DAOstack and Futarchy

There has been a mention in several forums of a partnership with Gnosis in order to establish
prediction market based governance systems. In effect this consists of allocating different weighting of votes/reputation according to the prediction market outcome affecting previous proposals.
This would enable the first scalable Futarchic (DAOdemocracy) system.
I’m curious as to how would the core team and other components in the ecosystem envision this unfolding, and it’s consequences on the efficiency/upgradability of governance systems in the form of “evolutionary selection” operating on governance.


Yeah I am curious to learn more about the prediction market feature, and what the reception has been to it!

I feel like it should be a feature that teams decide to enable or disable, ideally. Even Robin Hanson mentioned at his talk in ETHDenver that a lot of organizations are not really ready to adopt it (as in, they do not want the feature).

I can see a use case where the prediction market (of trying to bet if the proposal will pass or not) that is happening in parallel with the proposal can potentially impact the optimal decision (in a negative manner).


Does anyone know if the various blockchain futarchy experiments that have been proposed have had any meaningful results yet? I’ve been having trouble finding any experimental results on futarchy at all.

I know the intention is for DAOstack to serve organizations on the larger side, and that seems even more relevant for trying futarchy. There’s already a lot of clerical work required for most current proposed DAO structures (writing and voting on proposals, etc.) I think futarchy would make the process of voting require a lot more thought and work (think of the effort it takes to be a smart investor vs. vote in the mayoral election) in exchange for probably smarter outcomes. That might not be worth it for all organizations.


The idea of using a prediction market to determine policy or action means that actors who have hundreds of billions of dollars to burn will do so merely to influence perception and get news headlines. Anyone participating on Intrade saw this happen during past presidential elections.

In the article where Vitalik discusses An Introduction to Futarchy, he says, “Given a proposal to approve or reject, two prediction markets would be created each containing one asset, one market corresponding to acceptance of the measure and one to rejection…The market is allowed to run for some time, and then at the end the policy with the higher average token price is chosen.”

I almost did a double-take when I read that. I thought to myself, “does he not know what a binary option is?”

The idea that a moving average is somehow going to eliminate manipulation seems naive. The guys with billions of dollars that just want to influence perception don’t care. In the case of a simple moving average all they have to do is buy more. They will short squeeze everyone and play all the games they currently play. Just look at the Emini S&P 500. They know how to punish the shorts. They have QE and cntrl-P (print) on their side. It does not seem like an ideal place to set the game. Whoever has the most money can influence perception the most in this system.

I am surprised Gnosis has to do research to discover what institutional trading firms already know. Are there any actual traders on these teams? This is really alarming if there is a lack of domain experts. I checked Augur’s website and they have Rob Bernstein, the founder of Intrade, as an advisor. Gnosis, however, does not seem to have any real traders on their team. It doesn’t mean they can’t be successful or understand the problems they need to solve, but for a group of people building market software this seems strange.

The fact that they want to limit high frequency trading is telling. Tastytrade describes how denying HFT is essentially a form of limiting liquidity and it is unnecessary; this is an arguable point. According to their whitepaper it looks like Gnosis wants to do what is called “batch order fulfillment” versus continuous trading (what produces results on google is actually just “batch trading”) . This apparently can effect volatility and decrease the spread (Marlene D. Haas and Marius A. Zoican).

These are just MOO (market on open) orders as we know them now. From my understanding, this means that time and sales / order flow will be effected as large orders are all executed together. So that means that information essentially becomes useless. If you shut down accurate order flow then I would think that large portions of the professional trading community will be less inclined to adopt the software unless they can integrate it with current continuous trading models.

This might seem good so as to have a separation from their interests, but real price discovery and the information flow of that discovery will be impacted once the system gets too big. You won’t be able to reliably read the price action in times of high volatility, and large participation, if everything operates like it does on the open/close of current markets. It’s wild and unreadable chaos. Price fluctuates insanely. I don’t want to be too rude, but have the Gnosis guys ever actually watched the order flow for a market open? If the point is to increase clarity in decision making then batch order fulfillment is not a good idea. You need order flow.

Sviatoslav Rosov says, “First, it is unclear how a discrete batch auction exchange would function alongside continuous time exchanges that would continue to co-exist, at least for some time. A second issue [Budish] raised is that it is not clear how a frequent batch auction equity exchange would interact with a derivatives exchange. In both cases, the problem for the batch auction model is that pre-trade transparent continuous-auction exchanges would be constantly updating prices in real time, providing true price discovery, which could complicate the discrete-time batch auction process.” (link)

He then concludes, “To get around the asynchronicity of price discovery between exchanges, all exchanges would have to become frequent batch auctions and have the auctions perfectly synchronised for the discrete-time auction model to work, in its strictest interpretation.”

Ouch. That means no derivatives. Not good.

It seems like in Futarchy, three groups of people win: business insiders, professional psychics, and smart traders. I am not quite sure how this is equitable for anyone else.


Damn. Hanson’s responses sound so defeated. Prediction markets will be very powerful in the long term, but wow, listening to his responses is so revealing. Around 22 minutes to 30 minutes in…


Thanks, @Suishou, that throws a lot of light on this stuff. I think there’s a lot of people around who, like me, really aren’t in any kind of finance space, so we don’t even know where to look for information like that.

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