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Metalos uses futarchy—a governance system where prediction markets determine which proposals are implemented. Instead of traditional voting, the community trades tokens that bet on proposal outcomes, and market prices guide decisions.
How It Works
The Futarchy Process
Set Goals
The community agrees on measurable goals:
- "Increase protocol TVL"
- "Improve user retention"
- "Enhance protocol security"
Create Proposals
Community members propose specific actions to achieve goals:
- Add new vault to increase TVL
- Launch marketing campaign for user growth
- Implement security feature for safety
Market Prediction
For each proposal, a prediction market is created:
- PASS tokens: Bet the proposal achieves the goal
- FAIL tokens: Bet the proposal doesn't achieve the goal
- Market price reflects community's probability assessment
Market-Based Decision
Proposals with high PASS prices (indicating market confidence) are implemented.
The market "votes" by putting money behind its predictions.
Why Prediction Markets Work
Traditional voting has limitations that prediction markets address:
| Traditional Voting | Futarchy Markets |
|---|
| No cost to vote incorrectly | Lose money if wrong |
| Loud voices can dominate | Money talks, regardless of who |
| Voter apathy common | Financial incentive to participate |
| Political posturing | Focus on outcomes, not politics |
| Information asymmetry | Markets aggregate all information |
The "Skin in the Game" Advantage
When participants risk their own capital, they:
- Research more thoroughly before taking positions
- Update beliefs based on new information
- Price in information others might miss
- Self-correct when wrong (market prices adjust)
This creates information efficiency: market prices reflect the collective intelligence of all participants.
Types of Futarchy Markets
Decision Markets
Question: "Should we implement proposal X?"
Market: Trade PASS/FAIL tokens on whether the proposal should be adopted
Example: "Add Aave V3 vault to Extremely Safe tier"
- PASS at $0.75 = market thinks it's a good idea
- FAIL at $0.25 = low confidence it will hurt the protocol
Parameter Markets
Question: "What should parameter X be set to?"
Market: Multiple markets for different parameter values
Example: "What should the protocol fee be?"
- Option A: 0.1% fee
- Option B: 0.5% fee
- Option C: 1.0% fee
Market prices determine the optimal value.
Priority Markets
Question: "What should we focus on this month?"
Market: Trade on different focus areas
Example: Monthly priorities
- Vault additions: $0.45
- Marketing: $0.30
- Partnerships: $0.25
Highest price wins the priority slot.
Market Dynamics
How Prices Form
Market prices aggregate information from:
- Public information: Protocol audits, TVL data, community sentiment
- Private information: Individual research, insider knowledge, expert analysis
- Expectation updates: Prices adjust as new information emerges
Price Interpretation
High PASS Price (0.70 - 0.95):
- Strong market confidence in proposal
- Low perceived risk
- Expected to achieve goals
- Lower potential returns for new buyers
Balanced Prices (0.40 - 0.60):
- Market uncertainty
- Controversial proposal
- Information still being discovered
- Higher potential returns, higher risk
Low PASS Price (0.05 - 0.30):
- Market skepticism
- High perceived risk or low expected impact
- Contrarian opportunity if you disagree
- Very high potential returns if market is wrong
Market Manipulation Resistance
Prediction markets are hard to manipulate because:
- Costly to manipulate: Must spend real money to move prices
- Smart money arbitrage: Informed traders profit by correcting mispricing
- Self-correcting: False signals create profit opportunities for truth
- Transparent: All trades visible on-chain
Governance Scope
What can be decided through futarchy:
- Adding new vaults to tiers
- Removing underperforming vaults
- Recategorizing vault risk tiers
- Setting vault allocation limits
- Fee structures
- Deposit/withdrawal limits
- Rebalancing frequency
- Risk tier definitions
- Monthly focus areas
- Resource allocation
- Partnership priorities
- Feature development roadmap
- Protocol reserves allocation
- Grant funding decisions
- Marketing budget allocation
- Partnership investments
Research & Further Reading
Essential Futarchy Reading
-
Introduction to Futarchy by Vitalik Buterin (2014)
- Original explanation of "vote values, bet beliefs"
- Why prediction markets improve governance
- Theoretical foundation for futarchy
-
From Prediction Markets to Info Finance by Vitalik Buterin (2024)
- Modern evolution of prediction market thinking
- Info finance as information aggregation tool
- Real-world applications beyond simple betting
-
The State of Onchain Futarchy by Galaxy Research (March 2025)
- MetaDAO statistics and adoption metrics
- Case studies from Solana DAOs (Sanctum, Jito, Marinade)
- Expansion to Ethereum L2s
These resources provide theoretical foundation (Vitalik) and practical validation (Galaxy) for why Metalos chose futarchy over traditional governance.