Futarchy: Deepdive into MetaDAO's Governance

In today's world, governments often grapple with outdated systems, making the introduction of innovative governance models a daunting task. These entrenched systems not only resist change but also harbor inherent flaws, such as the human alignment problem, where individual actions are driven by self-interest rather than the collective good. Historical events, like wars sparked by the selfish ambitions of leaders, underscore the dire consequences of misaligned governance.

Futarchy, a concept proposed by economist Robin Hanson, has gained attention as an innovative governance model that combines democratic voting on values with betting markets on beliefs to decide policies. This model is based on the premise that betting markets are efficient at aggregating diverse information, making them potentially effective at predicting the outcomes of policies in terms of their impact on national welfare. The idea is that if a betting market clearly estimates a policy would increase expected national welfare, then that policy would be adopted.

The concept of futarchy has not only been explored in academic discussions but has also been applied practically within blockchain and Decentralized Autonomous Organization (DAO) communities. These real-world applications test the principles of futarchy in various scenarios. For a more in-depth and scholarly examination of futarchy, Robin Hanson's paper "Shall We Vote on Values, But Bet on Beliefs?" is highly recommended. Additionally, a summary and critical analysis of Hanson's paper can provide valuable insights and takeaways from his proposal.

How Futarchy Works

Futarchy leverages the wisdom of the crowd through a betting mechanism aligned with the overarching goals of a community or organization. To illustrate, let's consider a community focused on enhancing residents' wellness.

Step 0: Establish a Community Goal

• The community commits to a primary goal, such as improving the wellness of its residents.

Step 1: Introduce a Proposal

• A proposal is made to address the community goal. For example, "Should we allocate funds to build a new public park?"

Step 2: Set Up Prediction Markets

• Two prediction markets are created: a Yes Market for those who support the proposal and a No Market for those who oppose it.

Step 3: Community Members Place Their Bets

• Residents bet on the outcome they believe will best achieve the community goal, using the Yes and No Markets. These markets function like stocks, where positions can be bought or sold.

Step 4: Evaluate Market Values

• After a predetermined trading period, the market values are assessed. The market (Yes or No) with the higher value indicates the community's preferred decision.

Step 5: Implement the Decision

• The decision supported by the winning market is adopted. Transactions in the losing market are reversed, and participants in the winning market can claim profits, incentivizing accurate predictions and expertise.

INTO DAOs

Decentralized Autonomous Organizations (DAOs) have emerged as beacons of change, offering novel approaches to governance that merit exploration. MetaDAO, in particular, has recognized the critical need to address the human alignment challenge and has thus adopted futarchy as its guiding governance model. This strategic decision is aimed at harmonizing decision-making with the collective insights of the community, effectively reducing the impact of individual self-interest on the organization's direction. By implementing futarchy, MetaDAO seeks to ensure that every decision reflects and promotes the shared interests and well-being of its community, thereby establishing a new benchmark for transparent and participatory governance. The overarching goal for every proposal is to enhance the value of their token, $META.

"The goal of the DAO is to make number go up," - Proph3t, the creator of Meta-DAO.

Participating in MetaDAO's Futarchy

MetaDAO focuses on increasing the value of the $META token. Participation involves trading on proposals with this goal in mind.

Step 0: Obtain Necessary Tokens

• Ensure you have USDC and/or $META tokens, which are required to participate in the proposal betting process.

Step 1: Access the MetaDAO dApp and select a Proposal

• Visit the MetaDAO decentralized application at app.themetadao.org to view active and completed proposals.
• Select the proposal you are interested in and Connect Wallet.

Step 2: Purchase Conditional Tokens

• Use your USDC or $META tokens to buy conditional tokens, which are designated for trading in the prediction markets. These tokens are represented as pUSDC and fUSDC for the Pass and Fail markets, respectively.

Step 3: Engage in Market Trading

• Participate in trading within the Pass and Fail markets. This involves buying or selling conditional tokens based on your predictions regarding the proposal's impact on the META token value.

Step 4: Await the Outcome

• After the trading period concludes, the market with the higher value determines the accepted proposal. Trades in the losing market are reversed.

Step 5: Convert Tokens Post-Decision

• If the market you participated in wins, your conditional tokens can be converted back to their original form (USDC or $META), allowing you to realize potential profits from the trade.

By following these steps, participants can actively contribute to MetaDAO's decision-making process, leveraging the futarchy model to align individual predictions with the collective goal of token value enhancement.

More examples on how Meta-DAO works in practice

Check out this video presentation of how to interact with the Meta-DAO interface

Critics of futarchy point out issues like potential market manipulation by powerful entities, market volatility, and the difficulty in measuring complex policy impacts accurately. However, Meta-DAO argues that the goal is to find a governance system that's better, not perfect, and markets have shown to be effective in prediction compared to other mechanisms. They also suggest that perceived irrationality of markets is often overstated due to frequency illusion skewing perceptions, indicating that markets are generally more rational than assumed.

Check out these FAQs on Meta-DAO