Sowellian Governance
By utilizing a novel betting mechanism, organizations can align decisions and outcomes with "skin in the game"
Sowellian Governance
Drawing inspiration from Robin Hanson's Futarchy model, Sowellian Governance separates governance into two distinct layers to align incentives with outcomes.
1. Strategy Layer: Vote on Values
Voters decide top-level values and objectives. Organizations vote on their Key Performance Indicators (KPIs), proposal settings, asset flows, and executive elections. This establishes the "Rules of the Game."
2. Tactics Layer: Bet on Methods
Bettors determine the best methods to achieve objectives through a market-based mechanism. Proposals are supported or opposed through betting, with payouts determined by outcomes.
Core Principles
These principles guide the governance architecture. Each maps directly to a specific mechanism within the system.
1. Pay for Mistakes
Those who make decisions must pay for mistakes.
Mechanism: All signaling is done through betting. If an idea secures the most bets, it is implemented. Upon evaluation, the bet is resolved financially.
2. Vote on Values
Every organization has KPIs and proposals must target them.
Mechanism: Proposals must target specific KPIs. Organizations vote to select which KPIs are valid, ensuring focus and alignment.
3. Proposing with Purpose
Proposers compete to surface valuable ideas; bettors compete to support them.
Mechanism: Time-Weighted Staking: The earlier a bet is placed, the higher the potential reward. This incentivizes proposers to share good ideas quickly.
4. Bet on Beliefs
Voters stake once to express belief.
Mechanism: To ensure skin in the game, the bet is locked until the outcome is evaluated. Results matter and impact those that make the decision.
5. Sustainable Change
Change should always leave the organization better off.
Mechanism: Every proposal generates revenue for the treasury via a Proposal Bond (for missing quorum) or a 1% Rake from losing bets.
Voting on Values
Decentralized organizations are often plagued by obtuse policies and perverse incentives. Sowellian Governance establishes the "Rules of the Game" first through standard voting.
KPIs (The Target)
What outcomes can proposals target?
Objective: On-chain or externally verifiable
Time-bounded: Clear start and end points
Quantifiable: Binary or numeric (e.g., "+10% user growth in 3 months")
Proposal Settings (The Rules)
The criteria required to pass a proposal
Betting duration
Evaluation timeline
Bond amounts
Quorum thresholds
Asset Flows (The Budget)
How assets are utilized between elections
Allowances and Grants
Redemptions/Dissolutions
Taxes and Protocol Fees
Elections (The Executive)
Who has authority for tactical decisions?
Executive branch or committee
Decisions that cannot be automated
Elected group authority
The Execution Cycle
Once values are set, the organization moves into the operational cycle. Here's how proposals flow from idea to outcome.
1. Proposing with Purpose
Anyone can create a proposal by selecting a targeted KPI, describing the idea, and submitting a Proposal Bond.
Select the KPI you are targeting
Describe your proposal idea
Submit the Proposal Bond (fixed amount)
The Check: If the proposal does not meet the required Quorum, the bond is forfeited to the treasury. This prevents spam.
2. Betting on Beliefs
Once live, the community places bets to support (YES) or oppose (NO) the idea.
Lock-up: Bets cannot be withdrawn
Multi-bet: Participants can increase position during betting window
Incentive: Payouts are time-weighted
Contentious proposals offer high returns for winners; highly supported proposals offer high returns for contrarians who turn out to be right.
3. Observing Outcomes
Outcomes are measured by an Oracle, a 'source of truth' or an elected group if no data feed exists.
Success: The KPI was met. YES bettors win
Failure: The KPI was not met. NO bettors win
The Rake: 1% of losing side's pot goes to Treasury
Payouts are calculated based on the amount bet and how long the bet was held; paid immediately after outcome confirmation.
Pass/Fail Criteria
PASS If YES Bets > NO Bets at the end of the window. The proposal moves to execution and evaluation.
FAIL If NO Bets > YES Bets. The proposal is rejected, and all bets are returned (no loss of capital, merely opportunity cost).
No Quorum Bond forfeited to treasury.
Visualizing the Workflow
The complete lifecycle of a proposal from creation to resolution.
Phase 1: Proposing
Select KPI target
Describe proposal
Submit bond
Phase 2: Betting
YES bets = Support
NO bets = Oppose
Bets locked until eval
Decision
YES > NO → Proposal passes
NO > YES → Proposal fails, bets returned
No Quorum → Bond forfeited to treasury
Phase 3: Observing
Oracle measures KPI
Winners get losers' stake
1% rake to treasury
Payout Illustrations
Understanding how payouts work based on time-weighted stakes. Earlier bets receive higher rewards, incentivizing early conviction.
If YES Wins
Scenario: 90% YES / 10% NO: Proposal passes
Losing Pool (after 1% rake): $9,900
Total Weighted YES Stake: 90,800
Proposer
1,000
1.5×
1,500
+163.4
16.3%
1,163.4
Early Bettor
30,000
1.3×
39,000
+4,252
14.2%
34,252
Mid Window Bettor
30,000
1.0×
30,000
+3,270.9
10.9%
33,270.9
Late Bettor
29,000
0.7×
20,300
+2,213.7
7.6%
31,213.7
TOTAL
90,000
-
90,800
+9,900
-
99,900
Case Studies
To illustrate the flexibility of Sowellian Governance, we apply the model to two distinct entities with different goals and contexts.
The Trading Group
Decentralized Hedge Fund
Treasury: $1M KPI: Treasury Value Increases
Configuration
Proposal Settings: 1-day betting; 1-week evaluation. Bond: 1% of Quorum
Quorum: 1% of Treasury Value ($10k in bets required)
Asset Flows: Executive team receives 5% of profit
The Proposal
"Exchange 10% of USD Treasury into Bitcoin"
The Bet
Bond posted: $1,000. Betting ensues.
The Outcome
Proposal passes (90% YES). Bitcoin is bought.
Resolution
One week later: Bitcoin price dropped. The KPI (Increase Treasury Value) failed. The NO bettors win the YES bettors' money.
The Fishing Village
Community Governance
Treasury: 10,000 Gold Coins KPI: Increase Population Population: 1,000
Configuration
Proposal Settings: 1-week betting; 1-year evaluation. Bond: 10 Coins
Quorum: 10% of Treasury Value + 10% Citizen Participation
Asset Flows: Tribe manages 20% of treasury. 30% Fish Sales Tax
The Proposal
"Lower fish tax for families of 5 or more"
The Bet
Bond posted: 10 Coins. High contention (55% YES / 45% NO).
The Outcome
Proposal passes. Tax break enacted.
Resolution
One year later: Census shows 25% population growth. The YES bettors win the NO bettors' money.
References & Further Reading
The intellectual foundations of Sowellian Governance draw from these key works.
Thomas Sowell
The Vision of the Anointed: A critique of political decision-making by those who bear no consequences for their errors.
Knowledge and Decisions: An exploration of how knowledge is dispersed throughout society and how decisions should be made accordingly.
Robin Hanson
Futarchy: Vote Values, But Bet Beliefs: The foundational paper on using prediction markets for governance decisions.
The Age of Em: A look at future governance structures and economic organization.
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