Develop Futarchy as a Service (FaaS)

Type: Business project

Entrepreneur(s): 0xNallok

A note from 0xNallok: Special thanks are owed to the many parties who've supported the project thus far, to those who've taken massive risk on utilizing the systems and believing in a better crypto. It has been one of the most exciting things, not in attention, but seeing the “aha!” moments and expanding the understanding of what is possible with crypto.

See also: A Vision for Futarchy as a Service

Overview

The appetite for market-driven governance is palpable. We have a tremendous opportunity to take this labor of love and shape it into a prime-time product. Such a product would be a great boon to the Solana ecosystem and to the MetaDAO's bottom line.

If passed, this proposal would fund two workstreams:

• Minimum viable product: I would coordinate the creation of a minimum viable product: a Realms-like UI that allows people to create and participate in futarchic DAOs. This requires some modifications to the smart contract and UI to allow for more than one DAO.
• UI improvements: I've already been working with engineers to add helpful functionality to the UI. This proposal would fund these features, including:
  • historical charts
  • improving UX around surfacing information (e.g., showing how much money you have deposited in each proposal)
  • showing historical trades
  • showing market volume

The goal would be to onboard some early adopter DAOs to test alongside MetaDAO. A few teams have already expressed interest.

Problem

Most people in crypto agree that the state of governance is abysmal. Teams can loot the treasury without repercussions¹. Decentralization theatre abounds². Even some projects that build DAO tooling don't feel comfortable keeping their money in a DAO³.

The root cause of this issue is token-voting. One-token-one-vote systems have clear incentive traps⁴ that lead to uninformed and unengaged voters. Delegated voting systems ('liquid democracy') don't fare much better: most holders don't even do enough research to delegate.

Design

A possible solution that MetaDAO has been testing out is futarchy. In a futarchy, it's markets that make the decisions. Given that markets are empirically better than experts at predicting things, we expect futarchies to perform better than traditional DAOs.

Our objective is to build a product that allows DAOs in the Solana ecosystem to harness the power of the market for their decision-making. This product would look and feel like Realms, only with futarchy instead of voting.

Our short-term goal is to create a minimum viable iteration of this. This iteration would support the following flows:

• I, as a DAO creator, can come to a website and create a futarchic DAO
• I, as a futarchic trader, can trade in multiple DAOs proposals' futarchic markets

To monetize this in the long-term, we could:

• Collect licensing fees
• Collect taker/maker fees in the conditional markets
• Provide ancillary consulting services to help DAOs manage their futarchies

The minimum viable product wouldn't support these. We would instead work with a few select DAOs and sign agreements with them to migrate to a program with fee collection within 6 months of it being released if they wish to continue to use MetaDAO's offering.

Objectives and Key Results

Release a minimum viable product by May 21st, 2024

• Extend the smart contract to support multiple DAOs
• Generalize the UI to support multiple DAOs
• Create docs for interacting with the product
• Partner with 3 DAOs to have them use the product at launch-time

Improve the overall UI/UX

• Create an indexer and APIs for order and trade history
• Improve the user experience for creating proposals
• Improve the user experience for trading proposals

Timeline

Phase 1 Initial discussions around implementation, services and visual components UI design for components Development of components in React Program development Data services / APIs construction

Phase 2 Program deployed on devnet Data services / APIs linked with devnet UI deployed on dev branch for use with devnet

Phase 3 Audit and revisions of program Testing UI, feedback and revisions mainnet with limited beta testers and on devent

Phase 4 Proposal for migration of program UI live on mainnet Create documentation and videos

Final Migrate program

Budget

This project is expected to have deliverables within 30 days with full deployment within two months.

Below is the inclusion of estimated MAXIMUM costs and hours for the following roles⁵. If costs do incur beyond this estimate the cost is to be borne by the Entrepreneur.

A fair estimate of $96,000⁶ for the two months including the following:

• 1 smart contract engineer ($15,000) (160 hours)
• 1 auditor ($10,000) (40 hours)
• 2 UI / UX ($32,000) (400 hours)
• 1 data/services developer ($13,000) (140 hours)
• 1 project manager / research / outreach ($26,000) (320 hours)

The Entrepreneur (0xNallok) would fill in various roles, but primarily the project manager.

This will be funded through:

• Transfer of $40,000 USDC from the existing funds in the multi-sig treasury.
• Transfer of 342 META⁷ which will be used when payment is due to convert to USDC.
• The funds will be transferred to a 2/3 mult-sig including 0xNallok, Proph3t and Nico.
• Payments to the parties will be done weekly.

The reason for overallocation of META is due to the price fluctuation of the asset and necessity for payment in USDC. This takes the cost minus the $40k USDC ($56k) divided by the current price of 1 META ($818.284) multiplied by a factor of 5.

Any remaining META once the project is completed will be transferred back to the MetaDAO treasury.

MetaDAO Executor (FpMnruqVCxh3o2oBFZ9uSQmshiyfMqzeJ3YfNQfP9tHy)

MetaDAO Treasury (ADCCEAbH8eixGj5t73vb4sKecSKo7ndgDSuWGvER4Loy)

FaaS Multi-sig (AHwsoL97vXFdvckVZdXw9rrvnUDcPANCLVQzJan9srWy)

0xNallok (4LpE9Lxqb4jYYh8jA8oDhsGDKPNBNkcoXobbAJTa3pWw)

Proph3t (65U66fcYuNfqN12vzateJhZ4bgDuxFWN9gMwraeQKByg)

Nico (6kDGqrP4Wwqe5KBa9zTrgUFykVsv4YhZPDEX22kUsDMP)

This proposal includes the transfer instruction from the MetaDAO treasury, the additional funds will be transferred from the MetaDAO Executor.

Business

Ultimately, the goal of the MetaDAO is to make money. There are a few ways to monetize FaaS all dependent on what appeals most to DAOs:

• Taker fees on markets: we could take 5 - 25 basis points via a taker fee on markets.
• Monthly licensing fees: because the code is BSL, we could charge a monthly fee for the code and the site
• Support and services: we could also provide consultation services around futarchic governance, like a Gauntlet model.

In general, we should aim for vertical integration. The goal is not to build this product as a primitive and then allow anyone to build front-ends for it: it's to own the whole stack.

Financial Projections

Today, 293 DAOs use Realms. Realms is a free platform, so plenty of these DAOs are inactive and wouldn't be paying customers. So we estimate that we could acquire 5 - 100 DAOs as customers.

As for estimating ARPU (average revenue per user), we can start by looking at the volume in the MetaDAO's markets:

Note that this only includes the volume in the finalized market, as all trades in the other market are reverted and thus wouldn't collect fees.

So assuming that proposal 6 - 8 are an appropriate sample, we could earn ~$50 -$500 per proposal. If DAOs see between 1 - 2 proposals per month, that's $100 -$1,000 in taker fee ARPU.

As for monthly licensing fees, Squads charges $99 / month for SquadsX and$399 / month for Squads Pro. I suspect that DAOs would be willing to pay a premium for governance. So we can estimate between $50 -$1,000 in monthly licensing fees.

Putting these together:

The support & services business is different enough that it deserves its own model. This is because consulting / advisory businesses have non-zero marginal costs (you can't earn $25,000,000 in revenue from one consultant) and have lower defensibility. Both cause them to receive lower valuation multiples.

Here's what we project:

Of course, you can use your own numbers if you'd like to come up with your own estimates.

Footnotes

Footnotes

1. DeFi Project Parrot Holds Contentious Vote on Future of $70M Treasury. Danny Nelson. Jul 21, 2023. https://www.coindesk.com/markets/2023/07/21/defi-project-parrot-puts-fate-of-over-70m-treasury-prt-token-to-vote/. ↩

2. Crypto’s Theater Is Becoming More Surreal. Camila Russo. Aug 14, 2023. https://www.coindesk.com/consensus-magazine/2023/08/14/cryptos-theater-is-becoming-more-surreal/. ↩

3. Aragon Fires Back at Activist Investors in Early Stages of DAO Governance Fight. Danny Nelson. May 5, 2023. https://www.coindesk.com/business/2023/05/05/aragon-fires-back-at-activist-investors-in-early-stages-of-governance-fight/. ↩

4. The Logic of Collective Action. Wikipedia. Mar 7, 2024. https://en.wikipedia.org/wiki/The_Logic_of_Collective_Action. ↩

5. As this is an approximation and development and integration depends on a number of factors, inclusion of roles and estimates seems appropriate but may be in flux given changes which arise, however costs would not extend beyond the estimate. ↩

6. This breaks down to an average estimate of ~$90/hour and 1060 (wo)man hours total. ↩

7. $(56,000/818.284) * 5 \approx 342$ ↩