Venice and Futarchy

So I’ve always been very interested in the history of the Venetian Republic like I don’t know for some reason it’s just very interesting to me and recently I’ve gotten like this interest in futarchy which some of you may be aware of some of you may not. So I guess we’ll go over what futarchy is and how it works but maybe first starts with some Venetian history. Oh but actually let’s start with this. So yeah like the, you know, the general way we think of like governance in critical nationalism is just really, you know, Pauper is about like removing bad rulers without violence Dojic extended this to error correction and it’s really the error correction I’m interested here in this talk.

So the way Venice worked if you don’t know is they had these like initially monarchs who then became representatives who then became sort of like symbolic figures called the doge. So this is my example and then the issue they had throughout their thousand hundred year existence because, you know, Venice started like in 697 lasted until 1797 is initially at least is that these rulers tried to always get one of their descendants to become the next ruler and so that was very bad for Venice because the merchant class. So the, you know, the Venice was really like this commercial city with a lot of trade happening and a lot of, you know, slave trade as well and so and they needed stability right like, you know, coups, you know, these like weird success succession things it’s just really bad for business and it’s really bad for the business and so they really were optimizing for stability and that’s really like the pattern you see in the evolution of Venice.

So if you look at those these are like five events that I’ve like handpicked but there are like way more in the history of Venice so the concho was like the popular assembly and so in 1032. So this is already like 300 years three four hundred years after Venice started it’s not there’s no official start date but like we said it started then they banned hereditary succession for the rulers. And then in 1172 what they do is they add the minor council which is sort of like this body of people who are sort of like a check and balance on the doge they can like veto proposals and stuff. And then in 1192 they start this which to me is like this hilarious thing where they essentially get the doge to sign a contract and when the, you know, when you become a doge you have to sign this contract which says oh you can’t do this you can’t steal money you can’t do all these things.

And then in 1299 1229 they realize well actually the contract which was initially 12 pages is really not long enough like we really need to have more clauses in there because like the dojos are all like acting like crazy. So we’re now going to set up this commission that is like this error correction commission that is after the life of each doge going to review the life of the doge and go through each and everything the doge did and review everything they did. And then like add clauses to the contract that the next doge is going to sign so that this doesn’t happen again and so in the end you reach a contract of 300 pages by 1797 and the doge cannot do anything anymore and you become sort of like a symbolic figure over time because there are like so many constraints and so many rules that he’s basically no longer an actual ruler and so the error correction kind of worked because like the doge is no longer making those errors but like he’s just no longer doing anything at all.

And then yeah I just added like the 10 round election thing because that’s really interesting so this is like sort of like tangential but so the way they elected those rulers was through like this 10 round process where. So let’s say you select 50 people then you get those 50 people to elect 20 people then of those 10 20 people you do a lottery and you get maybe like 10 people out of this then those 10 people elect maybe 40 people whatever those 40 people you do a lottery again you get like 10 people again you get those two people to elect people again and you just like many times. And then at the end you get like a pool of people who are like sort of like randomly selected but there’s still like a selection going on because they’re still like each time electing but there’s no way it’s because you don’t know who’s actually going to be electing the doge in the end.

Anyway this is sort of like tangential but it’s really interesting to me okay so the things Venice did well so we have treating governance as an open problem because you need to be iterating on this and as you saw like they’ve been iterating on this for like a thousand hundred years like they were constantly like trying to figure out solutions they are or, you know, power distribution across overlapping bodies which, you know, as we do now in our traditional democracies. So they made a lot of effort to figure out how to deal with this problem afterwards and so even if you acted wrongly as doge but you died you would still face repercussions of your actions.

And then what they didn’t do well there comes is what we call the sarada which is basically the entrenchment of the aristocracy so they knew that the doge couldn’t be hereditary anymore. So what they did is that they just made the voter base hereditary, you know, logical solution all problems are soluble so instead so they had this great council and they made it so that only the descendants of the existing members of the great council could join the great council and it’s kind of like symbolic by this phrase that when a new doge was elected they would say oh this is a new doge if it pleases you. And then like in 1423 when they abolished the popular assembly they just said this is your doge like no questions asked like just, you know, you will accept it and so like the deeper point is just that there was a correction as we saw but like there was entrenchment and that entrenchment is really problematic and the way you can avoid that entrenchment is through markets.

So that’s basically like the gist of futarchy so the way it was initially conceived is you do still have elections so you vote on your values so for a company maybe it will be like the stock price for a country might be like the GDP life expectancy whatever like, you know, maybe for SpaceX for example it’s making life multi-planetary. Anyway and then you get markets to trade on those to trade on the proposals to figure out what the right proposal is so there are multiple ways of doing futarchy but before that. So we know this actually really works well empirically so we know like you may have seen the Polymarket was better pricing the odds of elections than pollsters are or like in for like oranges futures like they’re constantly able to like beat the government.

And then the huge thing was when so there was the space shuttle that like exploded like decades ago and within 16 minutes the market was able to figure out who the guilty supplier was and the stock of that guilty supplier started crashing and not the other ones. So and it took four months for the commission that investigated this to actually figure out the same answer so within 16 minutes the market knew it’s this guy and we’re selling their stock and so the air correction mechanism here is really interesting because if you’re wrong you lose your money. So you lose your ability to participate in the system and the people who tend to be right for the rights, you know, ways of thinking about it who are really like experts in the subject and we’re actually experts in subjects because they’re betting on their beliefs.

So they’re skin in the game they accumulate influence and so how does this actually work in practice so again there are many ways of doing futarchy this is just one of those ways. So let’s say you have a proposal let’s say spend some funds out of the treasury of the company and then you have a conditional market vote where it’s either the proposal passes or the proposal fails. And then you’re going to trade those assets so it could be a token from crypto but and then whichever token ends up the highest at the ends is the one that actually gets implemented. And then you can, you know, you can do like the twop is like time weighted average price so you can do like a rolling window where you take the average price of that window so that you avoid like market manipulation because otherwise you could have like a rich person just buy up the token at the very end to like manipulate the odds you can do all these things but that’s kind of like the gist of it.

And then like the traditional like objection to that is that future key is like ruled by the rich because if you’re rich you have a lot of money. So you can actually influence the market I mean in some ways it is sure but then most everything else is all the money that you can actually use to influence the market most everything else also is and if, you know, for a company for example for a company context if you do token voting like share voting that’s also a plutocracy. And then the different thing here is if you vote with your shares there’s no consequence to that so if you’re wrong about your, you know, the way you voted like you’re incorrect about your assumptions there’s no consequence to that I mean the business might do less well but it might get the business might get picked up by something else that will actually get it back up but there’s no consequence there’s no cost to it directly and the cost is distributed if it actually goes badly for the business afterwards because of you the cost is distributed across all shareholders instead of just you in this case it’s just you if you think a proposal is good.

But then the market doesn’t price it as such you lose your money and it’s over for you and that’s the thing where it avoids entrenchments because let’s say I’m a very rich person and I’m not a, so I have a lot of money and I my son I don’t have a son but let’s say I have a son my son is now the, you know, I pass away my son takes over and so he has a lot of money now but he, you know, he’s an idiot he like he doesn’t, you know, and he loses. So he bets wrongly he’s going to lose the money so there is it avoids the entrenchment problem that you see in Venice where it’s just, you know, everyone always the same people who essentially make the rules and so yeah.

So then there’s like short-termism and manipulation so, you know, markets are short term again we, you know, we know that’s no that’s not actually true like you can have like long-term investors, you know, you can tweak the values you’re optimizing for to avoid this markets can be manipulated again this is something you can also avoid through like taking the average or the price doing all these things. So and again like the market is the comparison is not like I’m not saying this is perfect but I’m not saying this is perfection right there’s always like room for improvement or, you know, beginning of infinity, you know, but it’s to me it sounds like an improvement to like the traditional way we do democracy and it’s not incompatible with democracy right like you can still have elections where you appoint a ruler or like, you know, a government.

But then for example that government will have to issue proposals that could then get like priced by the markets so it’s not it’s to me it sounds like a very interesting way of doing things. So yeah thank you so much for your time and yeah very interesting talk I’m certainly going to read up on futaki is that how futaki yeah I mean the future yeah right. So apologies if I’m just slow today but like how would this be implemented let’s say by some miracle yes united kingdom by some process can always dream you can dream it’s futaki from tomorrow yes what happens then what how does that work yeah speaking I mean legitimate question or no it is it definitely is I mean.

So I guess the way it would work is in my conception again there are many ways of doing things but like my conception would be so we still elect like a prime minister who is sort of like those values you’re optimizing for right. So you can like him, you know, you feel like he has a right way of looking at things he then issues the proposals say for example let’s spend I don’t know like 10 million dollars to for the defense budget I mean 10 million dollars is not much but whatever. And then the market will price whether this will lead on a 10 year 20 year 30 year basis to a higher GDP for the country or like whichever value you’re optimizing for.

And then if it actually does which I’m assuming it would because, you know, we don’t need to be defendant then the proposal gets implemented and then the executive body goes to action and actually implements it. And then yeah if it doesn’t then the proposal doesn’t pass and the guy knows well yeah the market disagrees okay and who’s participating in the market anyone with money basically anyone with money and so over time you’re going to get increasingly sophisticated actors like you have in the stock markets where you have, you know, you’ve even like options derivative like these hedge funds. And then you’re going to get increasingly sophisticated actors like you have and then like in prediction markets we’re kind of like starting to see this like on polymark and stuff we’re going to we’re starting to see like these increasingly sophisticated actors like I think there was like an article of like hedge fund where they actually send someone to hormuz to like literally on like a speedboat to like investigate their like extract like information on the field they come.

So yeah they did come back so yeah like they will, you know, people will make it happen so yeah thank you thanks hi great talk I’m one of the people that’s trying to make these decision markets work in practice at a small scale go. Okay futaki and the trouble that classically we run into is that if you try to run a company this way oftentimes the ceo just doesn’t like the result over the yeah market and therefore is uncomfortable and it never starts in the first place there’s been some attempts with dow’s I haven’t looked up to you very much I was trying to make these decision markets work in practice at a small scale and I’m one of I was trying to have a have the funding for projects be based on whether people bet whether it would work yes and this actually ended up working probably less well than having just a champion who says I want this to work.

And then people fund them yeah the decision market ends up pulling in people later but then maybe sort of like the person who originally set up the voting might have been more appropriate do you have any ideas for how we can make it’s hard to test at the country scale yeah make some more prototypes of this yeah. So there’s a lot of work to be done but there’s a lot of work to be done and so the way they do it is actually as you said. So they just limit the decisions to funding essentially mostly like there are a few other things but it’s really just like budgets and so the ceo they will like issue a proposal to let’s say oh we need like six months of runway to do this.

And then so in that proposal there are all the kpis all the things you need to, you know, be acting, you know, the market will price that and the proposal passes or doesn’t and it seems to be working now it might also be a better fit for certain types of businesses and certain types of organizations and not certain others like I don’t know like it doesn’t strike me like I don’t see like elon for example like constantly like oh like please vote on proposal like please price it correct like it’s, you know, but like, you know, like for example through metadata like we’ve seen like some people like a single guy who doesn’t have like a lot of money he can’t like invest traditional investors and so what he does is he creates an organizational metadata.

And then he raises like fifty thousand dollars for example to do like this new ai thing he’s working on and that’s like really a great fit because there’s like still this check and balance that you wouldn’t have with like traditional investing where it’s like pretty hands-off for like these early stage investors and yet the person is still able to raise money from anywhere on earth. So yeah thanks great talk I’m still torn between futarki and token holder voting or shareholder governance right you said there’s no consequences to shareholders voting there is but like it’s less direct yeah. Okay but, you know, if it’s a well-established project and, you know, whales as you call them crypto have a lot of money invested in the project like for them to be making these prediction markets of bets like they’re gonna have to either sell some of their token or share the shares to vote on them.

So instead like why don’t you just do shareholder voting or token holder voting yeah so I guess the traditional so I guess like true objections to that I would say. So like first my guess I don’t actually don’t know but my guess is there is a reason why in the traditional way we do companies which has existed for like, you know, decades if not centuries now we don’t let the shareholders like choose, you know, there’s a reason for that because like the shareholders have their own incentives and they may either like prioritize like short-term gains or like they may prioritize like we’ve seen many times in crypto actually to just essentially steal people’s money by just taking over the project and just that’s for me.

So that’s the key problem it’s, you know, and then there’s also like the entrenchment problem where well the shoulder today may be good but then long term you may be their descendant or whatever and if you’re looking at that’s like at a country level they may not be as good. So then, you know, we get this entrenchment and the system doesn’t like filter those out with future key you are able to like constantly like get people who are bad at this to lose money. So you effectively filter them out now regarding your second question of let’s say I have all my money in a particular stock I’m like very convinced by it yeah it’s true it’s a limitation like you would potentially be able to potentially borrow funds.

But then you would also say for example I own like ten thousand dollars in a particular stock that’s all I have you could say well okay I’m going to sell a bit and if I’m actually right on betting on the proposal I will get more money out of it which means that I can buy more stock back it’s kind of like it’s not ideal but there’s still something to be done there but I agree in the limited case where all your wealth is in that specific stock or asset whatever it’s not perfect yet there’s probably a solution which I haven’t thought of maybe you could borrow against it but still not ideal. So yeah that’s a limitation as far as I know yeah I’ve been living in switzerland for the last 20 years or so I just wondered if you have any thoughts on the difference between the kind of direct democracy that you’re trying to practice there versus this kind of more maybe financially oriented or token oriented approach yeah I mean direct democracy like is very interesting I mean it’s kind of like direct share voting in a way like, you know, I guess the problem with dark democracy that people are not necessarily fully aware of all the, you know, the constraints and all the implications of a particular proposal, you know,.

And then, you know, try doing like direct democracy at like the scale of like the US for example like it’s much harder I mean I think in switzerland it’s like occasional through like referendums. So it’s like it’s not like every time we’re doing dark democracy but you could still, you know, have a mix of that with futarchy right like it’s not necessarily mutually exclusive in a way. So like on key things like for example moral issues I mean I’m not going to ask a market to price whether like, you know, slavery is good or bad right like that’s not a good idea. So like on those moral issues like, you know, dark voting is probably, you know, still applicable yeah I do wonder whether there’s something in there about practice actually that what seems to be happening in switzerland is because they have so many referenda yeah they’re actually quite practiced at what the yeah.

So they get better at it yeah so we did one big one and then said we never want another one yes we could have started a bit smaller yes that’s a good point oh I think in the back yeah coming back to the moral point you made yeah markets might not price these moral points fast enough yeah because like profits that come out of these immoral points might want to last longer yes slavery is a good point. So how would you think about that I mean I guess that’s like on the values where like the mark the rule of the market is you’re up like what you’re trading for is how close you get to those values that you voted for.

So obviously if you voted for let’s mistreat people let’s punch them in the face well then the market will, you know, favor like punching people in the face but like if you optimize for life expectancy GDP maybe some security or whatever it’s really just bad for the markets to have a lot of value for the market and I think that’s it’s really just bad for the markets to have, you know, mistreatment or whatever because that’s bad for like business right. So there are still cases where it’s not ideal like I don’t know how this would have played out with slavery for example it’s going to be quite an interesting question but you can probably get around it with like optimizing for the right values.

And then having just the market play dog yeah but certain values need to lost the test of time right yes at least over I mean they’re very simple right like I mean the examples I did I put here was just like GDP life expectancy those are like very simple things which I think most people will agree on I mean I don’t know like I mean some people do actually want to be poor but, you know, most people, you know, in a world of abundance let’s assume like 30 years from now yes it wouldn’t make sense to put metrics of GDP and, you know, life expectancy because that would be the baseline right what do you mean the value of life expectancy and GDP because the GDP is like such a reductionist way of thinking the world right now oh yeah of course world of abundance it would be very different metrics yeah you would need to have them evolve like you can do like elections every now.

And then have like through the dark democracy like vote on new values every now and then you can have those systems I don’t think that’s necessarily like a blocker or like a deal breaker in this case yeah really nice talk. Okay for someone completely new to these topics do you have any recommended like books or other resources I mean the work of robin hansen who is like kind of like the founder of future key is really interesting?

So I will look up his articles on it I will look into metadata so they’re like this project like in crypto they’re doing it and it seems to be working well right now. And then yeah for Venetian history there are plenty of books there’s like a maritime plan lane which is really good so yeah that’s what we recommend, you know, thanks. Okay thank you.