Futarchy combines prediction markets with democratic voting, aiming to choose policies that potentially increase societal well-being based on market predictions. But as with any system involving markets, capitalist tendencies often emerge, leading to both opportunities and challenges within these decentralized communities.
At the heart of this dynamic is trading.
MetaDAO is pioneering an impressive tool-suite to allow communities to leverage prediction markets in order to govern decision making. Early adopters of this service are helping beta test the programs, and refine metric selection and security. Most of these early users can find one another on Discord to weigh trading strategies, and discuss efficacy and philosophy.
The ethos of futarchy is simple: If a proposal will improve the FDV of the underlying asset, it succeeds. At it’s most fundamental level, it is designed to incentivize decision making processes that lead to sustainable growth and equitability. At the highest level, it is designed to make money.
Whether you succeed trading on futarchy markets depends on two things:
1) Your wealth, and 2) Your wealth-knowledge.
The name of the game is balancing poker-face tactics, participation or exclusion in discussion, with highly strategic buy-sell volume, in order to maximize trading profits.
“Incentive to trade is to eat the fish that don’t know what they are doing.”
~@Deanmachine
Exploiting those with less information or resources is a fundamental principle of capitalism. The underlying truth is, in any system where trading is involved, those with more knowledge or resources can often extract value from those who are less informed.
Encouraging your own community to participate in experimental markets with the intention of out trading them is inherently predatory. It seeks to extract value without creating any. Why should a community want to participate in experimental markets when there is such apparent asymmetry between both wealth and wealth-knowledge?
Information inequity turns into realized inequity when the trading closes on futarchy markets. Predation proceeds profit.
This raises the issue of exploitation and wealth concentration, where the knowledgeable few may accumulate a significant portion of resources or decision-making power. In traditional capitalist systems, we see wealth concentrated in the hands of a few, leading to inequality and reduced social mobility. In a DAO, this dynamic can erode the democratic principles that these systems are meant to uphold. It’s almost as if the wealth and power that influence traditional political systems are finding their way into these decentralized spaces!
The danger here is not just economic. Trading against one’s community can erode the very trust that holds these communities together. Trust is vital in any collective endeavor, and when individuals prioritize personal gain over communal well-being, it leads to fragmentation and disillusionment. The short-term gains achieved through predatory trading can overshadow the community’s long-term goals and sustainability, misaligning individual interests with those of the collective.
Trading within a community isn’t inherently bad.
It has the potential to provide liquidity and efficiency, establishing fair market prices for community assets. This can benefit all participants, offering incentives for engagement and aligning individual goals with collective outcomes. The challenge lies in managing the delicate balance between fostering an environment where trading can thrive, and ensuring it doesn’t lead to exploitation or inequality.
What strikes me is the loss of inclusivity when economic interests of a few overshadow the community’s needs. This exclusivity can stifle innovation and diminish the diverse perspectives that DAOs need to thrive. It’s a reminder that while trading can provide benefits, it also poses risks of exploitation, inequality, and loss of trust.
So, what does it all mean?
The key might lie in emphasizing transparency, inclusivity, and mechanisms that align individual incentives with the community’s well-being. By doing so, we can harness the potential of these systems effectively, navigating the challenges of extraction and fostering environments where all members can thrive.
In this intersection of decentralized governance and capitalism, we are witnessing a unique moment. The challenge is to channel these dynamics in a way that honors the core principles of community and decentralization while acknowledging the realities of market behavior. Small fish feed, not become, larger fish.
