Futarchy

TL;DR:

In Futarchy, the community defines a goal (like improving protocol adoption or community health), and competing proposals are evaluated by prediction markets. The proposal predicted to perform best on the chosen metric gets implemented.

Futarchy, a concept proposed by economist Robin Hanson, reimagines governance and capital allocation by replacing debate and opinion with markets for expected outcomes. Rather than voting on policies or funding proposals directly, communities:

1. Agree on the values: What metrics define success?

2. Let markets decide the bets: Which proposal is predicted to best improve that metric?

In a Futarchy system, each proposal has an associated prediction market. Traders speculate on the future state of a key metric if that proposal is implemented. The proposal with the highest expected outcome (according to the market) is selected.

This model aims to reduce bias, ideology, and information asymmetry by aligning decisions with incentivized forecasts rather than preferences.

Though rare in practice, Futarchy is being explored in crypto-native systems where onchain metrics and programmable outcomes make such mechanisms feasible.

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Best For

• High-stakes, long-term strategic decisions

• Environments with measurable metrics of success

• Advanced governance systems with prediction market infrastructure

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Good At

1. Aligning capital allocation with measurable outcomes

2. Filtering out emotion and bias from decision-making

3. Incentivizing information discovery and forecasting

4. Making governance more scientific and data-driven

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Dependencies / Requirements

• Clear, quantifiable success metrics

• Functional, trusted prediction markets

• Participants willing and able to trade on expectations

• An enforcement mechanism to implement selected proposals

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Not Good At

• Funding artistic, cultural, or qualitative work

• Communities with low engagement or low liquidity

• Projects where outcomes are difficult to measure or forecast

• Early-stage ecosystems without trusted data and market participation

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Who Should Use It?

• Advanced DAOs or protocols with robust governance infrastructure

• Communities experimenting with market-driven coordination

• Ecosystems where quantifiable outcomes are critical (e.g. DeFi protocols, network growth)

• Builders interested in mechanism design frontiers

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Example Use Cases

• A protocol DAO uses Futarchy to choose between two scaling proposals—each tied to a prediction market forecasting transaction volume

• A grants program uses Futarchy to allocate funds toward projects most likely to increase ecosystem retention

• A city-run DAO experiments with Futarchy to determine which climate initiative will most reduce local emissions over 5 years