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Blog 6 - Futarchy, blockchain and Tezos cryptocurrency

One of Ostroms rule for successfully defining a decentralised organisation is that members can participate in the creation and changing of rules.

In 2000, Robin Hanson introduced a concept called futarchy as a mechanism of improving democracy. He had observed that predictions (betting markets) are consistently better at analysing information and predicting outcomes than experts, that is a group of people that financially back their own opinions are the best means we have today of predicting an outcome. As such he proposed a model where communities vote on what they actually want and prediction markets then decide how to best obtain the desired results. He described this as “vote on values and bet on beliefs”.

Although his proposal was primarily concerned with national governments and hence he was very much preoccupied with quantifying what voters actually want, he also mentioned that futarchy predictions markets could also be used by businesses to predict what actions would best improve their value as measured by simple value metrics such as profit and share price.

The Tezos blockchain is considering the use of Futarchy as a mechanism to choose proposals that upgrade its underlying protocol. Although there are many details that need to be determined, and many values that could be considered important, there is one very simple value that Im sure most Tezos community members would agree is off utmost importance. The price of the tezos cryptocurrency. So simplistically when considering the proposals that should be adopted, the primary goal of any Tezos Futarchy should be to choose those proposals that will most positively impact the tezos cryptocurrency price. To do so, it is arguable that Tezos must develop predictions markets that predict the future value of the tezos cryptocurrency without any upgrade proposals being implemented and then secondly predict the value of the cryptocurrency should any one of the proposed upgrades be adopted. Assuming that only one proposal will be accepted and implemented in any particular period of time, these markets will hence advise on the course of action that will produce the most value to the community.

From a business perspective, the possibility that this scenario offers is very exciting. Today our corporations employ C level executives to choose the courses of action that will provide the best financial outcome for shareholders. Should Tezos be successful in implementing a Futarchy, it is likely that P2P businesses that operate on the Tezos blockchain will not only benefit from the increased utility of the underlying Tezos blockchain, and the increased value of the Tezos cryptocurrency, but they will also be able to leverage these predictions markets to inform their own optimal decisions.

The challenge is to define what these predictions markets will actually look like, how they will operate and where they should start. We will take a look at some of the design possibilites in a later blog.

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