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Building A World Free Of Currencies - Prophet (MetaDAO)

By Unlayered

Published on 2023-11-15

MetaDAO creator Prophet explores futarchy, decentralized governance, and a world without currencies in this in-depth discussion on the future of blockchain technology.

Introduction to MetaDAO and Futarchy

In a recent podcast, the creator of MetaDAO, known as Prophet, discussed his innovative approach to decentralized governance and the potential future of currencies. MetaDAO, described as an "experiment in human coordination," is pushing the boundaries of how decentralized autonomous organizations (DAOs) operate on the Solana blockchain.

Prophet began by explaining the core concept behind MetaDAO: "The meta-dow is a new cybernetic institution managed by programs stored on the Solana blockchain. In other words, managed by code." This approach moves away from traditional token voting or liquid democracies seen in other DAOs, instead utilizing a structure called "futarchy."

The launch of MetaDAO has been surprisingly successful, with Prophet noting, "I expected like 10 people to show up and like 40 people or well 60 people showed up to the dow and became members and then 40 people or 42 people actually traded in the feet target markets which feels pretty cool."

Governance and Its Importance

Prophet emphasized the critical nature of governance in both traditional and crypto contexts. He argued that governance is not just about fairness or justice, but has real economic implications: "If you look at the difference between countries that are poor, like Somalia and countries that are rich, like most of Western Europe and the US and Canada, the main difference is institutions and governance."

This perspective underscores the potential impact of projects like MetaDAO, which aim to create new, more efficient governance structures. Prophet sees blockchain technology as an ideal platform for developing these new institutions, with Bitcoin being an early example and DAOs representing the next evolution.

Traditional Governance Structures

To understand the innovation of futarchy, it's essential to examine existing governance models. Prophet discussed various forms, including voting systems, dictatorships, and representative democracies.

He pointed out that dictatorships, particularly in the context of early-stage startups, can have benefits: "Most early stage startups are run as dictatorships where the founder is making every big decision. And the benefit of that is that if the dictator is well-wined with the organization, then they have perfect incentive compatibility."

However, as organizations scale, this model becomes less effective. Large democracies, on the other hand, face different challenges. Prophet cited a Princeton study that found "zero correlation" between public opinion on policies and their enactment, suggesting that special interest groups often have more influence than the average voter.

Futarchy: A New Approach to Governance

Futarchy, the governance model employed by MetaDAO, aims to address the shortcomings of both dictatorships and democracies. Prophet described futarchy as a system where "all power is vested in what is hopefully an altruistic and smart person like philosopher. Only that philosopher, hence not to be happens not to be human as instead the market."

This approach leverages the power of prediction markets to make decisions. Prophet explained the process: "The way it would work is the company's stock would split into two. You would have two markets for the company's stock. And one of them would be fire CEO stock and one of them would be retained CEO stock."

Participants then trade on these markets, and the outcome with the higher market value is implemented. This system aims to harness the collective intelligence and incentives of market participants to make optimal decisions for the organization.

Implementing Futarchy in MetaDAO

Prophet provided concrete examples of how futarchy is being implemented in MetaDAO. The first proposal put to the futarchy system was to create an LST RIDE platform. Prophet explained, "The proposal ended up passing. Like 42 people traded in the market and the price of, so the price of MediDow, if this proposal was to pass, I think the mid price was like $14 in the end and the fail price was like $5."

This example demonstrates how the futarchy system can provide clear price signals for decision-making. The significant price difference between the "pass" and "fail" scenarios indicates strong market confidence in the proposal's value to the organization.

Scaling Futarchy and MetaDAO

One of the key challenges for any new governance system is scalability. Prophet acknowledged this, stating, "Scale is there a critical issue because if venture backed startups are already so incentive aligned, then there's really no point in building a really small institution that is incentive aligned because you already have one."

To address this, Prophet introduced the concept of "member dows" within the larger MetaDAO structure. This approach allows for decentralized decision-making while maintaining overall coherence: "Every decision goes through the Futarkey process where you're guaranteed like, essentially what you do is for every decision, you allow people to speculate on how it's going to impact the market cap of all these individual member does, and then you only do something if it's net positive."

Potential Downsides and Challenges

While the futarchy model shows promise, it's not without potential drawbacks. Prophet acknowledged the risk of market manipulation and the influence of wealthy participants. He also noted the challenge of making long-term decisions in a market-based system, using the example of SpaceX: "Like it's just kind of hemorrhage money for years. And then it's kind of a moonshot on your 10, you launched, it becomes a valuable company."

Another concern is the potential for futarchy to devolve into what Prophet calls "Keynesian beauty contests," where market participants make decisions based on what they think others will do, rather than on intrinsic value. To mitigate this, Prophet emphasized the importance of cultivating a community of rational participants.

The Future of Currencies

In addition to governance, Prophet shared his controversial views on the future of currencies. He argued that if cryptocurrency and decentralized finance (DeFi) succeed, traditional currencies might become obsolete: "If crypto succeeds, cryptocurrencies will fail. Because what DeFi allows or specifically turn complete blockchains, so maybe not Bitcoin, but Ethereum or Solada or any of them allow is you can do instant swops."

Prophet envisions a world where people can instantly swap between different assets for transactions, eliminating the need for a common medium of exchange. He also suggested alternatives for store of value and unit of account functions, such as commodity futures and synthetic products.

This perspective challenges conventional wisdom in the crypto space, which often assumes that cryptocurrencies will complement or replace traditional fiat currencies.

Implications for Economic Stability

Prophet's vision of a currency-less world has intriguing implications for economic stability. He argued that without currencies, traditional economic cycles might be disrupted: "Economically, what causes recessions and depressions is people saving more than they spend. And this is the Keynesian interpretation of it. If you read his stuff, he talks about, yeah, if people save more, that's what creates the lack of demand in the economy."

In a world without currencies, Prophet suggests that people would be forced to either spend or invest their wealth, potentially eliminating the possibility of recessions or depressions caused by excessive saving.

MetaDAO's Potential Impact

Prophet sees MetaDAO and futarchy as potentially groundbreaking developments in the blockchain space. He stated, "This really could be the use case that justifies crypto's existence, I feel like, if it works, because that is kind of what crypto is here to do, right? We don't build things, like we don't build houses, or we don't get people from A to B, and we don't produce food for people, or widgets. All we do is build institutions."

This perspective positions MetaDAO not just as a new organization, but as a proof-of-concept for a new way of organizing human activity and decision-making.

The Role of Solana in MetaDAO's Vision

While not explicitly discussed in detail, it's worth noting that MetaDAO is built on the Solana blockchain. Solana's high-speed, low-cost transactions make it an ideal platform for implementing complex governance systems like futarchy, which require frequent market interactions.

The choice of Solana as the underlying blockchain technology underscores its potential as a platform for innovative decentralized applications beyond simple token transfers or DeFi protocols.

Conclusion and Future Outlook

As the interview concluded, Prophet expressed excitement about the potential of MetaDAO and futarchy to become legitimate, revenue-generating institutions that operate fundamentally differently from existing organizations. He sees this as a key step in realizing the promise of blockchain technology to create new, more efficient forms of human coordination.

While the success of MetaDAO and futarchy is not guaranteed, the ideas presented in this discussion offer a compelling vision for the future of governance and economic organization. As the crypto space continues to evolve, experiments like MetaDAO will play a crucial role in shaping the institutions of tomorrow.

Facts + Figures

  • MetaDAO launched with 60 initial members, surpassing the creator's expectation of 10 people.
  • 42 people actively traded in the futarchy markets during the initial proposal.
  • The first MetaDAO proposal to create an LST RIDE platform passed with a mid-price of $14 for success versus $5 for failure.
  • A Princeton study found zero correlation between public opinion on policies and their enactment in traditional democracies.
  • Prophet suggests that if cryptocurrencies succeed, traditional currencies may become obsolete.
  • MetaDAO uses Solana blockchain for its governance structure.
  • Futarchy, the governance model used by MetaDAO, was invented in 2000 by economist Robin Hanson.
  • Prophet argues that governance is the main differentiator between poor countries like Somalia and rich countries like Western Europe and the US.
  • The concept of "member dows" is introduced as a potential solution for scaling futarchy governance.
  • Prophet suggests that a world without currencies could potentially eliminate recessions and depressions caused by excessive saving.

Questions Answered

What is MetaDAO?

MetaDAO is a new cybernetic institution managed by programs stored on the Solana blockchain. It's an experiment in human coordination that uses a governance structure called futarchy instead of traditional token voting or liquid democracies. The organization aims to create a more efficient and aligned decision-making process through the use of prediction markets.

How does futarchy work in MetaDAO?

Futarchy in MetaDAO works by creating two separate markets for each decision - one for if the proposal passes and one for if it fails. Participants trade in these markets, and the outcome with the higher market value is implemented. For example, in a decision about firing a CEO, there would be a "fire CEO" market and a "retain CEO" market. Whichever market has a higher value after a set period (currently 10 days in MetaDAO) determines the action taken.

What are the potential benefits of futarchy over traditional governance models?

Futarchy potentially offers better incentive alignment and more efficient decision-making compared to traditional governance models. It harnesses the collective intelligence of market participants and their economic incentives to make decisions that are theoretically in the best interest of the organization. This system aims to overcome issues like voter apathy in democracies and the potential for abuse in dictatorships or centralized systems.

How does Prophet envision the future of currencies?

Prophet has a controversial view that if cryptocurrencies and DeFi succeed, traditional currencies may become obsolete. He envisions a world where instant asset swaps eliminate the need for a common medium of exchange. For store of value and unit of account functions, he suggests alternatives like commodity futures and synthetic products. This perspective challenges the common assumption that cryptocurrencies will simply complement or replace fiat currencies.

What are the main challenges facing MetaDAO and futarchy?

The main challenges facing MetaDAO and futarchy include scalability, potential market manipulation, the influence of wealthy participants, and making long-term decisions in a market-based system. There's also the risk of "Keynesian beauty contests" where market participants make decisions based on what they think others will do, rather than on intrinsic value. Addressing these challenges is crucial for the long-term success and adoption of futarchy as a governance model.

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