Why Game Theory Predicts QF's Eventual Stagnation

QF's core mechanism is vulnerable to cheap identity forgery. Rational actors will always create Sybil wallets to amplify their matching weight, turning a public good into a private profit center.

• Cost-Benefit Collapse: Creating 100 wallets for $10 can manipulate $1000+ in matching funds.
• Erosion of Legitimacy: Real contributors are crowded out, destroying the signal in the funding data.

While QF dampens large donor influence, it doesn't eliminate it. A coordinated whale can still dominate by distributing funds across a network of addresses, achieving linear funding power with quadratic matching.

• Collusion Equilibrium: Large projects form reciprocal funding pacts, creating an oligopoly of matched projects.
• Small Project Death: Grassroots initiatives without whale backing are systematically underfunded.

As Sybils and whales dominate, legitimate voter turnout decays. This reduces the quality of the social signal QF needs to function, leading to a downward spiral of trust and capital efficiency.

• Negative Feedback Loop: Lower trust → fewer unique donors → weaker legitimacy → lower trust.
• Stagnant End-State: The system converges on funding only the most politically connected or easily Sybil'd projects, killing innovation.

Preventing these failures requires a costly identity oracle (e.g., Proof-of-Personhood, BrightID). This introduces centralization, high friction, and operational costs that undermine QF's permissionless ideals.

• Scalability Trade-off: Accurate Sybil resistance requires KYC-lite, reducing global participation.
• Matching Fund Drain: ~20-30% of the matching pool is consumed by oracle maintenance and fraud proof litigation.

Ethereum's Retroactive Public Goods Funding sidesteps prediction games by rewarding proven impact. It aligns incentives with verifiable outcomes rather than speculative popularity.

• Ex-post Evaluation: Funds are allocated after utility is demonstrated, not before.
• Expert Curation: Leverages domain-specific knowledge (like Optimism's Citizen House) to assess real value.

The only viable path for QF is to migrate to application-specific L2s or alt-L1s with native identity primitives. This allows for sovereign rule-sets (e.g., mandatory proof-of-personhood) without polluting the base layer.

• Controlled Environment: Enforceable, low-cost Sybil resistance becomes technically feasible.
• Experimentation Hub: Enables rapid iteration on funding mechanics (e.g., pairwise bonding curves, MACI) without mainnet constraints.

QF's core assumption—unique human identity—is its greatest vulnerability. Attackers split capital across hundreds of fake identities to manipulate the matching pool, turning a public good mechanism into a capital efficiency contest.

• Cost of Attack: Scales linearly, while matching funds scale quadratically.
• Result: Legitimate projects are crowded out by sybil-botted proposals.

Large contributors (whales) and coordinated groups (cartels) bypass the 'wisdom of the crowd' by strategically concentrating funds. This creates a Nash equilibrium where honest, small-scale funding is irrational.

• Outcome: Funding mirrors plutocratic outcomes similar to direct grants.
• Example: Gitcoin Grants rounds show clear clustering around VC-backed or well-coordinated projects.

As gaming becomes prevalent, legitimate donors lose trust in the mechanism's fairness. Reduced participation lowers the quality of the signal, further increasing the ROI for attackers and accelerating the decline.

• Negative Feedback Loop: Less trust → fewer unique donors → easier to game.
• End State: The system stagnates into a low-trust subsidy for a few actors, failing its discovery function.

Solutions like Gitcoin Passport (proof-of-personhood) or MACI (minimal anti-collusion infrastructure) add friction but are incomplete. They create centralization trade-offs or are computationally prohibitive.

• Proof-of-Personhood: Centralized attestation bottlenecks.
• MACI/zkTech: High complexity and cost for large-scale QF.
• Verdict: Treats symptoms, not the fundamental game-theoretic misalignment.

QF's core vulnerability is its assumption of unique human identity. Rational actors will always create Sybil wallets to maximize matching funds, turning a coordination game into a capital efficiency puzzle for bots. This distorts funding away from genuine community projects.

• Result: Up to 70-90% of contributions in some rounds are estimated to be Sybil-driven.
• Impact: Legitimate projects are crowded out, eroding trust in the mechanism.

Large capital holders (whales) quickly learn that colluding to fund a single project yields a higher matching ROI than funding separately. This leads to predictable whale cartels that dominate rounds, mirroring the plutocracy QF was designed to counter.

• Result: Funding distribution becomes bimodal—a few whale-backed winners and a long tail of underfunded projects.
• Impact: Stagnates innovation by creating high barriers to entry for new, unfunded communities.

As Sybil and whale dominance becomes apparent, legitimate small donors exit. Their contributions feel meaningless, destroying the "crowd wisdom" signal. This reduces the matching pool's leverage, making rounds less attractive for all participants.

• Result: Voter turnout decay and a shrinking, less diverse contributor base over time.
• Solution Path: Requires robust, cost-bearing identity layers like Proof of Personhood or social graph analysis, moving beyond pure cryptoeconomics.