The Snowdrift.coop Funding Mechanism: Crowdmatching

Note: we have a separate basic intro page. This is the more thorough explanation, and see the links here for further details.

Snowdrift.coop funds public goods through crowdmatching where patrons donate based on how many other patrons donate with them. Thus, when you join, others will donate more. Together, we can fund the public goods that benefit us all.¹

Crowdmatching offers a flexible (rather than all-or-nothing) method for patrons to work together in supporting public goods so that we minimize individual risk and burden and maximize collective impact.

The pledge process

1. Patron adds a payment account
2. Patron visits a project page and clicks the pledge button.
3. Once a month, the patron numbers are calculated in a “crowdmatch” event
   • each patron’s balance is updated to account for the new donation(s)
   • Whenever a patron’s balance reaches high enough that processing fees will be less than 10%, we charge their credit card and distribute their donations to the projects they support.

1/10 cent starting match level

We’re starting with a base match level of 0.1¢. That’s the same as 1¢ per 10 patrons or $1 per 1,000 patrons.

Each patron’s donations grow linearly

The donation from any one patron increases linearly with the number of total patrons.

Funding grows quadratically with more patrons

A linear increase in patrons multiplied by a linear increase in each patron’s donation means a quadratic increase in total donations.

• 200 patrons × 20¢ each = $40 per month for the project
• 1,000 patrons × $1 each = $1,000 per month for the project
• 10,000 patrons × $10 each = $100,000 per month for the project

Existing patrons match each new patron

The chart below shows the increase in project funding (not the new total) that happens when one patron pledges. The blue indicates one patron’s donation. When a new patron joins a project, each existing patron adds 0.1¢ extra — indicated in orange. The combined increase from all previous patrons matches the entire new patron’s donation.²

Get matched many times over

Of course, this means not only that the new patron gets matched by everyone else, it also means that each existing patron’s extra 0.1¢ is matched many times over! While it’s nice enough to receive 1-to-1 matching initially as a new patron, staying around as a patron means that each small increase in your donation gets matched at rates of 1,000-to-1 or 10,000-to-1 or more!

Budgets

We’re starting with a $10 monthly budget default. That means under no circumstance will a user be charged more than $10 in any given month.

After our initial launch, we will add the ability for each user to adjust their budget.

Pledges get suspended if they go over budget

If a user’s pledge total surpasses their budget limit, the system will suspend the pledge that rose too high.

If a user wishes to reinstate a suspended pledge, they can increase their budget and/or drop other pledges to other projects.

Funding buffer

To submit a pledge, a user must have some buffer remaining in their budget so they can actually match others when more patrons join. Details TBD as of Nov. 2017.³ Whenever a patron’s pledges get into the buffer level, we will send notifications so they can choose to adjust budget and/or pledges before the full budget runs out.

Future considerations for match levels

We may offer per-user or even per-project adjustments in the future once the system is working fully. However, this introduces a wide range of complex issues which only make sense to consider once the basic crowdmatching concept is working and widely understood.

Allow higher levels from wealthier patrons?

While we want (for the sake of project success) to have wealthier donors give extra, we also value the equalized influence that comes from everyone donating at the same level.

Also, we don’t want overly-flexible match levels to be used to undermine the network effect. If a patron can start at a high level and reduce that as the project grows, they aren’t actually matching others but are actually doing the opposite (giving less as more people join). It only makes sense to reduce donations as others join after a project is fully funded. While we wish to be successful enough to reach that point, we’re far from it today when it comes to most free/libre/open public goods.

We originally proposed a “share” method where instead of changing the base match, each patron could choose to double, triple (or more) their pledge to any particular project. To allow that generosity without letting one generous patron manipulate the donations of everyone else, we proposed a partially match that tapered off for these increased pledges. In addition to encouraging more generosity, we wanted to reduce the incentive to open duplicate accounts just to get extra matching. While that original proposal had merit, it presented serious trade-offs, most significantly in how difficult it was to explain. But if you’re curious, see our old share-value formula.

Varying situations among projects

Some projects inherently have different financial needs and different sizes of audience. We may offer some ways for projects to set a different base match level. However, crowdmatching may not work well for all projects. For projects that serve other projects (instead of the end-user general public), we encourage the dependent projects to contribute their income upstream.

Some projects may be more focused on institutional audiences. We will consider in the future whether to add some special institutional patron classification with appropriate settings.

Benefits of Crowdmatching

The core purpose of Crowdmatching is to address the Snowdrift Dilemma by reducing the incentives that delay donating. Beyond that, it has other benefits.

Flexibility with practical limits

For social negotiations to achieve optimum cooperation, flexibility is required from everyone. As seen in game theory scenarios, a known end or fixed maximum can lead to reduced cooperation. Fixed amounts of funds mean zero-sum games. Even with matching funds, if the available budgets for matching are strictly fixed, then potential donors may recognize that as long as enough people pledge, the total possible matching will be claimed, and so they can hope that others will take care of it.

Snowdrift.coop uses budget caps to give patrons control. But we promote non-zero-sum thinking by encouraging patrons to increase their budgets as possible. When a project gets very popular and gains many patrons, we hope the project will deliver such remarkable results from the increased support that it convinces patrons of the value of continuing to donate beyond even the levels they initially considered.

Patrons cannot easily predetermine what donation level is “fair”. Human beings do not judge value and price objectively. Anchor values (such as the “suggested price” on products) make a “reduced” sale price seem great. Consider also how auctions work: people may plan to bid only a certain amount, but our perception of value changes when we see that others are willing to bid more. Complexity only increases when it comes to funding future work where we do not already experience the value of the results.

Crowdmatching avoids arbitrary thresholds seen in many one-off crowdfunding campaigns. We aim to bring out the best from everyone, all contributing their share. As patrons see the potential from all working together, they will realize the value of being flexible themselves in order to build together the world we all want. We hope that the natural market forces within our system will maximize funding and yet stabilize at sustainable levels due to the system’s inherent practical limits.

Testing and natural patterns within the system

Once the site has more advanced functioning (with actual graphs and data generated by the test users), we can tweak things as needed. Natural patterns will emerge regarding how patrons pledge and adjust pledges across different projects and over time along with project progress and growth.

Constructive competition

Projects at Snowdrift.coop still compete for funds. When patrons stick to a strict budget, they may need to prioritize among the projects they would like to support. That’s the way the market goes sometimes, and it makes sense for the community to get behind the most promising projects. Natural market pressures can favor the most deserving projects (even though they do not necessarily work that ideally) while also growing the market overall (bringing new patrons to the platform) to achieve as much overall success as the community can effectively support.

Project growth and stability

Snowdrift.coop aims to provide relatively reliable funding streams that allow projects to plan development more effectively. A growing number of patrons enables hiring more team members, creating operating reserves, and/or donating to fund upstream projects.

An adequately funded project can announce its status. Then, pledge levels will naturally stabilize as patrons choose to focus on other projects with unmet needs.

Economic Democracy

Crowdmatching enables the community to work together in a bottom-up fashion to help maximize the overall funding and to democratically route it to the most deserving projects. Our basic requirements and honor reporting along with user reviews, history, and other design features all help patrons trust the projects in the system and identify the most worthy ones to support.

Reliability, Accountability, Trust

Because payouts from patrons to projects occur regularly, patrons have a regular time-frame in which to evaluate each project’s progress and alter their pledges. Knowing that patrons may change their support, projects have incentive to attend to the needs and desires of their patron community.

Our monthly time-frame allows projects enough time to show significant progress between payouts while still keeping connected to patrons.