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MetaDAO (Pt 2): The Start Of A World-Changing Governance Experiment ꟾ Nallok & Prophet, MetaDAO

By Unlayered

Published on 2024-04-25

Explore how MetaDAO is transforming decentralized governance using futarchy, and its potential impact on DAOs and decision-making in crypto.

The notes below are AI generated and may not be 100% accurate. Watch the video to be sure!

The Rise of MetaDAO: A Governance Revolution on Solana

In the ever-evolving world of cryptocurrency and decentralized finance, a new experiment is gaining traction and challenging traditional notions of governance. MetaDAO, built on the Solana blockchain, is pioneering the implementation of futarchy - a novel approach to decision-making that leverages prediction markets to guide policy choices. This innovative project has captured the attention of the crypto community, with many hailing it as one of the most exciting experiments in the space today.

What is Futarchy?

Futarchy is a governance system proposed by economist Robin Hanson in the early 2000s. It combines elements of prediction markets and democratic voting to make decisions. In a futarchic system, participants trade on the outcomes of different policy options, effectively "voting" with their money on which decisions they believe will lead to the best results. The core idea is that by aligning financial incentives with decision-making, futarchy can lead to more informed and effective governance.

MetaDAO: Bringing Futarchy to Life

MetaDAO is the first project to implement futarchy at scale in a decentralized autonomous organization (DAO). Since its inception, MetaDAO has run 15 proposals, each demonstrating the power and potential of this governance model. The project has successfully fought off several adversarial proposals, showcasing the robustness of the futarchic system.

Prophet, one of the founders of MetaDAO, explained the project's evolution: "When we last spoke, I guess we were, I think a few proposals, like maybe one or two proposals had happened. We were starting to see you talk, you play out, but it hadn't really been tested. It was only maybe a few, like 50 people per proposal, and definitely not big dollar-wise, like the volume in each market was not super high. Now we've had 15 proposals on various things."

Futarchy-As-A-Service: Expanding the Vision

As MetaDAO has gained traction, the team has identified a significant opportunity to expand their impact. They are now focusing on developing Futarchy-As-A-Service (FAAS), aiming to bring the benefits of futarchic governance to other DAOs and organizations in the Solana ecosystem.

Prophet elaborated on this strategic shift: "We've aligned on a given strategy, which is building future keys of service, so we want to expand this to other dows. Then we had some pretty interesting proposals that I'm sure we'll get into. Both interesting in content, but probably more excitingly, interestingly in how the proposals played out."

The Power of Futarchy: Resisting Manipulation

One of the most compelling aspects of futarchy is its inherent resistance to manipulation. This was demonstrated in a proposal by Ben Hawkins, who attempted to buy $50,000 worth of META tokens (the native token of MetaDAO) at below market price. Despite spending $250,000 to manipulate the markets in his favor, the proposal ultimately failed.

Prophet described the incident: "He spent $250,000 trying to manipulate the markets in his favor. And so, specifically, he took that money, or a decent amount of it, and bought in the past market. So, essentially, he was trying to make the market reflect that Medi-do would be more valuable if the proposal passed."

However, the market participants quickly counteracted this manipulation attempt. As Prophet explained, "Every time he placed these very high bids, so essentially, he was placing a bid that's like, 'Okay, Medi-do will be worth 2x the current valuation if the proposal passes.' Someone else would trade against that, because they were like, 'Okay, wait, if the proposal passes, it's probably not going to 2x in value, but if I can sell to him for 2x the value, and then buy back later, then I can either take the money home or 2x my holdings.'"

This incident demonstrated that futarchy is not simply "voting with money," but a sophisticated system with built-in incentives that promote accurate price discovery and resist manipulation.

MetaDAO's Community-Driven Development

One of the most striking aspects of MetaDAO's journey has been the strong community involvement in its development. This was particularly evident in the creation of the project's user interface (UI).

Prophet shared an anecdote that highlights this community-driven approach: "When Metta Dow launched, I, as the only member of Metta Dow team, had put out a UI. And I had never written a UI before professionally, because I've been smart contracts and before that, and Web2 did APIs and back end stuff. And so the UI sucked. And so within a day, I believe there was a UI for Metta Dow, it was just written by someone else. And then within a few days, now, a few other people had worked on that, and it was way better than the original UI."

This organic, community-driven development is a testament to the excitement and engagement surrounding MetaDAO. It also demonstrates the project's alignment with the true spirit of decentralization and open-source collaboration.

Challenges and Solutions: Liquidity and Market Dynamics

While MetaDAO has made significant strides, it has not been without challenges. One of the primary issues faced by the project has been liquidity, particularly in the proposal markets.

Prophet acknowledged this challenge: "Proposal liquidity is the problem that I'm more focused on like liquidity in the future market markets, which has been okay, better than I expected it was going to be, but still not ideal. So like to give some reference. I think the last time we looked at the numbers now, like it was like a hundred K to 500 K in volume in each of the poster markets, right?"

To address this issue, MetaDAO is exploring various solutions, including the implementation of an Automated Market Maker (AMM) system specifically designed for futarchy markets. This approach, suggested by Robin Hanson himself, could provide sustainable liquidity by incentivizing market makers to provide liquidity in the proposal markets.

Collaboration with Robin Hanson: Bridging Theory and Practice

The involvement of Robin Hanson, the original architect of futarchy, has been a significant boon for MetaDAO. His expertise has provided valuable insights into the implementation and refinement of the futarchic system.

Prophet shared his experience working with Hanson: "It's been amazing to like get very specific advice, like very technical advice on what we should do. Like for example, he's given a lot of advice on how we should use our T-WOP Oracle, like how the high weighted average price Oracle, like the statistical method it should use."

This collaboration between the theoretical originator of futarchy and the team implementing it in practice represents a unique opportunity to refine and evolve the concept in real-world conditions.

MetaDAO's Vision: Beyond Governance

While the current focus of MetaDAO is on perfecting futarchy for governance decisions, the team has a broader vision for the project's future. Prophet outlined this ambitious goal: "The long term plan is, well, yeah, MediDow originally comes from like DAO of DAOs. And there are essentially, like the reason why I started MediDow, it was actually not just Futarkey. Futarkey was a solution to a problem that I had, which is they you want to build a corporation, like a big corporation, right?"

The ultimate aim is to create a new kind of organization that combines the benefits of large corporations (economies of scale, regulatory influence) with the agility and effectiveness of startups. Futarchy, in this vision, becomes the mechanism that allows for decentralized decision-making while maintaining alignment with the overall goals of the organization.

Futarchy vs. Prediction Markets: Understanding the Distinction

While futarchy shares some similarities with prediction markets, there are crucial differences between the two. Prediction markets primarily focus on forecasting outcomes, while futarchy uses market mechanisms to make decisions.

Prophet explained this distinction using the example of presidential elections: "Prediction markets are kind of interesting because they do showcase what a live utarpi could look like. So they run prediction markets on who's going to win the election, and they also run prediction markets on who is going to win the party nomination."

He further elaborated on how futarchy could be applied to governmental decision-making: "The way that you could do it, or would do it, is you create financial contracts that pay out relative to these other things that you want to have happen. So like, if you want to increase status, say you want to increase satisfaction of Davis, Stan, that's like your objective function. You want all your residents of Davis, Stan, to be very happy and satisfied all the time."

This approach allows for the creation of financial incentives aligned with desired outcomes, potentially leading to more effective governance and policy-making.

The Impact on DAOs and Traditional Governance

The potential impact of futarchy extends far beyond MetaDAO itself. As more DAOs and organizations grapple with the challenges of decentralized governance, the futarchic model offers a promising alternative to traditional voting systems.

Prophet highlighted two key benefits that have resonated with other DAOs: "I think obviously the solution for attention, right, you don't have these issues of quorum. Now there comes a time that you have to have the handing over authority to these systems, which may be uncomfortable for a lot of DAOs and a lot of DAOs haven't done that with systems they've built with Aragon, I think."

He also emphasized the improvement in decision quality: "And then I think the other one is just quality of decision making, right? Like Jupiter DOW is probably the hottest DOW in all of crypto right now, possibly of all time in terms of engagement. And yet recently it passed a DOW vote that would allow Sharkey to launch with 1% float. Like obviously a horrible like predatory system that's going to make Jupiter eventually look bad."

The Role of Solana in MetaDAO's Success

While not explicitly discussed in the transcript, it's worth noting that MetaDAO's choice to build on Solana has likely contributed to its success. Solana's high-speed, low-cost transactions make it an ideal platform for implementing complex systems like futarchy, which require frequent market interactions.

The Solana ecosystem's focus on innovation and experimentation has provided a supportive environment for projects like MetaDAO to flourish. As MetaDAO continues to develop and expand its Futarchy-As-A-Service offering, it's poised to become a cornerstone of the Solana DeFi landscape.

Looking Ahead: The Future of MetaDAO and Futarchy

As MetaDAO continues to refine its implementation of futarchy and expand its services to other DAOs, the project stands at the forefront of a potential revolution in governance and decision-making. The team's focus on solving real-world problems, such as attention scarcity and decision quality in DAOs, positions them to make a significant impact on the crypto ecosystem and beyond.

Prophet summed up the project's ambitious vision: "I hope that we can get to a place where MedDow is like an important political and economic entity." This statement encapsulates the transformative potential of futarchy - not just as a governance mechanism for crypto projects, but as a new paradigm for organizational decision-making at large.

As the crypto world continues to grapple with questions of governance, decentralization, and effective decision-making, MetaDAO's experiments with futarchy offer valuable insights and potential solutions. By leveraging the power of markets to guide policy decisions, MetaDAO is not just building a more effective DAO - it's pioneering a new approach to collective decision-making that could have far-reaching implications for organizations of all kinds.

The journey of MetaDAO serves as a testament to the innovative spirit of the Solana ecosystem and the broader crypto community. As the project continues to evolve and expand its influence, it will undoubtedly play a crucial role in shaping the future of decentralized governance and organizational structure in the digital age.

Facts + Figures

  • MetaDAO has run 15 proposals since its inception, demonstrating the viability of futarchy in practice.
  • The project successfully resisted a manipulation attempt involving $250,000 spent trying to influence market outcomes.
  • MetaDAO's proposal markets have seen volumes ranging from $100,000 to $500,000 per market.
  • The project initially distributed 10,000 tokens, with $10,000 in the treasury at launch.
  • MetaDAO is developing Futarchy-As-A-Service (FAAS) to expand its governance model to other DAOs.
  • The project has attracted investment from Colosseum, which invested $250,000 in a pre-seed stage round.
  • MetaDAO's leadership has been appointed as "benevolent dictators" for a three-month term, ending in June 2024.
  • The project is collaborating with Robin Hanson, the original proposer of futarchy, to refine its implementation.
  • MetaDAO is working with Future DAO to integrate futarchy into their governance system.
  • The project aims to launch its Futarchy-As-A-Service offering on May 21st, 2024.
  • MetaDAO's community-driven development resulted in a new UI being created within a day of the project's launch.
  • The project is exploring the use of AMMs to improve liquidity in futarchy markets.
  • MetaDAO is considering the creation of financial contracts tied to citizen satisfaction as a potential application of futarchy in governmental decision-making.
  • The project has identified attention scarcity and decision quality as key problems that futarchy can address for other DAOs.

Questions Answered

What is MetaDAO?

MetaDAO is a decentralized autonomous organization built on the Solana blockchain that implements futarchy as its governance model. It uses prediction markets to make decisions, allowing participants to trade on the outcomes of different policy options. MetaDAO aims to improve the quality of decision-making in DAOs and potentially revolutionize organizational governance.

How does futarchy work in MetaDAO?

In MetaDAO's implementation of futarchy, proposals are created with two markets: a "pass" market and a "fail" market. Participants can trade in these markets based on their predictions of how the proposal will affect the value of the DAO. The market prices are then used to determine whether the proposal should be implemented, with the goal of maximizing the DAO's value.

What is Futarchy-As-A-Service (FAAS)?

Futarchy-As-A-Service is MetaDAO's initiative to expand its governance model to other DAOs and organizations. It aims to provide the infrastructure and tools necessary for other projects to implement futarchy in their own governance systems. This service is intended to address common issues in DAO governance, such as low participation and poor decision quality.

How has MetaDAO demonstrated resistance to manipulation?

MetaDAO successfully resisted a manipulation attempt where an individual spent $250,000 trying to influence market outcomes in favor of a proposal. The market participants quickly counteracted this attempt by trading against the manipulator's high bids, demonstrating that futarchy has built-in incentives that promote accurate price discovery and resist manipulation.

What challenges has MetaDAO faced and how are they addressing them?

One of the main challenges MetaDAO has faced is liquidity in the proposal markets. To address this, they are exploring the implementation of an Automated Market Maker (AMM) system specifically designed for futarchy markets. This approach, suggested by Robin Hanson, could provide sustainable liquidity by incentivizing market makers to provide liquidity in the proposal markets.

How is Robin Hanson, the creator of futarchy, involved with MetaDAO?

Robin Hanson, the original proposer of futarchy, is collaborating with MetaDAO to refine their implementation of the concept. He has provided specific technical advice on various aspects of the system, including the use of time-weighted average price oracles and statistical methods. This collaboration allows MetaDAO to benefit from Hanson's expertise while putting futarchy into practice.

What is MetaDAO's long-term vision?

MetaDAO's long-term vision extends beyond just improving DAO governance. The project aims to create a new kind of organization that combines the benefits of large corporations (such as economies of scale and regulatory influence) with the agility and effectiveness of startups. Futarchy, in this vision, becomes the mechanism that allows for decentralized decision-making while maintaining alignment with the overall goals of the organization.

How does futarchy differ from traditional prediction markets?

While futarchy shares similarities with prediction markets, it goes beyond simply forecasting outcomes. In futarchy, market mechanisms are used to make actual decisions, not just predict them. For example, in a governmental context, futarchy could involve creating financial contracts tied to citizen satisfaction, allowing the market to guide policy decisions toward maximizing that satisfaction.

What benefits does MetaDAO offer to other DAOs?

MetaDAO addresses two key issues faced by many DAOs: attention scarcity and decision quality. Futarchy can solve the problem of low participation in governance by not requiring constant attention from token holders. It also aims to improve the quality of decision-making by aligning financial incentives with the best outcomes for the organization.

How does building on Solana benefit MetaDAO?

Although not explicitly discussed in the transcript, MetaDAO's choice to build on Solana likely contributes to its success. Solana's high-speed, low-cost transactions make it an ideal platform for implementing complex systems like futarchy, which require frequent market interactions. The Solana ecosystem's focus on innovation also provides a supportive environment for experimental projects like MetaDAO to flourish.

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