We launched the Meta-DAO in mid-November 2023 with an airdrop to ~65 people and a treasury of $10,000. Today, after doing some consulting work for Marinade Finance and receiving the first installment of a grant from Saber and SolBlaze, the DAO has approximately $30,000 at its disposal.
But the machine is hungry for more capital. Rar3 created a proposal to have the Meta-DAO raise an additional $75,000, $35,000 of which would be used to provide META/USDC liquidity on an AMM. That proposal passed by a wide margin, with a pass price of $24.2 and a fail price of $18.9.
Here’s the thing: I wanted that proposal to fail. Yet it passed. Unpacking why I wanted it to fail and what I could have tried to make it fail should shed some light on how incentives work in the Meta-DAO.
Why did I want the proposal to fail?
Counter-intuitively, I didn’t want the proposal to fail because I thought it was bad. I thought it would benefit the Meta-DAO, perhaps increasing its probability of success by 5–15%.
See, markets are not about bad or good: they’re about prices. Even the shares of a dying company can be worth buying if you can get them on the cheap. Even the shares of a profitable and growing company should be avoided if the price is too high. For the purposes of buying and selling, all that matters is value relative to price.
And when I looked at the pass and fail markets, I saw a blatant mispricing. Though I believed that the proposal passing could increase the value of META by 5–15%, the market was valuing pass META at more than twice the price of fail META. So I seized the opportunity, and started buying in the fail market and selling in the pass market.
By the middle of the proposal, I was sitting on 191 fMETA and 82 pMETA. Given that I had purchased these fMETA at what I considered discounted prices, I really wanted the proposal to fail. That way, I could redeem those fMETA for normal META.
So I got to thinking about ways that I could make the proposal fail.
Background
The Meta-DAO’s autocrat program passes proposals if, and only if, the market values META more highly if it passes than if it fails. Concretely, it records TWAPs (time-weighted average prices) of META in the pass market and the fail market, and executes proposals when the TWAP in the pass market is higher than the TWAP in the fail market. So to get the proposal to fail, I needed to get the TWAP in the pass market below the TWAP in the fail market.
Direct purchases and sales
The most obvious thing I could have done is buy in the fail market and sell in the pass market. At least in the short-term, this would have pushed the price in the fail market higher and the price in the pass market lower.
However, there are two problems with this.
For one, this would cost me. I would need to buy META at above-fair-value in the fail market and sell META at below-fair-value in the pass market. If the proposal passed, my crappy buys would be locked in; if the proposal failed, my crappy sells would be locked in.
More importantly, I would have no way of guaranteeing that the costs would be worth it. I can buy and sell to influence the prices in the short-term, but there’s nothing stopping traders from pushing prices back to where they where before. In fact, this is exactly what a rational trader would do.
We see this in traditional markets. When the Hunt brothers tried to corner the silver market in 1979, they were able to cause a short-term spike in its price. But people responded: they smelted down old coins, jewelry, and silverware in order to profit by selling at this artificially high price. And soon enough the silver market was right back where it began. In the equity and bond markets, statistical arbitrage firms look for large ‘noise’ trades that move asset prices and trade in the opposite direction, pushing the asset prices back to equilibrium. The result of this is that it’s very hard to manipulate asset prices in mature markets, even for a few milliseconds.¹
There aren’t any statistical arbitrage firms trading the Meta-DAO’s futarchic markets (yet!). But the incentives are still present, and I didn’t want to spend thousands in USDC or sell most of my META at cheap prices only for the market to move against me and pass the proposal. So I abandoned this route.
Smear campaign
Another tactic I considered was a smear campaign. For example, I could have stated that there was a bug in the proposal instruction that would cause grievous harm to the Meta-DAO.
But this would have had the same problem. In the short-term, the market would trust my statement and the price in the pass market would decrease. Eventually though, one of the other technical people working on the Meta-DAO would discover my fib and the prices would return to normal.
At least I wouldn’t have to pay money to execute this strategy. But I would obliterate my credibility, which could have real financial consequences (e.g., maybe the Meta-DAO would no longer want to hire me). So this option wasn’t good, either.
Negotiation
The last option I thought of was trying to negotiate with the Meta-DAO. For example, I could have said “if this proposal passes, I will leave.” If the market values my contributions more than the value added by the proposal, the proposal would fail.
However, the proposal could still pass on principle. Just like how Western governments don’t negotiate with terrorists because doing so would lead to more hostage-taking and professors don’t allow students to turn in work late because doing so would cause future students to turn in work late, it may be in the interest of the Meta-DAO to not allow contributors to negotiate the passing or failing of proposals.
So I decided not to take this route, either. I’m not ruling out its future use, but I would probably only want to use it when I’m highly confident that a proposal would cause harm. Otherwise, I’m setting a bad precedent, which harms the value of my META tokens.
Conclusion
So proposal 3 passed, even though I didn’t want it to. Hopefully you’ve learned a bit about how incentives work in the Meta-DAO, including why it’s hard to manipulate markets.
[1]: The exception to this is if you have a very large amount of either the base or quote asset in a market. Central banks, for example, regularly manipulate asset prices.
