Decision Markets

Decision Markets are Umia's iteration of prediction markets, but aimed towards governance. Unlike the traditional governance question of "what do you want?" , Decision Markets ask "what do you think will create value?" . This is a concept called futarchy, and it changes how decisions get made.

In essence, futarchy relies beliefs the outcome of different decisions being assessed through open prediction markets. As the decisions are made through a market with one's own assets, participants tend to be more honest about their beliefs compared to a traditional token signalling vote, where there is no direct impact or incentive regardless of where the votes go.

Due to the way Decision Markets vote, their steps differ from a traditional governance structure. The next section serves as a quick overview of what happens when a Decision Market is underway.

How it works

A Proposal is Submitted for a Decision Market

The criteria for type of proposal that is put to a Decision Market is decided by each individual qORG. As long as each option can be expressed as a conditional outcome, there is no limit on the type of proposals that can be approved. They can range from "Should we spend $1M on marketing?" with Yes/No options, to "Which chain should we expand to?" with Arbitrum/Base/Optimism options. The proposal defines what's being decided and what the choices are.

Once the proposal is approved, it goes to the next step: opening a Decision Market.

The market opens

Quantum Coins split into conditional Superimposed tokens. Each outcome gets its own trading pool. If you believe that the value of a superimposed token is going to be higher than the current market price when it passes, you buy more of them. If you believe the value will be less than the current value, you sell it.

Prices reflect what the market collectively thinks each outcome would do to the organisation's value. The market processes information continuously, which means that as the markets are open, the price of each value will be changing.

Resolution

At the end of trading, the outcome with the highest Time-Weighted Average Price (TWAP) wins (assuming it clears a minimum threshold). If nothing beats the threshold, the proposal just fails and nothing changes.

Winning conditional tokens convert to real tokens 1:1. Losing tokens do not materialise. This has the effect of reverting any trades that were made in losing outcome markets.

The mechanics

Conditional Tokens

When you trade in a decision market, you're saying "if outcome A happens, I think the token will be worth X." Buying this conditional token is not betting on the chances of A happening, but rather on how valuable A would be if it did happen.

Baseline "no-op" price

Decision markets always have a baseline proposal called "no-op" representing the status quo, or no action being taken. This gives a baseline price. Conditional token prices above baseline mean "the market thinks this outcome is good." Below baseline means "bad."

Threshold

To win, an outcome needs the highest TWAP price AND needs to clear a minimum threshold from the baseline. This prevents low-participation markets from making dumb decisions, and stops manipulation where someone pumps a bad option to barely beat the others.

TWAP (Time-Weighted Average Price)

The market uses a TWAP to determine the outcome. This makes it much harder for someone to manipulate results by pumping an outcome's price just before close. The average price over time is what counts, so prices need to be sustained, not just spiked.

An example

• Proposal: Fund a new dev team with $2M from treasury

• Options: Approve or Reject

• Market opens:

  • Token A (approve) starts trading at $0.95. Token B (reject) at $1.02.
  • Early signal: market thinks status quo is slightly better.
  • A week of trading. Some new information comes out. A rises to $1.08. B falls to $0.91.
  • Market closes. A has highest price and clears threshold. Proposal passes. $2M transfers automatically. A holders keep their tokens at the new price. B holders get their original tokens back as if they never bought B.

Why Futarchy over Vote Signalling?

If you are someone with relevant information, Decision Markets reward you for having this information, Correct predictions and domain expertise give you the ability of trading in a futarchic market efficiently, which in turn lets you earn from participating in Decision Markets.

As a project, Decision Markets provide real-time feedback, since the price movements of each conditional outcome reflect the current perceived impact by markets. Additionally, as people are actively trading their convictions as opposed to just voting on a poll, you can be more confident that they are honestly reflecting the conditions they believe are best. Finally, this also removes the fears of ghost voters, who simply vote on the most commonly agreed options .

Finally, even if you are not an active governance participant, you benefit from good governance without having to participate in every decision. The people who do participate have incentives to get it right.