Quadratic Funding is a mechanism used to determine whether or not a project is worth funding. Projects that are more valued, meaning they have more individual supporters, will receive a higher proportional amount of funds. In the Ethereum white paper, Vitalik Buterin initially described Quadratic Funding as a mechanism for individual projects to keep track of the funds they are raising. At the end of a raise, the mechanism calculates a payment to each project.
Pioneered by Gitcoin’s Grants program in 2018, quadratic funding is a way for public goods projects to use a combination of individual donations and grant money to increase the amount raised. It is the mathematically optimal way to fund public goods in a democratic community where the number of contributors matters more than the actual amount funded. With quadratic funding, the number of contributors matters more than the amount funded. For example, if there are two individual projects seeking grants and they both raise $100, the project with more individual donors will receive a higher amount in quadratic funding than the project with fewer donors.
More donors signal that there is a higher demand for this project, and Quadratic Funding in practice uses a matching pool to grant projects with more individual backers more funding.