Voting has fundamental issues, from low participation and uninformed choices to the outsized influence of insiders—leaving decisions open to manipulation.
Futarchy, an innovative concept, aims to replace votes with market-driven outcomes where people “bet on beliefs” instead of merely casting their votes, potentially addressing these flaws.
MetaDAO is the first project to bring this approach to life, enabling DAOs on Solana to manage governance through economic incentives rather than conventional voting.
This article covers everything you need to know about MetaDAO and how to get involved in futarchy.
The voting problem
Voting, in its ideal form, is a rational process where voters evaluate options and select the one they believe best serves them or their community. However, in practice, voting systems often fall short. That's because voting suffers from three major issues:
- Low participation: Voting typically struggles to engage a meaningful number of participants. Voter apathy, lack of incentives, or the perception that one's vote won't make a difference can lead to dismal turnout rates. In crypto, this is a particularly acute issue, as even high-profile projects frequently see low participation rates in governance proposals. But without sufficient engagement, decisions made by a small fraction of stakeholders can lack legitimacy and may not accurately reflect the broader community's interests.
- Uninformed voters: Even when people do participate, they often lack the information necessary to make an informed choice. Many voters do not fully understand the complexities or implications of governance proposals, especially when they involve technical or economic decisions. In decentralized communities, where decisions on protocol updates or token distribution can have complex implications, uninformed voting can lead to suboptimal or even detrimental outcomes for all stakeholders involved.
- Whale and insider influence: Voting outcomes are also subject to manipulation by insiders or large token holders (often called “whales”) who can exert disproportionate influence. In many decentralized governance structures, token-weighted voting means that those with larger holdings have greater sway over decisions. While this may seem reasonable in theory, it often leads to “governance theater”, where votes are essentially predetermined by those with the most voting power, undermining the concept of decentralized and democratic decision-making.
Numerous attempts have been made to address these issues, but many have yielded limited results. Different voting systems, such as ranked-choice voting, quadratic voting, or liquid democracy, each have their own strengths and weaknesses, but none have effectively solved the fundamental challenges of participation, informed decision-making, and fair representation.
The concept of futarchy
One radical solution to the pitfalls of voting is futarchy, a term coined by economist Robin Hanson in 2000. Futarchy suggests a paradigm shift: instead of voting based on personal biases or limited information, decisions should be driven by markets. In Hanson’s own words, “vote on values, bet on beliefs.” In this system, instead of voting, participants use a market mechanism to predict the success of different outcomes.
In futarchy, individuals don't vote directly on whether a proposal should be implemented. Instead, they trade on the likely outcome of the proposal in a market environment. The idea is simple but powerful: if people put their money or resources behind a proposal, they’re making a measurable commitment that it will succeed. If enough participants believe a proposal will yield positive outcomes, its value will rise in the market, thereby “passing” the proposal by market consensus. Conversely, if market participants speculate that a proposal would have negative effects, its value will decline, causing it to fail.
This structure has three notable advantages:
- Market-driven outcomes: By leveraging market mechanisms, futarchy incentivizes participants to make rational, data-driven decisions rather than emotional ones. When individuals are financially motivated to support proposals they believe in, they are likely to conduct research, analyze the facts, and avoid biases that might otherwise affect their vote. Futarchy turns governance into an exercise in informed speculation, where only the best-informed perspectives win.
- Reduced influence of whales and insiders: Although markets can still be influenced by significant players, futarchy provides a unique check on whale influence. In futarchy, voting is replaced by market bets, and market participants can “short” a proposal, betting against its success. This offers a counterbalance to any individual with excessive influence, providing a structure where the market as a whole can oppose decisions that appear to serve narrow interests over collective benefit.
- Increased accountability and transparency: In traditional voting, accountability is limited because voters do not directly experience the consequences of their choices. Futarchy addresses this by making participants financially accountable for their predictions. By turning governance decisions into economic forecasts, futarchy ensures that only decisions with broad, measurable support are enacted.
Futarchy, however, has remained largely theoretical since Hanson proposed it two decades ago, with various criticisms and practical limitations.
MetaDAO: The first practical futarchy implementation
Despite futarchy’s promising theoretical framework, few have attempted to implement it in a real-world setting.
MetaDAO, a project on Solana, is the first initiative to put futarchy into practice.
With that said, MetaDAO is more than just a theoretical experiment; it provides a functioning platform where communities can create, manage, and participate in futarchies.
The process works as follows:
- Proposal creation: When a governance decision needs to be made, a proposal is submitted to MetaDAO. Instead of voting, users buy and sell outcome-based tokens, each representing a specific outcome for the proposal. For instance, there might be tokens for “Proposal A Passes” and “Proposal A Fails.”
- Market trading: Users buy, sell, or trade these tokens based on their expectations of the proposal's success. If a proposal is deemed likely to succeed, the “Proposal A Passes” token price will increase, and if not, the price of “Proposal A Fails” will rise instead. This trading activity effectively reflects the community’s collective belief about the proposal’s success or failure.
- Decision outcome: Once the market reaches a stable point or a predetermined threshold, the outcome with the higher market value is selected, thereby “voting” the proposal into action or rejecting it.
Additionally, MetaDAO itself is governed by futarchy, aligning with its philosophy of market-based governance. This means that even the platform’s own rules and processes can be adjusted through futarchic decisions, making it a truly decentralized and adaptive governance model.
The future of decentralized governance with MetaDAO
MetaDAO’s approach could radically alter the landscape of decentralized governance.
That's because its use of futarchy to drive decision-making has the potential to address the issues of low participation, uninformed voters, and undue influence that plague traditional voting systems.
However, futarchy is not without its challenges. Critics argue that market-based governance could be vulnerable to manipulation or create financial barriers to entry. Additionally, futarchy may still face challenges with voter participation if individuals are unwilling to risk their assets for governance decisions.
As such, MetaDAO’s real-world application will likely reveal further insights into both the strengths and limitations of futarchy as a governance model. But ultimately, MetaDAO represents a bold step forward in experimenting with decentralized governance.
Begin your MetaDAO journey with Phantom
If you’re actively engaged in a DAO that leverages MetaDAO, you’re likely already familiar with the platform. If MetaDAO is new to you, here’s a quick guide to getting started:
- Visit futarchy.metadao.fi
- Browse the DAO directory and choose a DAO you’re interested in
- Once selected, you’ll see both active and past proposals for that DAO
- For any active proposal, click on it to get started
- Connect your Phantom wallet (ensure it’s funded) in the top-right corner
- Now, you can place bets by buying (going long if you support the proposal) or selling (going short if you oppose it)
That’s it. You're now part of the futarchy!
Getting started with Phantom
Phantom offers browser extensions for Firefox, Chrome, Brave, and Edge, as well as apps for iOS and Android to get started on Solana.
- First, download Phantom. Then, create a new wallet.
Once you do that, you're ready to go!
To learn how to fund your Phantom wallet, read our Apple Pay and Google Pay guide.
How to bridge tokens to Solana with Phantom?
If you already have a Phantom wallet and would like to bridge funds to Solana, use our very own Crosschain Swapper. With our Crosschain Swapper, you can bridge tokens across Solana, Ethereum, Base, and Polygon right in your Phantom wallet.
Disclaimer: This guide is strictly for educational purposes only and doesn’t constitute financial or legal advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.
