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Umbra, a little-known privacy project, launched an initial coin offering (ICO) on Solana yesterday.
As I write this, Umbra has already surpassed its $750 million fundraising goal by 1169%.
sauce: Meta DAO
The real story here isn’t Umbra. It’s the infrastructure that’s driving that sale. MetaDAO’s “Unruggable ICO” Futarky launchpad.
Much has already been written about the intersection of cryptocurrencies and Futurkey by people smarter than me, but the gist is this: Futurkey is the simple idea that governance should be determined by the market rather than democratic rules of “one person, one vote” or DAO token voting.
If you believe Donald Trump will drive more economic growth than Joe Biden, Trump will win if enough traders buy “pass Trump” stocks above a certain threshold.
Or, if you think Facebook’s $50 billion investment in Metaverse won’t improve Meta’s stock price, do the opposite and buy “failed” stocks.
Bipolar markets function similarly to prediction markets. Markets convey market wisdom by requiring participants to spend money. The main difference is that with Futarky, the actual outcome is influenced by how the market “votes”.
This radical idea was popularized by libertarian economist Robin Hanson and has long been a topic of geeky fascination in techno-libertarian circles.
(Incidentally, Hanson was also responsible for driving many of the major innovations in cryptocurrencies, including automated market makers and prediction markets.)
For some time, DAOs such as Drift, Sanctum, and Marinade have been experimenting with piecemeal futarky governance using MetaDAO’s core protocol.
The ongoing Umbra ICO is being run on a relatively new MetaDAO product: the ICO Launchpad powered by Futarky.
sauce: Block Works Research
By launching on MetaDAO’s ICO launchpad, teams like Umbra are effectively tying their entire governance to a futarky model from day one.
The incentive for existing DAOs to adopt Futarky is not strong, which is why MetaDAO is currently targeting founders from day one, MetaDAO’s pseudonymous co-founder Proph3t told me.
This involves limiting the power of the founding team in ways that would be considered abnormal in the real world.
First, the team must stick to a set budget. For example, Umbra has agreed to a monthly budget of $34,000. This is subject to change, but only if passed by a market vote.
Second, the team agrees to subject its finances and all intellectual property (domain name, Discord and Twitter accounts, brand name) to ownership under a DAO LLC entity headquartered in the Marshall Islands and run by MetaDAO itself. This ensures that whatever happens on the chain is legally binding in the real world.
The first criterion primarily serves to align long-term incentives between founders and token holders, avoiding situations where founding teams silently abandon projects with large managed allocations.
Second, it avoids cryptocurrencies’ notorious token-equity mismatch problem, where the proceeds go to the equity holders rather than the tokens.
“I don’t like governance. I see governance as a tool to solve specific problems. Most founders want control for obvious reasons, and I want to give them as much control as possible while maintaining the properties that make the token robust,” Proph3t told me.
Instead of tying their hands to a futarky-based governance model, founding teams can legitimize their tokens by advertising that they are protected by traditional “shareholder protections.”
But whether you believe these protections are robust depends on whether you believe market forces can make good governance decisions.
is that so? Let’s take the example of the mtnCapital investment fund.
In April, mtnCapital conducted its first ICO on MetaDAO’s futarky launchpad, raising approximately 5.7 million USDC. Ultimately, due to the fund’s underperformance, DAO members decided in September to vote on a proposal to unwind the fund and return the funds to MTN token holders.
Source: MetaDAO
This decision was made by token holders, as opposed to mtnCapital’s investment team, which could have silently abandoned the project or conjured endless amorphous reasons as to why the strategy “needed more time.”
A dichotomous system is no guarantee that your business will be successful. This serves as a safeguard against the plutocracy-like rent-seeking that has long plagued DAOs.
