'The Goal Is Number Go Up': Inside a DAO’s Radical Governance Experiment

SALT LAKE CITY – Cryptocurrency developers gathered in a hacker house here are testing out a radical form of governance. Called "futarchy," it entrusts the market with total control.

Behind this effort is the Meta-DAO, the latest "decentralized autonomous organization" to use blockchains as an experimental platform for creating novel governance mechanisms. DAOs are usually organizations controlled by their token holders, who vote for or against various proposals to move the group forward.

That's not quite how Meta-DAO works. In its conception of governance, every decision is based on what the market believes is the best outcome for its token, META.

"The goal of the DAO is to make number go up," said Proph3t, the creator of Meta-DAO.

That goal caught fire at the Salt Lake hacker house in mid-February as META's price in the spot market soared from $50 to over $1,000 in a matter of days. Attendees of mtnDAO, a month-long coworking conference for devs building on the Solana blockchain, got hooked on trading (ahem, voting) on Meta-DAO's future by buying and selling META tokens in its increasingly contentious governance markets. ("Spot" in this context refers to trading outside those special governance markets.)

"This is consuming my life," said Barrett, the head of mtnDAO and a self-proclaimed "futard." "This has been a war on the order books. A week of my life has been consumed by this order book. There has never been a more interesting DAO governance mechanism in crypto."

Meta-DAO's breakneck acceleration has caught the attention of venture investors, including Pantera Capital. At the time of publication, the gigantic crypto investing firm has an active proposal to buy $50,000 of META tokens from the DAO at well below spot market price.

Whether the purchase goes through is up to Meta-DAO's complicated, unique and highly experimental conditional markets, which, if successful, could provide a framework for better human coordination.

If Proph3t has his way, the world will take note.

"This is something that could entirely reshape human civilization," Proph3t said. "This could solve politics."

"The goal of the DAO is to make better decisions," Proph3t told one curious bystander at mtnDAO, "Markets are empirically better than experts."

In an industry known for wild undertakings, futarchy is perhaps one of the wildest. But it isn't a new idea. Introduced in a 2007 paper by George Mason University Economics Professor Robin Hanson, it is based on the premise that speculative markets could be better decision-makers than pure democracies. Participants in speculative markets (think: stock and betting markets) are incentivized to do the research necessary to understand the optimal outcome to serve their interests, according to Hanson. They'll buy or sell accordingly.

Futarchy is the most extreme use case for another Hanson brainchild, prediction markets, in which traders bet money on the verifiable outcome of an event in a specified time frame (e.g. "Taylor Swift engaged in 2024?"). More modest applications are to use them to forecast outcomes, or at least measure popular sentiment. Although prediction markets have mainly languished for years, analysts at Bitwise Asset Management (prediction No. 9 here) and Messari (page 169) have issued bullish forecasts for the crypto-based versions in 2024.

Read more: What Prediction Markets Are Forecasting for Crypto in 2024

Futarchy has been attempted in crypto before. In 2020 the Ethereum booster organization Gnosis DAO pledged to use futarchy via prediction markets to guide the group's decision-making. It's unclear how successful this effort was. The group named Hanson as an advisor in 2017 but still hasn't paid him, the father of futarchy told CoinDesk.

Proph3t came to mtnDAO intent on building crypto's first true futarchy. The pseudonymous crypto developer calls himself a "markets nerd" and that's perhaps the best way to describe his physical appearance, too. (He requested CoinDesk not share any personal descriptions. No one at mtnDAO knows his real name). In an interview, Proph3t said he wants to disappear once Meta-DAO becomes self-sufficient – much like Satoshi Nakamoto did for Bitcoin.

His creation revolves around order books, the piece of stock and crypto trading infrastructure where traders post "orders": how much they’re willing to pay to buy an asset, or what price they’d accept to sell it.

In Meta-DAO's governance game, each proposal gets two conditional markets: the “pass” market and the “fail” market. Traders who want a proposal to pass might buy META in the “pass” market (this would push META’s price up) and sell META in the “fail” market (this would push META’s price down). Conversely, traders who want a proposal to fail might do the opposite.

Whichever market has the higher price for META after a set time will execute. The trades placed on the unsuccessful market will revert. The idea is that traders will – through their trading – signal which outcome is better for META’s price.

"We’re a philosopher-kingdom where the philosopher is the market. But the philosopher is not trying to increase our happiness, just our wealth," Proph3t said.

There's nothing easy about pioneering an untested form of governance. But if there's any community where Proph3t's proposition that "markets are better than managers" might catch on, it's probably crypto. The self-described "aspiring cult leader" spends his days at mtnDAO evangelizing his fledgling futarchy to the co-working space's attending coders, many of whom are also building new kinds of markets on top of blockchains.

"Somewhere around 2020, we decided that crypto was projects funded by a16z and staffed by Fenwick," Proph3t said, referring to the gargantuan VC and one of the most prolific law firms servicing crypto. He went in the radically opposite direction by creating a leaderless, markets-governed organization with no institutional backing and certainly no lawyers.

"I bought in hook, line and sinker,” said Kollan House, a mtnDAO attendee who runs a crypto market-making operation and became one of Meta-DAO’s stalwart contributors even before arriving at Salt Lake City.

“As innovative as crypto can be, we tend to revert to the mean," House said in a Telegram message. Proph3t's message "brought me back to the 2014 days when the possibility to change the world felt palpable, and it wasn’t about some egotistical maniacs lying through their teeth."

The pair became Meta-DAO's power brokers at the WeWork office space in Salt Lake where mtnDAO is staged. On any given day, Proph3t can be seen tending to the organization's long-term goals before inevitably getting wrapped up in whatever chicanery is happening on its order books, while House manages the Discord server, chats about futarchy with other attendees and drafts proposals to go before the traders who govern Meta-DAO.

Everything was quiet at Meta-DAO (perhaps too quiet, if you asked Proph3t) until proposal 6, the first truly controversial proposition to stress-test its conditional markets.

Ben Hawkins, an employee of the Solana Foundation who was passing through mtnDAO, learned about futarchy and wanted in. He'd just missed the DAO's first fundraising round, which sold $75,000 worth of META tokens to a handful of its early believers, a trio of mtnDAO attendees among them.

So Hawkins crafted a proposal he knew would be "spicy."

He proposed the DAO sell him $50,000 worth of META tokens at $33 apiece, a steep discount to the token's $50-$60 valuation on spot markets. He knew that Meta-DAO's rationally-minded traders would balk at giving this relative nobody (while Hawkins works for Solana Foundation, he was acting independently) such a steal.

But Hawkins had one thing going for him: oodles of money to spend in Meta-DAO's conditional markets. He committed a little over $250,000 in an attempt to drive up META in the "pass" market. His broader goal was to "bring attention" to Meta-DAO and force people to think about “market-based decision making,” Hawkins said in an interview with CoinDesk.

It worked. Within a day of its posting, proposal 6 had turned mtnDAO into a "war room" of traders marveling at Meta-DAO's order book-based governance and quaking at what would happen if Hawkins traded his way to victory.

"He's getting a massive controlling interest for way below-market price," said Anders Jorgensen, the intern for decentralized finance project MarginFi. "That's about as bad as it gets." (MarginFi, along with fellow Solana-based DeFi project Cypher, hosted the mtnDAO confab.) On Friday, Jorgensen was plotting the demise of Hawkins' proposal 6.

The "futards" took up arms against Hawkins. Some bought META on spot markets to sell in the "pass" market, driving down its price for META and making "fail" more likely to win. But one can spend a dollar only once. The futards ran into a liquidity wall; they only had so much crypto-ammo to spend.

"I'm reaching out to size," Jorgensen muttered at one point in the fight, indicating he was contacting a trader with plenty of capital to bid on META in "fail."

Whether or not Anders found his size trader, Hawkins' proposal did ultimately fail. Before it did, "size" showed up.

With one day left in proposal 6, the $4 billion crypto asset manager Pantera proposed to buy $50,000 worth of META from the DAO at a maximum price of $100 apiece. In a blog post Pantera said it viewed buying META "as an opportunity to test futarchy's potential as an improved system for decentralized governance." The investment would come from Pantera's liquid token fund.

The market viewed Pantera's outreach as a stamp of legitimacy. Within one day of Pantera's proposal 7 going live, the spot price of META shot from $85 to over $1,000.

Proph3t also met Pantera’s overture with excitement. On a Friday afternoon, he said the fund’s participation could increase Meta-DAO’s chance of success by 5% to 15%. That’s a pretty big jump for a single action, he said.

If, at first, the participants of Meta-DAO's Discord server were open to partnering with a massive crypto trading fund, their open arms crossed as META's spot price soared. By late Sunday night, the "fail" market was showing strength. Why should Pantera, or anyone, for that matter, get a bargain deal?

Because, according to Proph3t, the DAO should reward those who bring it value. "Pantera has just created a lot of credibility to the DAO," he wrote in Meta-DAO's Discord server Saturday. Throw in Pantera's promise to offer "futarchy consulting" to other portfolio companies if the proposal passes, and its participation could be tremendous for Meta-DAO and its mission, he told the others.

"Whether the prop fails or not, we should pay Pantera," Proph3t told CoinDesk in a Telegram message late Sunday. "The DAO needs to pay people who provide value to it."