UNICEF & Web3 Matching Grants | A Breakthrough for Philanthropy

Since 1946, UNICEF has been leading global efforts to improve the lives and futures of children.?

This week UNICEF’s Office of Innovation will begin a new experiment in grantmaking with a blockchain technology called Gitcoin Grants.

If you work for a nonprofit or NGO, you might be asking:

1. Why is UNICEF experimenting with their grants??
2. What the heck are they doing in web3??
3. How does Gitcoin Grants work?

Let’s unpack this!

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Why is UNICEF experimenting with their grants?

This is best explained by the problems with global philanthropy that UNICEF wants to address.

Arguably the biggest problem in philanthropy is top-down decision-making about how to solve problems for people on the margins of society. People living in the developed world routinely make decisions about “what is best” for people in remote, faraway places.?

The further you are from the people, the more out-of-touch your solution will be. I’m sure that UNICEF invests as much as any organization in trying to understand the problems that they aim to solve. But the people who work at UNICEF are not personally experiencing these problems in their lives.

Even with their global reach and boots on the ground, it’s hard to imagine how a team at UNICEF headquarters in New York City could know how to solve problems better than individuals experiencing them in Asia or Africa.

No matter how good your intentions, if you aren’t closely connected to the problem, it is likely that your resources will be misdirected. You may be causing more harm than if you did nothing at all.

So what the heck are they doing in web3?

UNICEF recognizes that the best solutions come from those closest to the problems. That’s why they’re turning to the blockchain, a new type of Internet technology that connects people and financial resources directly, without the need for intermediaries, in a way that has never been possible before now.?

UNICEF is partnering with Gitcoin, a company that develops blockchain technology for social impact.

Gitcoin has developed a better way to source ideas and input from the grassroots level than anything we have in traditional philanthropy. They call it “quadratic funding.”

I see your eyes glazing over. Stay with me! I’ll explain how quadratic funding works in very simple terms in a minute.?

The partnership with UNICEF is Gitcoin’s first pilot of their new Gitcoin Grants software application. Anyone anywhere in the world can use Gitcoin Grants to empower their community members to coordinate funding for projects that address their shared needs.

Typically, big grants go to nonprofits and NGOs with resources to pay effective fundraising and communications staff. You’d want the grants to fund the best solutions or the community’s wishes.?But that’s not the case because it’s really hard for funders to find this signal amidst the noise of hundreds of grant applications.

Gitcoin’s technology makes it easier to identify community signals and incorporate the community’s wishes into funding decisions.?

The fact that it runs on a blockchain also helps communities see where funds are distributed in a very transparent way.?

The transparency of web3 has two important applications for philanthropy.

First, the blockchain connects the donor to the grantee directly without any need for government or banking intermediaries. Imagine all of the inefficiencies and graft that this can prevent!

Second, every blockchain transaction can be audited in real time so grantees know where their support is coming from and funders know where their support is going.

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How does quadratic funding work?

Quadratic funding is a mechanism for matching grants based on the number of supporters for a project – not the amount of money raised. QF is based on some math that was published in an academic paper in 2020 (link at the end of the article).

This is a breakthrough for philanthropists who wish to make an impact at the grassroots level!

Historically, matching grants programs are biased towards projects that are able to raise the most money. But the ability to raise money is not a very good signal that an organization has broad, grassroots support for its program or intervention. In fact, there’s a trade-off between raising money for a program and direct service to the people.?

To be able to raise large sums of money, you must spend your time with people who have money and less time with people who are experiencing the problem you’re trying to solve.

Quadratic funding puts more fundraising power in the hands of the community being served.

To understand how quadratic funding works, let’s use a simple thought experiment.

Maxine is a wealthy donor sponsoring a matching grants fund for two nonprofit literacy programs in her community. She says she’ll match up to $10,000 to what the nonprofits are able to raise themselves. Alpha Scholars is able to raise $5,000 from two donors who sit on their board of directors. Beta Readers raises $1,000 from 20 parents who have seen their kids benefit from the reading intervention strategy that the program uses.

In a traditional matching grants program, this is how the funding would look:

Notice that Maxine’s full $10,000 donation is not unlocked because the two organizations did not collectively raise $10,000.

Maxine is bummed! She wanted to give more.

Also, despite getting support from 10x as many people, Beta Readers received only 20% as much matched funding as Alpha Scholars.

We can assume that Beta Readers has more grassroots community support than Alpha Scholars since they were able to raise money from so many more people.

We can also assume that Alpha Scholars has more resources to begin with, since their board members are able to contribute $5,000 to this fundraiser.?

Even in nonprofits, the rich get richer? Come on. Seriously?

Based on their 10x support in the same community, Beta Readers is likely doing more good with less resources than Alpha Scholars. But for whatever reason, they aren’t able to raise as much money.

Their great work serving their community is not translating to successful fundraising.

Now let’s examine how this matching grants program would look with quadratic funding. (At the end of this article, I’ll link to a website that includes a QF calculator you can play with.)

Notice that Beta Readers receives over 2x more matched funding than Alpha Scholars, even though Alpha Scholars raised more money.

With the quadratic funding model, more community support translates to more financial support than in traditional matching grants programs. QF FTW!

Beta Readers can focus more on their literacy program. More on producing positive outcomes for their community. They face less pressure to devote their resources to fundraising. The more people they help, the more likely they are to raise QF matching funds.

Notice also that even though the two nonprofits still only raised $6,000, the QF model unlocks all of the $10,000 that Maxine wanted to give to this cause. Maxine is stoked!

Gitcoin has pioneered the application of this technology in web3, helping over 3,300 web3 projects that have community support to earn financial support to do more good.

Now UNICEF is testing this technology for their global grants program. Between Dec. 9 - 21, 2022, Gitcoin will facilitate a quadratic funding grants round for a select group of 10 impact-focused, innovative projects from around the world.

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The future is grassroots.

As a believer that the best solutions come from the ground up, I’m excited to see how Gitcoin and UNICEF are using web3 technology for real-world impact.?

This UNICEF experiment is Gitcoin’s first test of the Grants Protocol with an external partner. In 2023 they intend to release the application to the public so that anyone anywhere can use it.

If you have an idea for how to use this technology to do good for a community or cause that you care about, please let me know!

I’d love to hear from you - send me an email.

Thank you for reading Web3 x Social Impact. This post is public so feel free to share it.

You can learn more about the UNICEF Office of Innovation Gitcoin Grants experiment here.

Follow Gitcoin for announcements about when the Grants Protocol is released to the public.

Learn more about how quadratic funding works here.

The academic paper that introduced the quadratic funding algorithm is here.

Charles “Chuck” Cummings is building Bankless Consulting’s social impact practice. We’re helping organizations implement web3 technology to maximize their?impact. He also serves as the Strategic Advisor to the Do Good Institute at the University of Maryland. Chuck lives in Baltimore and likes to eat tacos.