Futarchy FAQ
Frequently asked questions about Metalos's Futarchy Governance.
Frequently asked questions about Metalos's Futarchy Governance.
This guide answers the most common questions about participating in Metalos's Futarchy Governance, explaining both how the system works and the value it creates.
Futarchy is a form of governance where decisions are made by prediction markets. Instead of just voting "yes" or "no," you can trade conditional tokens (pMetaLOS/fMetaLOS) that represent the outcome of a proposal. The final market price of these tokens determines whether the proposal passes or fails. It's a way to let the market's collective wisdom guide the protocol's future.
Added Value: This system moves beyond simple popularity contests. It incentivizes participants to make informed, data-driven predictions about a proposal's impact on the protocol's value. Decisions are based on financially-backed conviction, not just opinion, leading to more robust and value-aligned outcomes for the DAO.
Absolutely. Imagine the DAO wants to decide on a new strategic initiative. The goal is to choose a path that the market predicts will most effectively increase the long-term value of the $metalos token.
Let's say a proposal is put forward to fund a new grants program for developers.
USDC from the treasury to attract new builders to the Metalos protocol. It's a bet on ecosystem growth.Instead of a simple poll, a prediction market is created for this single proposal. Traders use their USDC to bet on the outcome:
$metalos, you would buy its "Pass" token (pMetaLOS).fMetaLOS).At the end of the trading period, the final market price of the "Pass" token determines the outcome. If it's above a certain threshold, the proposal is automatically approved and executed.
Why This is Powerful: A higher price for the "Pass" token signals greater market conviction that this strategy will achieve the ultimate goal: increasing the long-term value of the $metalos token. The decision is based not on popularity, but on the market's collective financial prediction of which strategy will bring the most value to $metalos holders.
$metalos and USDC), before it can become a live prediction market.The Value of This System: This two-stage process acts as a crucial filter. It prevents the governance system from being overwhelmed with low-effort or unpopular ideas. Only proposals that demonstrate significant initial financial and community support can proceed to the trading phase, ensuring that everyone's time and attention are focused on serious initiatives.
A draft becomes an active proposal when it meets several on-chain conditions before its draft period expires:
USDC pledges to meet the minimum liquidity requirement (e.g., $500 USDC). This value is set by governance.$metalos collateral (e.g., $250 worth of $metalos, based on the 2:1 ratio).Added Value: These thresholds enforce "skin in the game." They ensure that only proposals with real financial and community backing proceed to the trading phase. This is a powerful defense against spam and ensures that the resources of the DAO (creating a market, community attention) are spent on serious considerations.
To streamline the creation process and ensure high-quality submissions, Metalos provides several templates for common proposal types. When you create a draft, you'll be asked to choose one.
Available Templates:
Added Value: Templates guide creators to provide the necessary information for others to make an informed decision, such as a clear rationale, risk assessment, and expected impact. This standardization improves the quality and clarity of proposals across the board.
Pledging is how the community signals support for a proposal and provides the initial capital needed to create its prediction market. By pledging both $metalos and USDC to a draft, you help it meet the minimum requirements to become an "Active Proposal."
Why This Matters: Pledging transforms support from "cheap talk" (like a simple upvote) into a "costly signal." By committing capital, you demonstrate a credible belief in a proposal's merit. This system filters for quality and conviction, focusing the DAO on ideas that participants are willing to financially back.
$metalos and USDC? What do they do?The two tokens have distinct and crucial roles:
$metalos is the collateral. Your pledged $metalos is locked in the smart contract. If the proposal activates, this collateral is used to create the conditional tokens: pMetaLOS (Pass) and fMetaLOS (Fail). The value of these outcome tokens is directly tied to this $metalos collateral.USDC provides liquidity. Your pledged USDC is used to create the AMM (Automated Market Maker) pools where pMetaLOS and fMetaLOS can be traded. This ensures that there is a stable asset (USDC) to trade against, allowing for efficient price discovery.Added Value: This dual-token design creates a robust and stable market. Using $metalos as collateral ensures the governance process is fundamentally tied to the protocol's native token. Using USDC for liquidity ensures that trading is stable, accessible, and accurately priced, which is essential for a trustworthy prediction market.
Yes, to create a draft, the original creator must make a minimum initial pledge of both $metalos and USDC. For example, this could be set to $25 worth of $metalos and $50 of USDC. These minimums are configurable by governance and are displayed on the proposal creation page.
Added Value: This requirement serves as an effective anti-spam measure. It ensures that every proposal creator has a baseline level of commitment and "skin in the game," preventing the system from being flooded with zero-effort or malicious proposals.
The protocol requires that the value of pledged USDC is a certain multiple of the market value of the pledged $metalos. This ratio (e.g., 2:1) is set by governance. For example, if the ratio is 2:1 and you pledge 10 $metalos currently worth $50, you must also pledge at least $100 in USDC.
The Value of This Rule: This ratio is critical for market integrity. It ensures the prediction market starts with a fair and stable price, preventing immediate arbitrage opportunities that could drain liquidity and undermine confidence in the market. This protects the capital of all pledgers and creates a level playing field for traders from the very beginning.
Your pledge is not at risk during the draft phase. If a draft fails to meet its activation thresholds (for USDC or $metalos) before the draft period ends, your entire pledge of both $metalos and USDC is fully and automatically refundable. You can withdraw your pledge at any time from the draft's page.
Why This is Important: This feature makes supporting new or speculative ideas risk-free. It encourages broad participation in the early stages of proposal formation, as users can signal support without fear of losing their funds if an idea doesn't gain enough traction.
If a proposal you pledged to becomes active, your funds are used to create the prediction market. In return, you receive Liquidity Provider (LP) tokens. These LP tokens represent your share of the liquidity pools for the pMetaLOS/USDC and fMetaLOS/USDC pairs.
As a liquidity provider, you will earn trading fees from the activity in the prediction market. After the market is resolved, you can redeem your LP tokens to get back your share of the pool's assets, which will include your initial capital plus any fees you've earned. Your share is calculated based on the total value you contributed at the time of pledging, which protects you from $metalos price volatility.
Added Value: Pledgers become active stakeholders who are rewarded for providing the initial liquidity that makes the prediction market possible. This creates a powerful incentive to pledge to high-quality proposals that are likely to attract significant trading activity.
Once a proposal is active, a prediction market is created where pMetaLOS (Pass) and fMetaLOS (Fail) tokens are traded against USDC. The price of the pMetaLOS token, ranging from $0 to $1, reflects the market's real-time probability of the proposal's success.
The Power of This Mechanism: This is information aggregation in action. The market price becomes a single, data-rich signal that incorporates the knowledge and analysis of every single trader. It's more powerful than a poll because participants are backing their opinions with real money, revealing their true convictions.
$metalos to trade on a proposal's outcome?No. Anyone can trade in the prediction markets using only USDC. You can use your USDC to buy pMetaLOS if you believe the proposal will pass, or buy fMetaLOS if you believe it will fail.
Why This is a Key Feature: This design dramatically increases accessibility and sources external expertise. It allows anyone with capital and an opinion—analysts, researchers, or even members of other communities—to contribute their knowledge to the decision-making process. The DAO benefits from a wider pool of intelligence, not just its largest token holders.
pMetaLOS and fMetaLOS tokens?They are conditional tokens that represent the two possible outcomes of a proposal. Their value is derived from the $metalos that was pledged as collateral.
pMetaLOS token becomes redeemable for one $metalos token from the collateral pool, and fMetaLOS becomes worthless.fMetaLOS token becomes redeemable for one $metalos token, and pMetaLOS becomes worthless.Added Value: These tokens are the core innovation that makes Futarchy possible. They transform abstract opinions ("I think this will pass") into tangible, standardized, and tradable financial assets. This allows a market to form and a price to be discovered.
The outcome is determined by the final price of the pMetaLOS token. A smart contract reads the Time-Weighted Average Price (TWAP) from the liquidity pool over the final hours of the voting period.
The Value of This Method: Using a TWAP provides strong manipulation resistance. It prevents bad actors from using a single, large trade at the last second (e.g., with a flash loan) to swing the outcome. The decision is based on the market's sustained sentiment over time, ensuring a more secure and trustworthy result.
If you were a pledger who received LP tokens, you can redeem them after the proposal is resolved. This process involves withdrawing your liquidity from the pMetaLOS/USDC and fMetaLOS/USDC pools. Your final return will be a mix of USDC and the winning conditional token (pMetaLOS or fMetaLOS), which you can then redeem for the underlying $metalos collateral.
If you were a trader holding the winning conditional tokens (pMetaLOS or fMetaLOS), you can redeem them for $metalos. This involves a two-step process:
$metalos collateral.Losing tokens (pMetaLOS in a failed proposal or fMetaLOS in a passed one) are worthless and cannot be redeemed.
Why This Two-Step Process for Traders? The wrapping mechanism allows the conditional tokens to be traded on standard AMMs like Uniswap V2, which require the ERC-20 token format. The unwrap step is necessary to convert them back to their native format before they can be redeemed for the underlying $metalos collateral from the Conditional Tokens framework.
Participation is valuable for two interconnected reasons: to influence the protocol's direction and to be rewarded for accurate insights.
The Ultimate Value: Futarchy creates a powerful feedback loop. It aligns financial incentives with good governance. By participating, you not only help the protocol make smarter decisions, but you also have the opportunity to be financially rewarded for doing so.