Futarchy is an innovative governance model proposed by Robin Hanson, detailed in his manifesto, Futarchy: Vote Values, But Bet Beliefs (Hanson, 2013). Unlike traditional systems where we vote directly on specific policies, futarchy suggests that citizens choose objectives, while prediction markets—financial mechanisms where individuals buy and sell contracts tied to future outcomes—determine which policies would most effectively achieve those goals.

To better grasp how this system operates, let’s consider a practical example using Argentina. Imagine the current Argentine government opts to apply futarchy to enhance its foreign trade. We, as citizens, would vote on a clear objective: “facilitate access to imported goods without harming local industry.” With the goal established, a prediction market would be set up to evaluate policy options. For instance, take the proposal “establish free trade with the United States.” Two tokens would be issued:

• Token “YES to free trade with the United States”

• Token “NO to free trade with the United States”

Over a defined period, the proposal’s parameters would be outlined, and any citizen could buy or trade these tokens based on their predictions or preferences. A small business owner might purchase “YES” tokens, anticipating cheaper imported equipment, while a local clothing manufacturer might opt for “NO,” expecting fierce competition. As trading unfolds, token prices shift with supply and demand. Suppose both tokens start at $1 USD. Over time, “YES” rises to $1.20 while “NO” falls to $0.80, signaling greater interest in free trade. By the market’s close, “YES” reaches $1.45 and “NO” drops to $0.55.

When the trading period ends, the market closes, and the final token prices decide the outcome. In this case, “YES” prevails with a higher value, meaning free trade would be enacted as law. Those who bought “YES” tokens could redeem them at the final price for a profit: someone who purchased a “YES” token for $1 could exchange it for $1.45, earning a $0.45 gain.

Hanson observed that many countries, even democracies, adopt policies that harm most citizens, while experts who understand these flaws often go unheard or ignored by policymakers. Futarchy offers a potential solution by creating a system where expertise and knowledge translate into predictions with tangible stakes: people must “put their money where their mouth is.” This setup discourages novices from pushing misguided decisions, and self-styled experts who misjudge lose out financially on poor predictions (Hanson, 2000).

Futarchy and DAOs

Stepping into the Web3 ecosystem, futarchy becomes especially compelling due to the ease of experimenting with organizational and participatory frameworks. Vitalik Buterin has noted that while technology has boosted our capacity to collect and process information, governance still leans heavily on centralized models where key members, core contributors, and investors make arbitrary calls. Coordinating large groups poses logistical challenges, no doubt, but exploring more horizontal models is entirely feasible.

This is where DAOs shine as fertile ground for futarchy, thanks to their autonomous, decentralized nature. Without a central authority, the benefits of direct participation can extend broadly, free from reliance on unknown individuals who might prioritize personal gain over the collective good. Futarchy emerges as a radical proposal for open, transparent governance. Among the advantages often highlighted are:

• Alignment of incentives

• Leverage collective intelligence

• Transparency and traceability

• Emphasis on objectivity

• Encouragement of participation

Example of trade visibility in Futarchy - Image from “Should MetaDAO Hire Robin Hanson As An Advisor?” - MetaDAO - See Proposal: Link.

The reasoning is straightforward: if I can profit from a decision, I’m incentivized to engage actively and make the best possible choice. This drives participants to leverage all available information to select the most promising option and make it profitable in the market. Theoretically, this fosters an “evolutionary pressure” toward increasingly informed decisions, penalizing speculative or baseless votes while empowering all participants to influence the outcome. For instance, in a market predicting whether to donate a company’s entire funds to charity, there’d be a clear incentive to oppose it, steering the price toward the rational choice.

Yet futarchy isn’t without challenges in the DAO context. It excels for large-scale or high-impact decisions—like protocol updates or major expenditures—but falters for smaller, operational matters like marketing or routine costs. MetaDAO’s whitepaper, a pioneer in futarchy for decentralized organizations, notes in section 7.1, Proposals without externalities, that such decisions should trade at parity, lacking significant broader impact. Pricing in a prediction market is complex, too—external variables can skew it, and measuring a decision’s isolated effect over time is no simple task. Human values, meanwhile, resist reduction to a single metric without losing nuance, and even choosing that metric can spark as much debate as the decision itself. Finally, participating in a prediction market carries financial risk, potentially deterring some while leaving space for actors with vested interests to sway outcomes.

A hybrid system, blending various mechanisms, seems the most practical path. Futarchy excels at aggregating collective insight but reveals limitations that will sharpen with further experimentation in DAOs.

Futarchy in Action: The Future of Decentralized Governance?

In a move that could redefine decentralized governance, Optimism and the Uniswap Foundation will launch an experiment to test futarchy as a decision-making tool, supported by a grant to Butter (Koen, 2025). This initiative marks a significant step in exploring how decentralized communities can make more efficient, data-driven choices. While it’s too soon to predict the results, this effort could lay the foundation for a new perspective on Web3 governance.

Butter’s approach stands out: rather than voting directly on projects or proposals, participants predict the outcomes of funded initiatives and earn rewards for accuracy, says Erin Koen, Uniswap Foundation Governance lead. This aligns community incentives with desired results, promoting objective decisions over those swayed by popularity or influence. For Optimism and Uniswap, it’s a chance to test whether collective intelligence can better guide resource allocation and ecosystem growth.

An Experiment with More Questions Than Answers

This experiment is novel, but it brings uncertainties: How will the community respond to this system? Can futarchy prevent market manipulation and ensure fairness? Can complex objectives be distilled into clear metrics that truly reflect community values? These questions will only find answers through time and practice.

What’s certain is that this trial represents a bold leap toward governance that’s not only transparent but also efficient and aligned with community goals (Koen, 2025). Still, futarchy isn’t a magic fix—its challenges and limits are real, and this experiment will be a critical test of its real-world viability.

What’s Next for Futarchy?

Futarchy remains in its early stages, but its potential is vast. As more organizations experiment, we’ll likely see refined mechanisms and broader adoption. How it evolves, which decisions it suits best, and how it integrates with other governance models remain open questions. The key challenge will be addressing issues like market manipulation and ensuring metrics genuinely reflect community priorities. Should these tests yield positive outcomes, futarchy could become a cornerstone of DAO decision-making and, eventually, extend to wider governance structures.

To Conclude: Is Futarchy the Future of Governance?

Futarchy offers a groundbreaking tool for decision-making in decentralized settings, merging democratic participation with prediction market efficiency. It rewards expertise, filters out flawed ideas, and provides a transparent, effective alternative for managing organizations like DAOs. The upcoming Optimism-Uniswap experiments could showcase its ability to align incentives and tap collective wisdom, though they’re not without hurdles like manipulation or the complexity of measuring outcomes.

As long as innovation and dedication remain at the forefront, futarchy could not only address current governance gaps but also inspire new ways of envisioning the future. Its success will depend on how we navigate its shortcomings, but one thing is clear: it has sparked an essential conversation about collective decision-making in an increasingly complex world.

Authors of the article: @_0xnix @IveyOnDuty

References

1. Hanson, R. (2000). Shall we vote on values, but bet on beliefs? George Mason University.

2. Hanson, R. (2013). Shall we vote on values, but bet on beliefs? George Mason University. Retrieved from http://mason.gmu.edu/\~rhanson/futarchy2013.pdf

3. Ballandies, M. (2024). Futarchy – Using humanity’s collective intelligence in decision-making.

4. Buterin, V. (2014). An introduction to futarchy. Ethereum Foundation Blog. https://blog.ethereum.org/2014/08/21/introduction-futarchy

5. Mammadov, F. (2024). Futarchy – Where democracy and markets meet. https://medium.com/coinmonks/futarchy-where-democracy-and-markets-meet-6696b9d1f63d

6. MetaDAO. (2024). Futarchy: Governing through prediction markets.

7. MetaDAO. (2024). Meta-DAO: Redefining governance through futarchy. https://github.com/metaDAOproject/Manifesto/blob/main/Manifesto.pdf

8. MetaDAO. (2024). MetaDAO Docs. https://docs.metadao.fi/

9. Koen, E. (2025, January 24). Futarchy meets governance: Optimism and Uniswap Foundation. Uniswap Foundation. https://uniswap.foundation