Clear DefinitionsFutarchy
1 min read
Pronunciation
[fyoo-tahr-kee]
Analogy
Like letting stock traders decide on the best business strategy by betting on which choice will yield the highest profits.
Definition
A form of governance where decisions are made based on prediction market outcomes: participants bet on which policy will maximize a defined metric (e.g., network value), and the winning market determines the adopted policy.
Key Points Intro
Futarchy uses market mechanisms to guide governance decisions based on collective wisdom.
Key Points
Decision markets: Separate markets for each proposal’s expected outcome.
Metric-driven: Policies selected to maximize pre-defined KPIs.
Incentive alignment: Traders profit by accurate predictions.
Automated execution: Winning policies automatically enacted.
Example
A DAO opens prediction markets on two upgrade proposals; the proposal whose market predicts higher future TVL is automatically implemented.
Technical Deep Dive
Smart contracts deploy scalar outcome markets using AMM-based prediction market frameworks (e.g., Gnosis). On resolution date, oracles report metric (e.g., TVL), markets settle, and `executeProposal()` triggers governance actions.
Security Warning
Market manipulation or low liquidity can distort outcomes; ensure sufficient participation and oracle integrity.
Caveat
Futarchy assumes markets aggregate information correctly; behavioral biases can mislead.
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