Futarchy.fi - Market-based Governance on Ethereum: What You Need to Know
Using Markets to Govern, Futarchy.fi vs MetaDAO, & More
Each day yields new ATHs - with this in mind, there are more narratives and news to keep up with than we’ve seen in a long time. Today, we’ve seen prices rally, as well as some interesting Binance listing choices, all while Devcon continues in Bangkok, with various builders from around the industry basking in the market’s upward movements. Today, we’re pleased to be discussing a new primitive on the Ethereum blockchain, something we actually haven’t done in a little while…
For some background, in last week’s Macro Dose: Election Edition, we discussed the validation that prediction markets received. This is not only a function of predicting the right candidate to win based on who had the higher odds heading into the election, but also because of the fact that for several hours, Polymarket reflected that the election was a finished game while legacy media companies still thought a winner was uncertain. This viewpoint has now become somewhat consensus, with this viewpoint being reflected by key figures both in and outside of crypto since the election. The natural next step beyond prediction markets is actually using them to make decisions, rather than predicting them; this is the concept of Futarchy. A new protocol has sprung up to provide this service on Ethereum - in today’s edition, we’ll be discussing Futarchy.fi.
Background on Futarchy.fi
To elaborate on the explanation above, Futrachy as a base concept takes the notion that the market can be a valuable arbiter between favorable and unfavorable outcomes and creates a setting where specific, one-off decisions can actually be decided by tradable markets, as opposed to some sort of representative democracy or other means of governance.
For our premium members, we’ve covered Futarchy extensively, actually putting out two long-form reports covering MetaDAO, the Solana-based implementation of Futarchy (read our Industry Intel report for free here).
MetaDAO basically allows projects on Solana to outsource their governance process to a market. In practice, this looks like individual proposals or grant decisions being given their own market, where traders can speculate on if the passing or failing of this initiative will drive the native token price of the project lower or higher. Whichever outcome results in a market perception of a higher token price, will be selected as the proper course of action for the team to take. For some time now, MetaDAO has been the first, and only, actual implementation of Futarchy in the world. That all changed yesterday, with the announcement of Futarchy.fi.
So what exactly is Futarchy.fi? Just made public yesterday, this protocol looks to be building in the same vein as MetaDAO, but on Ethereum. In the past, the MetaDAO team themselves have explained that they would focus on cultivating a rich ecosystem and network on Solana first, before thinking about expanding to Ethereum or other chains. But, Futarchy.fi has seemingly beat them to the chase.
Amidst a coincidental bounce in $ETH price the past week or so following a positive election result, which may or may not have brought some attention back to Ethereum mainnet as a hub for innovation and experimentation, the Futarchy.fi team has exited the stealth building stage and made their presence public. The protocol has yet to launch and is currently taking applications for early and VIP access. So what do we know so far?
Well, as explained above, the main differentiator here is that the protocol is native to Ethereum mainnet, which can possibly help to attract a different crowd than Solana. Ethereum tends to be more mission-driven; Vitalik himself has been a proponent of Futarchy, with his mention of the concept benign found as far back as 2016. Now, this concept is a reality on Ethereum, potentially subject to mindshare from Ethereum-aligned figureheads, which often come off as more ethos-oriented than builders on other chains.
The other big area in which we can judge Futarchy.fi so far is its team. Most notably, Robin Hanson, the man who actually coined the concept of Futarchy himself nearly 25 years ago, has joined the team as Chief Scientific Officer (CSO). Hanson doesn’t exactly have a blockchain background, but his presence and oversight, as well as just the reputation boost that a protocol can gain from leveraging his presence, cannot be understated. Hanson had previously met with the MetaDAO team themselves and discussed what they were building; now he is getting much more involved, but this time with a separate protocol, on Ethereum. Beyond Hanson, Futarchy.fi was also Co-founded by Kelvin A. Santos, who has a background in traditional finance as a high-frequency trader.
Overall, Futarchy.fi is MetaDAO’s first real competitor, after nearly a year of operations. In that time span, MetaDAO has inked partnerships with key Solana protocols, including Jito, Drift, and more, providing numerous small-scale examples of Futarchy in action. For Futrachy.fi, the key to success will probably be to leverage Robin Hanson’s name and likeness, as well as building deep roots with the distinct Ethereum community, especially OG protocols that hold a lot of weight like Uniswap, Aave, and others.
We’ve previously released a report covering the case for MetaDAO’s $META token; this thesis is still intact considering that Futarchy.fi has yet to launch, and doesn’t include a native token, yet. Beyond this, however, the concept of Futarchy in and of itself is still so nascent that additional protocols springing up can probably only be viewed as a good thing, a rising tide lifts all boats sort of situation. Outside of pure experimentation in the area of governance, the state of onchain governance and DAOs specifically has not been in a good place for quite some time, and any fresh ideas in this space will likely be embraced by some communities.
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If you found this newsletter interesting, we’ve made our long-form Industry Intel report on MetaDAO & Futarchy in general available for non-members.
You can access it below for free, without an account.
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