# Futarchy

Governance mechanism where decisions are made via prediction markets — proposals are evaluated by how well markets expect them to achieve a defined success metric.

**Futarchy** is a governance mechanism developed by economist Robin Hanson where decisions are made via prediction markets rather than traditional voting. The community defines a quantifiable goal, competing proposals are evaluated by prediction markets, and the proposal with the highest expected outcome is selected.

## How It Works

Futarchy replaces opinion-based voting with incentivized forecasting.

1. **Define a success metric** — the community establishes a quantifiable goal (e.g., protocol TVL, user growth, emissions reduction)
2. **Proposals are submitted** — competing proposals for achieving the goal are put forward
3. **Prediction markets open** — each proposal gets its own prediction market where traders speculate on how well it will achieve the defined metric
4. **Markets aggregate information** — traders with genuine knowledge are incentivized to bet accurately, surfacing collective intelligence
5. **The winning proposal is selected** — the proposal whose market predicts the highest expected outcome is implemented
6. **Outcomes are measured** — after implementation, actual results are compared to market predictions

## Advantages

- Reduces bias and ideology through incentivized forecasting rather than preference-based voting
- Aligns capital allocation with measurable outcomes
- Incentivizes information discovery — people with genuine knowledge are rewarded for sharing it
- Makes governance scientific and data-driven

## Limitations

- Requires clear, quantifiable success metrics — not all decisions can be reduced to numbers
- Cannot effectively fund artistic, cultural, or qualitative work
- Struggles in communities with low participation or liquidity in prediction markets
- Needs trusted prediction market infrastructure and enforcement mechanisms

## Best Used When

- Advanced DAOs with robust governance infrastructure and active participation
- High-stakes, long-term strategic decisions where data matters more than opinion
- DeFi protocols and network growth initiatives with measurable outcomes
- Systems where the community can agree on a quantifiable success metric

## Examples and Use Cases

### Protocol Scaling Decisions

Protocol DAOs choose between competing scaling proposals using prediction markets that forecast transaction volume under each approach.

### Grants Allocation

Grants programs allocate funds to projects based on prediction markets that forecast user retention or ecosystem growth.

### Municipal Climate Decisions

Municipal DAOs select climate initiatives based on prediction markets forecasting emissions reductions.