The Father of Futarchy Has an Idea to Reshape DAO Governance
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16 years after Robin Hanson, an associate professor of economics at George Mason University and a researcher at the Future of Humanity Institute at Oxford University, published a groundbreaking paper proposing the use of prediction markets in governance decision-making, his ideas have begun to permeate the Ethereum community.
He coined the term "Futarchy" for a new form of governance that uses prediction market data to express opinions.
Since the publication of this article, Hanson has taught classes, pitched businesses, and spoken at conferences around the world about Futarchy. However, no one has yet put this idea into practice in the real world.
Recent movements in the Ethereum community are providing a path toward realizing these concepts. Hanson explained in an interview with CoinDesk why he believes his simple idea is finally fitting into a decentralized, autonomous world.
In the Futarchy model, market participants (voters) can buy shares of an idea that may or may not be realized within a certain period of time.
As Hanson often says, a publicly traded company can hold its CEO responsible for achieving a certain stock price over a period of time.
Participants who trust the CEO can support the company's future success by investing in "yes" tokens and receive a reward if they are correct. Participants who do not believe in the result can invest in "no" tokens and receive a reward if they are correct.
Essentially, the holder of power sets the conditions for determining success or failure, and market speculators use funds to show the most likely outcome, thereby setting an issue of sorts within the governance structure.
When applied to a corporate structure based on blockchain (also known as a decentralized autonomous organization or DAO), the concept of prediction markets could give stakeholders the power to vote on their beliefs about the outcome.
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Some in the community are already hoping to make this a reality, as the concept of DAOs begins to move beyond the drawing board.
Last week, the Ethereum-based prediction market The Wisdom of Crowds (Kadokawa EPUB Selection) | James Surowiecki, Naoko Kodaka | Book | Mail order | Amazon unveiled a private version of a proposal to reinforce its Futarchy-based prediction market to vote on pitches for The DAO (an organization created to raise funds for Ethereum projects that has already collected more than $150m worth of ether since launching earlier this month). Prediction market Decentralized organizations built on blockchains like Ethereum are primarily governed by the functionality of smart contracts. However, for smart contracts to function, they first require input or data from external sources, and that data is worthless without being trustworthy.
Conventionally, prediction markets, such as those of casinos, are provided with information in the form of trusted third-party entities. In the world of decentralized DAOs, however, that information could well come from sources that rely on the "wisdom of crowds", called "If" innocent evil "exceeds 51%, it is the will of the people", to come up with the answer. "Oracle is an external actor who can provide information from the real world to the blockchain," says Stephan George of Gnosis. "The blockchain itself knows nothing".
For example, Gnosis users can use "signing" data to help resolve events related to decision-making that other users may want. This includes data such as whether a sports team won a game or whether a CEO fulfilled a promise.