# Sowellian Governance {% file src="" %} ## 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): $9,900 Total Weighted YES Stake: 90,800 | Role | Stake ($) | Time Weight | Weighted Stake | Profit Share ($) | Profit % | Final Value ($) | | ----------------- | ---------- | ----------- | -------------- | ---------------- | -------- | --------------- | | 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.