenge Setting category.
Top voted proposal with the most FINAL votes meeting two additional thresholds gets their funding allocation first.
If total funding budget for the challenge category is $10,000 and top voted proposal asked for $5,000 in their budget request - their proposal is now funded. Leaving $5,000 funding budget allocation for the next top rated proposal.
If the second rated proposal asked for $1,000 in their budget request - their proposal is now funded. Leaving $4,000 funding budget allocation for the next top rated proposals.
If next - 3rd top voted proposal asks for $5,000 in their budget request, due to the fact that their ask exceeds total budget funding available left by a whole one thousand (there’s only $4,000 left now) - their funding request is unfortunately skipped. This proposal was approved but unfortunately marked as OVER BUDGET.
If next - 4th top voted proposal asks for $4,000 in their budget request - their proposal is now funded as that exactly matches funding allocation amount left available.
Funding for this particular challenge category is now depleted. No more funding for this category takes place.
The above logic continues for every unique challenge category until there is no more budget left to fund a full proposal ask. This means, sometimes - a little money is leftover in any challenge category that can’t fund next viable proposal in that specific challenge. In that scenario pooling of resources leftover takes place.
Once every challenge category funding budget is drained, all of the remaining budgets (leftovers) are pooled together across all. This creates one last universal funding budget to be distributed regardless of challenge. Second round of funding allocation takes place. Same logic applies as above, however, now all top approved but yet unfunded projects are pooled together across all challenges combined. Same funding allocation logic applies as per earlier above. This allocation runs until no more viable project budgets are possible to fund in the current fund cycle.
Extra credit reading
And that’s it. I also shared this piece a week or two ago that outlines Proposal Journey from a bit higher perspective. You may find it also interesting.
And that’s it, for now. Don’t forget to go out and vote. Missed the voting guide? Find it here.