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The one weird trick to win an election: futarchy

Delegates to the upcoming Democratic National Convention have a big decision to make: With President Biden bowing out, they are now free to nominate whomever they choose.

But the decision seems to have already been made for them — by all accounts, Vice President Harris is a lock for the nomination. 

That might well give Democrats their best chance to beat Donald Trump in November, I don’t know. 

But neither do they!

If Democrats have arrived at their desired destination, it’ll be more by luck than design, because political elites are not so different from the rest of the electorate — who famously choose candidates for a host of irrelevant reasons, like height or who they'd rather have a beer with.

Most people would probably agree that historically, this has not produced the best results.

Fortunately, there is now a better way.

To maximize the Democratic Party’s chance of winning in November, delegates should ignore the orders coming from on high and heed the advice of betting markets instead. 

Not just any betting markets, however — conditional ones. 

Democrats should host a betting market in which anyone (not just delegates or registered Democrats, but anyone) can place a conditional bet on which of several candidates (the more the merrier) would be most likely to become president if nominated.

We could all get involved.

If, for example, you think Kamala Harris would have a 60% chance of beating Trump, you should be willing to take any bet that implies lower odds than that. 

You might also be willing to bet on, say, Roy Cooper at 50% and Josh Shapiro at 45% — you could place a bet for (or against) all of the candidates.

But only one of those bets would ultimately stand.

At the end of a set period, whoever the betting market found to have the highest odds of beating Trump in November would become the party’s nominee.

If that was Harris, all Harris bets (both for and against) would stand, to be paid out on Nov. 5 at whatever odds were agreed in the conditional market.

Bets on all the other candidates would be called off, with the money returned to bettors in full.

Bettors would therefore have the bet they want and Democrats would have the candidate they want.

This is futarchy — a system of governance where decisions are made by the hivemind of markets. 

And if Democrats really want to win in November, it’s how they’d choose their candidate.

Now let’s add crypto.

Token-based futarchy

If, like me, you prefer technocrats to politicians, you might be thinking, let's ditch the politicians entirely and make all our decisions with futarchic betting markets! 

The problem with that utopian scenario is that most of those bets wouldn’t have a cleanly defined resolution or obvious end date.

If you were betting on tax policy, for example, it would be hard to disentangle causation and causality: Did tax receipts go up because tax rates went up? Or because the stock market did?

Also, no one wants to wait a year or more to find out whether they won or lost their bet.

Conditional betting markets are therefore most appealing where an outcome is clearly defined and bets can be resolved quickly.

This is perhaps why futarchy, first conceived of by Robin Hanson way back in the year 2000, remained a thought experiment until it was implemented by the “world’s first market-governed organization” — MetaDAO — in 2022.

MetaDAO offers “token-based” futarchy: Whereas my politics example above ended with an open bet to be resolved on Nov. 5, a “bet” on MetaDAO ends as soon as the betting ends and is immediately resolved with the delivery of crypto tokens.

For example, imagine if Solana was governed by futarchy via MetaDAO.

Someone who thinks that the current inflation rate of 5.4% is too high might propose that it immediately be cut to, say, 1%.

MetaDAO would then list two “conditional” Solana tokens — a pass token (pSOL) and a fail token (fSOL) — each of which would then trade at the price people expected the real Solana token to trade at if the proposal were to pass or fail, respectively.

If people thought that reducing Solana’s rate of inflation would be positive for the 

SOL token price, they might pay, say, $220 for the pSOL token (considerably above the current SOL price of $180.)

At the end of a set period, the proposal would be resolved according to whichever token was trading at a higher price — if pSOL was trading higher at $220 and fSOL was at $180, the proposal would pass.

People who “bought” pSOL would have SOL delivered to them and people who bet against pSOL would have to deliver SOL to those pSOL buyers — and all of the bets on fSOL would be canceled.

If that seems confusing, that’s because it is…until you try it. 

The best way to understand futarchy is to place a bet on MetaDAO, where both the process and the purpose will become pretty intuitive. 

Eureka!

Futarchy didn’t really click for me until I tried it out with MetaDAO, where I connected my Phantom wallet and bought 10 USDC worth of a fail token on a proposal to “enhance the economic model” for the Dean’s List DAO.

If the proposal had failed, I’d have received $10 worth of the Dean’s List token (DEAN) at a price of $0.003464 (about 30% below the market price of DEAN at the time).

Whoever bet against me would have had to deliver $10 worth of the DEAN token at that same price.

(Buyers of the pass token would have received DEAN at $0.005130, slightly above the then-current market price.) 

As it happens, the proposal passed, so all of the “fail” trades were canceled and I got my 10 USDC back.

I probably should have bet the pass market to get the full futarchy experience, but just clicking the buttons to transact made me recognize what a clever mechanism it is. 

So much so that I even see now how it might offer “an opportunity to reshape the way humanity makes decisions and organizes itself,” as prophesied by MetaDAO’s founder, Proph3t.

More concretely, I’d now describe futarchy as a way to make decisions with a near-perfect view of the future.

And who wouldn’t want that?

But here’s the best part: Futarchy is fun! 

Like betting on a late-night college softball game I’ve stumbled across on ESPN 4, betting on MetaDAO gave me a rooting interest in Dean’s List (which I had never heard of) and got me to care enough about a governance proposal to form an opinion about it (a first for me).

Yes, my opinion was entirely uninformed — I didn’t even read the proposal all the way through before placing my bet.

But that’s a feature, not a flaw, of conditional betting markets: As sheep attract wolves, uninformed bettors (like me) attract the highly informed bettors that make futarchy work.

And one resource the world will never run out of is uninformed people.

So, uninformed people of the world, here’s our chance to contribute!

Desperately seeking futarchy

If Democrats only cared about winning, they would take Aaron Sorkin’s advice and choose a Republican like Mitt Romney as their nominee for president.

(Or, to guarantee victory, Donald Trump!)

In normal times, that would of course be a non-starter suggestion — but these are not normal times.

Has there ever been a time when winning was more of a priority for Democrats than it is right now?

This makes the upcoming DNC the perfect opportunity for delegates to gaze into the future with futarchy and make their decision based on what they see there.

They won’t, of course, they seem to have made their decision already — and in an even more haphazard, more opaque way than usual.

It might work out!

But if it doesn’t — if Democrats lose to Trump in 2024 — how desperate will they be to beat JD Vance in 2028?

Possibly futarchy desperate.

— Byron Gilliam

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