GIP-145: Should Gnosis DAO run a 9‑month advisory futarchy pilot with $100k temporary liquidity?

Summary

Futarchy Labs would like to propose a futarchy pilot to GnosisDAO.

• The pilot will estimate the impact of different proposals on the GNO token price.

• Based on the integration with Snapshot, a small widget will show up on each official proposal. See live example here. Voters can use this information, if they consider it useful.

• The following signals will be generated:

  • Snapshot will display the current spot conditional prices (YES and NO), and the impact defined as the percentage difference.
  • A 5-day TWAP may be calculated when sufficient liquidity is available, and a recommendation if absolute impact exceeds 1%.

• We are also running a live futarchy market on the impact of this very proposal (GIP-145) passing on the price of GNO, with some initial liquidity already provided (see live market). This serves both as a demonstration of the mechanism and as an additional signal about how the market anticipates community valuation of the pilot itself. Trading is already enabled, with a 5-day TWAP used as the self-referential recommendation (Feb 1–Feb 6), followed by the voting period.

• To provide minimal liquidity to such markets, we request 100k USD equivalent in GNO + WETH to a 2/3 multisig, to be used exclusively for providing liquidity, and to be returned within 9 months.

• Anybody will be able to trade to modify these estimates. Those in favor of the proposal can buy the "YES market", or sell the "NO market". See live market here on futarchy.fi. Alternative interfaces can be created: see this alternative interface created by @mkoeppelmann using CowSwap.

• These conditional markets will be implemented in Gnosis chain, using Swapr or some alternative agreed by the Gnosis representative, and are implemented using the Gnosis Conditional Token Framework (CTF).

• The pool created and tokens used are composable with CowSwap, and therefore users can use the Cow interface to place limit or TWAP orders, by adding manually the right conditional tokens. We plan on integrating CowSwap limit orders in the Futarchy interface during the pilot.

Justification

In doing so, GnosisDAO would join Kleros and Velora in officially adopting a futarchy experiment in partnership with Futarchy Labs.

Due to the foundational role of Gnosis in creating the prediction market ecosystem through the Conditional Token Framework (CTF), as well as Gnosis' pioneering experiments with futarchy, we believe it would be fitting for Gnosis to become the first large DAO to adopt some pilot of futarchy governance, and to potentially play a major role in the development of futarchy in the broader Ethereum ecosystem.

There are some bugs on the interface, which is open source. We invite the Gnosis community to contribute to bug reports and issues, and to create alternative futarchy interfaces, as @mkoeppelmann has done. This pilot will allow us to learn how to make futarchy interfaces better and more intuitive.

Use of Funds

• The 100k USD equivalent may be used solely for the purpose of providing liquidity to conditional markets and associated prediction markets.

• Funds will be provided around equally in GNO + WETH, and the WETH amount may be converted to xDAI or sDAI for the purpose of creating markets denominated in these assets.

• The GNO will be split into YES_GNO + NO_GNO using the conditional token framework, and similarly for the currency token, for the event corresponding to the proposals being evaluated. The oracle used will be reality.eth, with Kleros used for any required arbitration.

• Funds will be used to provide liquidity on conditional pools such as YES_GNO / YES_sDAI, or NO_GNO / NO_sDAI.

• After the oracle resolves the event, the assets are redeemed to regular GNO tokens + currency tokens. The impermanent loss of the whole operation is equivalent to just providing liquidity in a regular GNO/currency liquidity pool.

• For deeper liquidity and more capital efficiency, we request the permission to use the available funds to create concentrated positions of up to 5x. Any rebalancing performed will be reported immediately.

• Some fraction of the LP fees only (never principal) may be paid to Snapshot Labs as part of the partnership. Any remaining fees will be returned to the DAO.

A smaller amount of liquidity may also be provided for the following markets:

• Up to 20% of the allocated capital may be used to provide liquidity on the impact of accomplishing milestones, rather than the impact of approving proposals, on the price of GNO, as authorized by the Gnosis representative.

• Up to 5% of the total allocation of resources may be used for prediction markets associated with the proposals passing. This makes it easier to arbitrate between the spot and the conditional markets.

Pricing and payment

Futarchy Labs will charge no fee or payment, and will only request that funds be allocated to liquidity, as described above.

• Some fraction of the LP fees only (never principal) may be paid to Snapshot Labs as part of the partnership. Any remaining fees will be returned to the DAO.

Terms and Exit Strategy

The estimated impact estimates will be purely advisory, and do not in any way affect the regular governance of GnosisDAO. The DAO reserves the right to end the futarchy pilot at any time, and request the return of all remaining funds.

Team / Organization

This pilot is organized by Futarchy Labs (follow us on X).

Kelvin Santos (follow me as kas.eth) is the CEO of Futarchy Labs.

Robin Hanson (follow him here) is our Chief Scientist.

Success Criteria:

• One measure of success is whether the conditional markets produced sensible, non-random signals. We will evaluate accuracy by computing the 5-day TWAPs for YES, NO and the GNO spot, and comparing these to the 24-hour TWAP of the actual GNO price after the proposal outcome (simple T+24h benchmark). This helps measure whether YES/NO conditional prices anticipated the direction of the actual price movement.

• Another measure is whether DAO members found those signals helpful or at least thought-provoking in making decisions, and if the DAO is interested in continuing or expanding the use of futarchy; for example, moving from advisory to more formal integration for certain proposal types (potentially a future discussion akin to Kleros’ approach, but only if the data supports it).

• Naturally, a third measure of success is whether we have significant user activity in the conditional markets (e.g. >10 unique users per market, >20k volume per market). But overall we expect this product to be more appealing to sophisticated investors, rather than retail speculators.

Conclusion

Near the end of the pilot, Futarchy Labs will deliver a comprehensive report to GnosisDAO, which can then decide on next steps.