Protocol
Decision Markets: Solution to DAO Problems?
Theoretically, web3 protocols cannot be traditional companies.
Companies aren't decentralized. And if protocols aren't decentralized, then they can't be web3 protocols. So, the DAO structure is necessary for cypherpunk protocols.
But DAOs have many problems. Here are two:
#1. Token <> Equity alignment issues.
Often, these are two separate entities with different holders. As a consequence, tokens are often worthless "governance tokens," and the value of the project often flows to equity.
#2. The illusion of "governance power".
In most DAOs, the team and founders hold a significant percentage of tokens. So whenever a contested proposal arrives, the wishes of the team will prevail.
This concentration of tokens makes the token worthless to everyone else. Others will never get enough tokens to meaningfully influence the decisions. Unlike TradFi equities, minority holders are NOT protected in crypto.
Both issues were evident in the recent Aave drama.
- The Labs/team was extracting value from the DAO/token.
- Stani, the founder of Aave, rejected a proposal against the interests of the community.
- (There are new updates to the drama, but we won't cover that here.)
This is not an isolated incident. Uniswap had passed many proposals at the cost of $UNI holders. The recent Axelar acquisition made the $AXL token worthless. And so on.
Enter MetaDAO.
It's a token launchpad for tokens that claim to solve those issues. It implements a system called "asset futarchy".
Futarchy is a concept coined by economist Robin Hanson. You can hear him explain it here. TLDR: it'll use markets to decide what good policies are.
Asset futarchy is a variation of that method. It creates decision markets for the questions "what would be the value of this token if this proposal passed?" and "what would be the value of this token if this proposal failed?
I'll explain it with a hypothetical example with $XYZ DAO. Whenever a new proposal comes, two new markets are created.
- passXYZ/passUSD
- failXYZ/failUSD
These passXYZ & failXYZ can be traded for $XYZ. Similarly, USD can be traded for passUSD & failUSD as well.
If the price of passXYZ > failXYZ, then the proposal is passed. And vice versa.
After the finalization of the market, which can be based on some aggregation like a time-weighted average price (TWAPs) or a losing auction, the losing pool would be worthless. If passXYZ passes, then only passXYZ & passUSD will be valuable. And vice versa.
These are called "decision markets".
The ability to swap failXYZ & passXYZ for $XYZ during the trading period makes it very difficult to manipulate. You can read the game theory behind it here.
How does this solve the DAO problems?
Firstly, futarchy claims that markets make better decisions than "voting".
It allows anyone with confidence in the price impact of a proposal to contribute to the decision. It enables better information aggregation and, thereby, better decisions.
This is a variation of the traditional efficient market hypothesis.
Secondly, it protects the minority holder's rights.
In the MetaDAO mechanism, the decision markets control the key assets of the protocol, like the treasury, token supply, liquidity, etc.
MetaDAO also claims to have legal protections against teams/labs extracting value from tokens in other ways. There are nuances to it, and not all projects launched on MetaDAO use the same templates.
Futarchy has been here for a long time. Since 2000, to be specific. But with MetaDAO, they seem to have hit some escape velocity. Here are MetaDAO metrics:
- Completed 8 ICOs
- >23k investors in ICOs
- Helped raise ~$19.83M in funds
- Completed 92 proposals via decision markets
- Did ~$9.22 million in volume on those markets
This isn't some high-brow concept anymore. It's a practical, interesting thing. And in crypto, opportunities are in such sectors.
The DeFi Edge Product
TDE Pro: The Proven Shortcut in Crypto
We're finally getting some green candles.
While we're not back in "bull market" territory, it seems like we're in for a relatively good period. If you spend enough time, you'll be able to find many opportunities.
But if you've a life outside of crypto, you might not be able to find opportunities easily.
That's why we built TDE Pro:
- A structured roadmap and courses to go from beginner to pro.
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- Unfiltered access to me and a global team of analysts. See what we're personally investing in.
Don't mistake us for a call group that pumps memecoins. We are a community that looks to find such thesis-backed opportunities.
If you're interested,
Tokenomics
$DIEM: Crypto's First "Perpetuity Asset"
The above chart tracks $DIEM, it pumped >135% in the last 30 days.
In my opinion, it's also the most interesting tokenomics experiment this cycle. It's a novel type of token from Venice.
What is Venice? It provides a private, uncensored AI-generation service.
I've talked about them before. It runs multiple open-source AI models on distributed hardware with a smooth UI that rivals ChatGPT. Most features are free, but for $18/month, you unlock additional functionalities.
I won't go into product details here. Their tokenomics is more interesting.
They started with a single token: $VVV.
Later they revamped their tokenomics with a dual tokenomics model: $VVV & $DIEM.
$VVV is the traditional token of the protocol. $DIEM was the experiment.
Users can mint $DIEM by staking $VVV. Each $DIEM will provide $1 per day of API credit, forever. 1 DIEM = $1/day of AI generation.
Also, users can sell $DIEM after they've completed their AI generation needs. Or they can burn it to get their staked $VVV back.
There are technical details like mint rate and target DIEM supply for this mechanism. If you want the full details, read this blog post.
That was a novel token mechanism: $DIEM is a "perpetuity asset". It gives you access to a commodity, AI inference, in perpetuity.
Even though $DIEM has outperformed $VVV in the last two months, it is not the best instrument to bet on Venice. That's because when Venice increases its processing capacity, it'll increase the target supply of $VVV.
When target supply increases, the number of $VVV required to mint $DIEM will go down. That's more bullish for $VVV.
Increasing Venice users will mean increased $DIEM demand, which can only be minted by staking $VVV. As the $DIEM supply increases, the amount of $VVV required to stake to mint $DIEM will go up as well.
So, the way to bet on Venice is still $VVV.
But $DIEM can still outperform $VVV if it's undervalued relative to its fair value as a perpetuity asset.
How much is $DIEM worth? Since it provides $1 worth of AI Generation every day, it's worth more than $1. Right now, people are paying ~$330 for it.
Ultimately, the value of $DIEM will depend on the time preferences. If people have a long-term preference, they won't mind paying more for $DIEM. And vice versa.
The perpetuity token is for customers of the product. They can get a reliable amount of service per day for a fixed cost, which they can retrieve by selling it later. Many will prefer this model over subscription models.
This might be a good tokenomics model for other protocols with similar services as well.
🚀 DeFi Catalysts
Virtuals introduced Pegasus, Unicorn, and Titan. Together, they establish a unified framework for agent launches.
Lighter has started buybacks for $LIT, based on onchain data. The token is up ~14% due to the catalyst.
Pear Protocol is voting on transitioning protocol revenues to a 70/30 split of weekly buybacks and treasury reserves, respectively.
Polymarket has partnered with Parcl to create prediction markets on real estate. Six markets on median home values are already live.
Infinex updated the terms of their public sale after a poor reception. They've switched from random allocation to a "max-min fair allocation".
ORBT Protocol has released a tool to check your "DeFi score" based on onchain activities. Using it will have utilities in the future.
Jupiter is considering the pause of JUP buybacks and using those funds for growth initiatives. Helium is also considering the same move.
Jupiter has launched the $1M campaign. It'll run until February. Users can earn rewards based on activities like trading and referring.
Phantom has launched prediction markets on its wallet. They are powered by Kalshi.
Zama has opened up the claim portal for Zama OG NFT. It's a collection of 5,500 OG NFTs that rewards early community supporters.
World Liberty Financial has passed a proposal to use a portion of the unlocked treasury to incentivize USD1 adoption.
Ranger Finance is doing its ICO today. It had launched as a trading terminal with the first perps aggregator on Solana.
🚀 New Launches
Synthesis Trade launched the public beta of their app. It is a prediction market platform with many new features, including copy trading.
Axios Finance launched its mainnet beta. It's a fixed-rate, fixed-duration lending protocol powered by Fuel Network.
AlphaNet AI DEX has gone live for the first wave of whitelisted users. It claims to apply AI for alpha generation and market intelligence.
🐦⬛ X Hits
- When should you do buybacks?
- Ray Dalio's recap of 2025 macro.
- Payments ecosystem market map.
- Vitalik on the impact of zkEVMs & PeerDAS.
- Patrick's investment focus in 2026.
😂 Meme
Until next time,
Edgy
Today's email was written by Edgy and Yayya.
DISCLAIMER: I'm NOT a financial advisor. This content is for education and information purposes only. Crypto and DeFi are risky and speculative. Please do your research before investing.
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