---
type: claim
domain: internet-finance
description: "Estimating token value under pass versus fail conditions involves wide uncertainty ranges that discourage limit orders near midpoint"
confidence: likely
source: "MetaDAO AMM proposal CF9QUBS251FnNGZHLJ4WbB2CVRi5BtqJbCqMi47NX1PG, 2024-01-24"
created: 2026-03-11
---

# Futarchy CLOB liquidity fragmentation creates wide spreads because pricing counterfactual governance outcomes has inherent uncertainty

The MetaDAO proposal identifies "lack of liquidity" as the primary driver for switching from CLOBs to AMMs in futarchy markets. The core mechanism: "Estimating a fair price for the future value of MetaDao under pass/fail conditions is difficult, and most reasonable estimates will have a wide range."

This uncertainty "discourages people from risking their funds with limit orders near the midpoint price, and has the effect of reducing liquidity (and trading)." The problem is structural to futarchy, not specific to MetaDAO—pricing counterfactual organizational futures requires speculation on complex causal chains.

CLOBs require traders to commit to specific price points, which is costly under high uncertainty. AMMs allow passive liquidity provision across a price curve, reducing the commitment required from individual LPs. The proposal notes that "liquidity would start low when the proposal is launched" but expects it to "increase over the duration of the proposal" as price discovery occurs and LPs converge on ranges.

This connects to [[MetaDAOs futarchy implementation shows limited trading volume in uncontested decisions]]—low liquidity is both cause and effect of limited trading.

## Evidence
- Proposal cites "lack of liquidity" as main reason for AMM switch
- Mechanism: wide uncertainty ranges discourage limit orders
- Expected pattern: liquidity increases as proposal duration progresses
- CLOB minimum order size (1 META) acts as spam filter but fragments liquidity further


### Additional Evidence (confirm)
*Source: 2024-01-24-futardio-proposal-develop-amm-program-for-futarchy | Added: 2026-03-16*

The proposal identifies that 'estimating a fair price for the future value of MetaDao under pass/fail conditions is difficult, and most reasonable estimates will have a wide range. This uncertainty discourages people from risking their funds with limit orders near the midpoint price, and has the effect of reducing liquidity (and trading).' This is cited as 'the main reason for switching to AMMs.'


### Additional Evidence (extend)
*Source: 2026-03-18-telegram-m3taversal-futairdbot-what-about-leverage-in-the-metadao-eco | Added: 2026-03-18*

Rio identifies that MetaDAO conditional token markets with leveraged positions face compounded liquidity challenges: not just the inherent uncertainty of pricing counterfactuals, but also the accumulated fragility from correlated leverage in thin markets. This suggests liquidity fragmentation interacts with leverage to amplify rather than dampen market dysfunction.

---

### Additional Evidence (confirm)
*Source: [[2026-03-21-academic-prediction-market-failure-modes]] | Added: 2026-03-21*

Tetlock (Columbia, 2008) found that liquidity directly affects prediction market efficiency, with thin order books allowing a single trader's opinion to dominate pricing. The LMSR automated market maker was invented by Robin Hanson specifically because thin markets fail—this is an admission baked into the mechanism design itself.

### Additional Evidence (confirm)
*Source: [[2026-03-24-telegram-m3taversal-interesting-hadnt-thought-about-it-that-way-any]] | Added: 2026-03-24*

Sanctum Wonder proposal markets had insufficient volume/liquidity to be considered credible by the team, leading to abandonment of futarchy experimentation. Low liquidity undermined the mechanism's credibility as a decision-making tool.



Relevant Notes:
- [[MetaDAOs futarchy implementation shows limited trading volume in uncontested decisions]]
- [[MetaDAOs Autocrat program implements futarchy through conditional token markets where proposals create parallel pass and fail universes settled by time-weighted average price over a three-day window]]
- [[futarchy adoption faces friction from token price psychology proposal complexity and liquidity requirements]]
- metadao.md

Topics:
- domains/internet-finance/_map
- core/mechanisms/_map