Futarchy Singularity w/Vaughn of Butter

Transcript

I would really like to have a futurearchy market for Aloe. I would love to know where the TVF total value flowed through the Aloe ecosystem is coming from. Is it conviction voting? Is it commitment pooling? Is it quadratic funding? Okay, this month the most TVF is coming from mechanism X, but 3 months ago it was coming from mechanism Y. That data is really important to me as a ecosystem builder. Futarch. Futarch is basically decision markets applied to policy. And actually in the original paper that Robin wrote very long time ago, he really speaks about policy as it relates to the government. So it's really just futarch is decision markets as it relates to making policy decisions at the highest level. Um we kind of taking that and we're just kind of abstracting away the government and just

saying governance and then that's really what we call fusaki. Amazing. Walkie, what do you got? Let's grill them. Just grill him on everything. Let's talk legal. Let's talk all the legal hurdles. It's everyone's favorite. You thought we were going to thought lead about onchain capital allocation, but this is actually a final exam. I I this is what I expected. That's what I told the team. Welcome to the Alo. Capitalap podcast. If you're just joining us, we are doing seasons. And this season, we are summoning Alo Capital, a new spin out from Gitcoin that's designed to build the capital allocation layer of the tokenized internet. We think there's big upside here. Capital allocation is a multi-trillion dollar design space. VCs, governments, NOS's and Dows all have to

allocate capital. But it's also a place where you can start small. Every time you spend money, you are allocating capital. We are threading a through line partnering with builders, researchers, and funders to figure out what onchain capital allocation looks like building and testing and dog fooding it on chain. If you want to learn more, you can visit our website at alo.cap where you can download the Aloe books for free, play with some of our DAPs, join the Telegram, or participate in the Dow. All right, my guest today is Von McKenzie Landel. He is CEO and co-founder of butter. Vaughn wants society to make better decisions. He believes that our hardest problems are rooted within our institutions and that blockchains by accelerating accelerating the feedback loop on institutional design are the solutions. Butter addresses government

alignment challenges through mechanism design. They implement treasury governance mechanisms leveraging prediction markets and building upon the principles of futurearchy. So that's what we're talking about on this episode. We're talking about futurearchy and conditional funding markets. In what ways can we apply info finance and prediction markets to allocate capital better onchain and solve Ethereum's biggest problems in the contemporary landscape? So, we talk about future, we talk about his pilot with the optimism ecosystem, we talk about an upcoming pilot that I am trying to stimulate with GG24, Gitcoin's 24th quarterly matching campaign. And uh then we just sort of play jazz on onchain capital allocation, futurearchy, info finance and um I think

this is a big brain episode, but it's also very approachable once you understand the core primitive of a prediction market. So uh a fun episode for traversing the design space of onchain capital allocation and I think you are going to enjoy it. [Music] Hi Von, how are you? Really good, thanks Kevin. How are you? Excited for the conversation. Also, hi Reena, my co-host and co-founder. Hi. We're here today to talk about butter future and conditional funding markets. Why don't you splunk us

into the deep end, Don? What are conditional funding markets? Absolutely. So, let's say we start with a prediction market. Most people have a good model of those. We're going to look at an event that's about to happen in the future and we're going to try and predict the probability that that event comes to pass and then at the end we resolve the markets when the event happens. Poly markets been doing this now for a while. They've I think they've traded about 12 billion just on predicting future events and um there's a really great June dashboard up there which basically says that poly market about one month out is about 91% accurate. Now, this is an incredible statistic. And the idea with conditional funding markets is just simply saying, what if we took this

prediction or this predictive power and we used it to predict which of our investments are going to produce the most growth, for example. Um, and you can kind of take this idea and you can kind of standardize it and say, well, what if we just had a a protocol for trying to predict the result of capital allocation decisions and then actually using the results, the predictions themselves to actually allocate the capital. That's what conditional funding markets are is kind of in the in the title itself. And so that's what we've been working on. And uh we most recently launched one with optimism last month.

So it sounds like futurearchy is is sort of like prediction markets but for public goods funding or prediction markets for ecosystem growth. Is that too reductionist? Not necessarily. I think the the the place to start is to think you have one huge circle and that's like markets, right? And then one small version of that one small part of that circle is prediction markets. These are predictions about things that are going to happen in the future. And then a subset of that is futile or actually the subset of that is decision markets. So this these are prediction markets that you're going to use the results of those markets to make a decision. So the classic example is uh hiring or firing markets. So should we fire the CEO? You

run a market based on the change in price if you hire or fire the CEO. Sorry if you do not fire the CEO. Um and then once you're done, you use the price to actually decide whether to hire or to fire the CEO. And a subset of those decision markets is what we call futarchy or as Robin Hansen the inventor calls futarchy. Futarchy is basically decision markets applied to policy. And and actually in the original paper that Robin wrote very very uh very long time ago like 2000 um he really speaks about policy as it relates to the government. So it's really just futarch is decision markets as it relates to making policy decisions at the highest level. Um we're kind of taking that and we're just kind of abstracting away the government and just

saying governance. Um and then that's really what we call futarchy. So um where we are with conditional funding markets which is decision markets for capital allocation decisions we're really being particular and and taking a nice slice of that. So we're even smaller and a really small wedge of that entire pie. And that's where we are when we talk about um conditional funding markets just a subset of futarch. Could you take us deep on the experiment that you did with optimism so that we have a tangible example of this and then Reena next question will go to you 100%. 100%. So um a really good way of thinking about this is just thinking about any typical grants program. So you could take Bitcoin grants or you could take an L2 or a D5 protocol. They have

some capital and they want to distribute it to their ecosystem. Um and in this example we have optimism. optimism obviously are building out the super chain and um one of the things they're really interested in is how they coordinate resources across all of those chains and so this really was a um kind of an experiment to see if they could coordinate capital allocation across a whole bunch of chains. So they took a uh an amount of OP. This in this example it was 500k OP. And they were trying to actually it was a million OP um but split in two. And they took 500k OP and they distributed it using a conditional funding market. And they asked the participants forecasters who turned up to estimate the impact on Super Chain

TVL for any of the the participants there were 22 if they each received 100 KOP. So just a fifth of the of the 500 KOP and and then we ran that experiment run that fut experiment for about a week and um and we used the results. So as forecasters were uh we're using the the uh autaki they were changing the forecast TVL right so we were we were basically saying do we think the TVL is too low or too high and then buying or selling the tokens in the market the up token and the down token to adapt the the market price and at the end we used the the actual final TVL estimate uh to allocate the the capital now alongside that there was also the standard grants

council running and that's where the other 500k went to actually also to have this comparison now between two different mechanisms which is going to be great when we when we kind of reach the three month mark and we see what the actual results are but yeah that was the idea so a simple objective we're trying to to increase TVL across the super chain we're going to use a conditional funding market or a futi to to predict the result of making these allocations and then use that prediction to actually distribute the capital itself and now we wait aed breath very excited for that thanks van you've talked a little bit about the mechanism itself and then of course what you're doing any experiments. But you and I have chatted a bit offline about this. Why is this such a powerful mechanism? Why is it so important? Um to me it's important, but

why do you think it is? Um especially in our current ecosystem. Yeah. Um this is really a great question because I think that it depends really where where your focus is. Now, the reason why I think we like to use markets um in general is because markets are probably one of the best or at least one of the most well tested mechanisms mostly because we have lots of them, right? So, we see them all the time. There's lots of history and literature on on how markets perform, but they're really decentralized, right?

Like anyone can spin up a market to sell or buy something and most people understand how they work. And this is in comparison to other mechanisms we may use which can be harder for people to understand. Obviously we have a quadratic voting and funding in Bitcoin and people have to try and acclimatize to that. It takes some onboarding but most people have an intrinsic understanding of of market. So this is this is one of the the great uses. It's it's decentralized but also very easy for people to understand like a well adopted technology and if because it's decentralized it's actually just very hard to bias. One of the problems we have in our ecosystem is that sometimes when we implement decision technologies where we have a large group of people who come together to try and make a decision, it's really difficult to guarantee that decisions can't be biased

by some private interest, special interest, some minority, sometimes a majority or even just the big whale who just has a significant amount of tokens, for example. We want mechanisms that aren't not just that they're not biased, but they don't become easier to bias as they skip. And that's the other problem. So the other problem is um is is sometimes these mechanisms work well when they're small but as they scale they become harder to reason about and harder to prove that they do the thing you want. And so this is the other benefit of markets. Markets work fairly well at scale, right? Um and so the other thing about um fake is that it can scale well to tackle some of the problems we have in crypto. We have a significantly large amount of capital.

We have a ton of people basically anyone on the internet can turn up and appine and give their input. And so maybe we we prefer that they give us an input on the price of an asset rather than asking them their preference on an outcome. And then the the other one is that they tend to at least in history we've seen the prediction markets tend to be more accurate over time. Um and this is when you compare them specifically there is a paper on um election results and they tend to be more accurate and have been more accurate. I think it was 74% more accurate than polls and so on. And this is um this was tracked over a number of years actually decades on the Iowa electronic markets where you can in the US as well um go and and bet on

elections. So that's really why we like them. That's why we think that they're a really useful technology. Actually an incredible opportunity for for our ecosystem. Amazing. Walkie, what do you got? Let's grill them. Just grill them on everything. Let's talk legal. Let's talk all the legal hurdles. It's everyone's favorite. Let's do it. You thought we were going to thought lead about onchain capital allocation, but this is actually a final exam. I I this is what I expected. That's what I told the team. So, I want to draw a line between the work that you're doing and the vision for Alo Capital, which is that um you know, the internet changed how we move information across society.

Blockchains are going to change how we move value across society. The internet brought us packets of information. Now, we have packets of value. Scarcity that can be moved around. Ergo, we're going to completely reinvent how capital is allocated as more and more assets get tokenized and we now have programmable blockchains and uh we can do better onchain capital allocation. That's sort of like the thesis for Alo Capital. And what Reena and I and the Aluminati are trying to do is to um build a network where builders who are building within this design space get accelerated with technology and distribution. It just connected to other builders. We're still

figuring out the exact offering there, but I'm wondering if you draw a through line between CFMs, conditional funding markets, the broader design space of info finance, and then like the most broad aperture I think is onchain capital allocation and where the space is going. You know, uh if you if you could kind of like play jazz on top of that thesis a little bit, I'd love to know where you think info finance is going or where you think CFMs are going in the next five or 10 years. Yeah, I've I've got I mean I've got a couple of things to say on on info finance, but I think we could start with with Aloe and and I guess where I think the opportunity lies for Aloe. I think um one of the interesting things that we've got to watch as an ecosystem is watch the development of Gitcoin and

Gitcoin uh iterating over time on its kind of role. And I think at the very beginning when Gitcoin launched, there was this I guess there was this like incredible moment when we all felt like we kind of unlocked something. This is incredible. We can actually fund things of scale. People were piling in. People were pining. People were giving their opinions. And then we started to watch it kind of fray. Like it it suddenly felt like it wasn't clear what to do with something, you know, and you see like a a um like um you know, like when a dog picks up something and it's so excited. It's like but it doesn't really know what to do with it. It's like I don't know what this is, but I'm excited. And I feel like I feel like that's that's where we got to as an ecosystem. We felt like we had unlocked

something. And I think that that's that's the that's the thread that we're now pulling on. I think we're saying, well, look, we have this incredible technology. We actually have this uh this thing we're working on. And the uh the the title is speculate to allocate. And I think it's it's that we have something in crypto that works really well and we're still all trying to figure out how to harness it. One of the things we know we can do well is we can allocate capital. We can allocate resources. And it's a long-held belief of mine that really governance in general is actually mostly about distributive policies. It's mostly about allocation. It's not really about much else. Like you make you make one decision like we all get together and make one decision. The result of the

decision is normally that someone some group is getting more and some group is getting less. This is a distributive policy. This is a it's a it's an allocation decision that we're making ultimately. Um and actually if you just look through most um Dows on like tally or Agora and you look at most of the decisions they make most of them are transfers right they mostly move capital. So this is kind of my my my core thesis and this is why I think I'm really excited about Aloe and Alo's thesis because I think the main goal here is to try and take a leap forward from the kind of early energy of Bitcoin and figure out okay how can we apply this and I guess like for me it feels like a more uh direct uh repeatable way.

So that's like that's my think that's my thinking on Aloe. If I kind of zoom out and I think about info finance, I think it I think there's something about crypto that If you're enjoying this episode, please check out the remainder of the episode on the feed hosted at alo.c capitalap. You must be a allow. Capitalap patron NFT holder to hear the rest of the episode. Alo. Patreon NFTs give you access to the Aluminati, which is a private community that has access to the Alo's evolution, novel capital allocation, intelligence, and research. like this episode, like this podcast, and also research reports that we are publishing at aloe.cap and early access to builds and other innovations in the Aloe community.

Thanks for listening. If you want to hear the rest of the episode, check it out at aloe.cap. Peace and love. [Music] [Music] Heat. Heat.