Futarchy non-governance

Governance
1

Now that Aztec has a token, its market-price can be used for decision markets.
Instead of voting on proposals, bettors bet on how proposals will affect the token price. The proposal with the highest value is adopted.

Step by step example:

  1. Gather proposals over 1 month
    - Proposal A is no change
    - Proposal B adds feature X
  2. Bettors exchange one AZTEC token for an AZTEC_IF_A and an AZTEC_IF_B token
  3. AZTEC_IF_A and AZTEC_IF_B tokens are traded on an AMM
  4. At the end of the month, adopt the proposal with the most valuable token
  5. Winning tokens are exchanged for AZTEC tokens

This proposal can be combined with Prediction-marketed non-governance, where new proposals are required to subsidize a prediction market over their own cryptographic security.

Resources:

2 Likes
2

Using $AZTEC through Futarchy is a great way to scale decision-making without the usual politics and voter apathy. The ā€œnon-governanceā€ angle is a massive game-changer. Forcing a proposal to subsidize its own cryptographic security is the ultimate skin-in-the-game.

Context

Iā€™m the founder of Precog, a prediction market protocl. Weā€™re currently experimenting with Futarchy and a decentralized decision-market. Iā€™ve been a privacy maximalist and have followed Aztec since the pre zk.money days and hacked zkMaps at ETHDenver back in 2022. Really excited to see these two worlds finally converging.

I shared about Futarchy with some Aztec team members a while ago. At Precog, weā€™ve spent a lot of time building the ā€œplumbingā€ to support these type of use cases. We designed the protocol to be completely token-agnostic, specifically to enable these kinds of use cases, where you can use $AZTEC (or anything else) as the base for decision markets.

Our v0.8 is hitting mainnet soon (we are currently on Base), and the architecture fits this use case.
The atomic split, turning 1 $AZTEC into IF_A and IF_B isnā€™t necessary, as we use an AMM (LS-LMSR), and it doesnā€™t need conditional tokens.

Defining Two Parallel Universes

You donā€™t just have one market, you have two separate AMM pools. Traders must choose which ā€œuniverseā€ they want to bet in.

Market A: ā€œIf Proposal Passesā€

  • Outcome: PASS AND NO HACK and PASS AND HACKED
  • Logic: This market only resolves if the proposal passes.

Market B: ā€œIf Proposal Failsā€

  • Outcome: FAIL AND NO HACK and FAIL AND HACKED
  • Logic: This market only resolves if the proposal fails.

Once $AZTEC is deposited into the Precog AMM to buy shares, the ā€œsellā€ function is disabled until the Governance Decision Date . This ensures no price manipulation, and fair return of the funds.

If the Proposal PASSES:

  1. Market A (The Reality): This market stays active. It remains locked until the ā€œSecurity Periodā€ (e.g., 6 months) ends.
  • If no hack happens, PASS AND NO HACK holders claim the $AZTEC.
  • If a hack happens, PASS AND HACKED holders (the ā€œinsuranceā€ buyers or attackers) claim the $AZTEC.
  1. Market B (The Counterfactual): This market is voided. Since the proposal didnā€™t fail, we canā€™t know if it wouldhave been hacked.
  • Precogā€™s ā€œSafety Valveā€: The AMM allows all Market B participants to burn their outcome tokens and reclaim their original $AZTEC collateral 1:1 (minus a small protocol fee).
3

Disagree. Native conversion back to AZTEC improves price accuracy by reducing transaction costs (e.g. of a ā€˜wrapperā€™ contract or third party that provides the same service).

Iā€™m confused by the name ā€œSafety Valveā€. Obviously funds must be returned in the voided market.