---
type: claim
claim_type: mechanism
domain: internet-finance
confidence: likely
tags:
  - futarchy
  - market-manipulation
  - amm
  - metadao
  - price-oracle
created: 2025-01-24
processed_date: 2025-01-24
source: inbox/archive/2024-01-24-futardio-proposal-develop-amm-program-for-futarchy.md
---

# Liquidity-weighted price over time solves futarchy manipulation through wash trading costs

MetaDAO's proposed AMM uses a swap-weighted time-weighted average price (TWAP) mechanism that updates price metrics on each swap, combined with high fees (3-5%), to make manipulation through wash trading economically unfeasible. The TWAP aggregates price observations each time a trade occurs, and the high fees ensure that manipulators must pay substantial costs for each wash trade needed to move the average price. This makes sustained price manipulation expensive relative to the potential gains from influencing proposal outcomes.

However, this approach is not a perfect solution—the high fees that discourage manipulation also discourage legitimate trading, which could reduce the quality of price discovery in the markets.

## Evidence

From the AMM proposal:
> "every time there is a swap, these metrics are updated/aggregated. This means that if someone wants to manipulate the price, they need to make a lot of swaps, and each swap will cost them a lot of money in fees."

The proposal explicitly notes the tradeoff:
> "This is not a perfect solution, as it will also make it more expensive for people to trade on the AMM, but it is a good start."

## Limitations

- The mechanism has not been deployed or tested in production
- The optimal fee level (3-5%) is proposed but not empirically validated
- The effectiveness depends on the relationship between manipulation gains and cumulative fee costs, which varies by proposal stakes
- Reduced trading activity from high fees may itself create manipulation opportunities through lower liquidity