what are the downsides of voluntary taxation (https://en.wikipedia.org/wiki/Voluntary_taxation)? what would happen to a polity that used it as the sole form of capital allocation?

The only problem is externality pricing.

Building https://negationgame.com

this is the biggest downside i see. worth asking: would whatever “tragedies” that occurred in this system still be better than the alternatives we observe today with compulsory payments?

we raise taxes to address externalities

so whatever you think private industry can't profitably address (public goods or public bads) you're gonna have problems

what about communities, who have skin in the game, acting in their own self interest?

This image does a good job https://i.imgur.com/n9Pcbcr.png

not sure i follow. source with more context?

It's a bit hard to convey. Essentially, tragedy of the commons is the biggest downside because it's the only downside. Voluntary taxation isn't taxation, it's investment, people do it because they want the upside and because the upside accrues uniquely to them

Now, it might benefit their community, too. But the only reason for them to do it is because some sort of return accrues to them in exchange for their willingness to be taxed (think about libraries at universities named after big donors, those are voluntary taxes)

In all the mechanisms we currently know, there will always be domains where the upside of taxation to the community collectively is insufficiently captured by the upside of submitting to voluntary taxation individually.

This is identical to saying, "there are valuable goods that are unprofitable to produce"

The classic example of this is a streetlamp: it reduces crime and improves your night-life and driving safety, but it's not possible to charge someone individually for using it (can you turn a light on for one person while leaving it off for someone else?)

It's therefore nonexcludable & nonrivalrous; a public good

now, you could imagine a private city that you had to pay a monthly subscription for access to, which would be spent on things like streetlamps, but this is starting to sound a lot like a tax...

This helps to show that taxation has two sides to it:
1. what should we spend money on (what things are public goods worth purchasing?)
2. how much should we spend?

The first is a question of governance — this is what our community wants — the second is a question of taxation — this is what we need to accomplis

It gives us a hint as to how we could solve the problem of taxation while keeping it voluntary, and it's uniquely possible in crypto:
1. gate benefits behind voluntary taxation (public goods → club goods)
2. print money to reward causative agents in the creation of public goods (retroactive funding of public goods)

This is why city governments tend to pay for streetlamps (and roads, bridges, etc.) they're public goods, or at least the benefit of leaving it free is superior to the benefit if you were to charge for it.