What exactly happens when something is down zapped? Do those funds go to the rewards pool? Does a poster know they have been down zapped? Just curious. I have earned a cowboy hat by down zapping before haha but never wonder it's impact other than ranking prioritization.
Yup. From the "what is a Downzap" faq that's available when you downzap someone:
  • downzaps are just like zaps but cause items to lose ranking position
  • downzaps also reduce trust between you and whoever zaps it so you'll see less of what they zap in the future
  • all sats from downzaps go to rewards
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