teleo-codex/decisions/internet-finance/metadao-develop-amm-program-for-futarchy.md

type	entity_type	name	domain	status	parent_entity	platform	proposer	proposal_url	proposal_date	resolution_date	category	summary	key_metrics	tags	tracked_by	created	last_updated
decision	decision_market	MetaDAO: Develop AMM Program for Futarchy?	internet-finance	passed	metadao	metadao	joebuild	https://v1.metadao.fi/metadao/trade/CF9QUBS251FnNGZHLJ4WbB2CVRi5BtqJbCqMi47NX1PG	2024-01-24	2024-01-29	mechanism	Proposal 4 — Replace CLOB with AMM for futarchy markets. Liquidity-weighted price over time, high fees (3-5%) to deter manipulation and incentivize LPs. 400 META on pass + 800 on completion. The origin of the Futarchy AMM that became MetaDAO's core infrastructure.	proposal_number proposal_account autocrat_version budget 4 CF9QUBS251FnNGZHLJ4WbB2CVRi5BtqJbCqMi47NX1PG 0.1 400 META on pass, 800 META on completion	metadao amm futarchy mechanism-design infrastructure passed	rio	2026-03-11	2026-03-24

MetaDAO: Develop AMM Program for Futarchy?

Summary & Connections

Proposal 4 — the origin of the Futarchy AMM. Replace CLOB (central limit order book) with AMM for governance markets. Key innovation: liquidity-weighted price over time as the metric, with high fees (3-5%) to simultaneously incentivize LPs and deter wash-trading/manipulation. Budget: 400 META on pass + 800 META on completion. Team: joebuild (contracts), 0xNallok (frontend).

Outcome: Passed (2024-01-29). The AMM became MetaDAO's core infrastructure — by Q4 2025, it was processing $300M+ in volume and generating $1.5M in fees.

Connections:

• This is the architectural foundation of MetaDAO's current governance mechanism — every subsequent proposal trades through this AMM
• The CLOB problems identified (lack of liquidity, manipulation susceptibility, 3.75 SOL state rent per market pair) are precisely the issues addressed by amm-futarchy-reduces-state-rent-costs-by-99-percent-versus-clob-by-eliminating-orderbook-storage-requirements and liquidity-weighted-price-over-time-solves-futarchy-manipulation-through-capital-commitment-not-vote-counting
• The high-fee design (3-5%) is intentionally dual-purpose: LP incentive + manipulation deterrent. This became high-fee-amms-create-lp-incentive-and-manipulation-deterrent-simultaneously-by-making-passive-provision-profitable-and-active-trading-expensive
• joebuild is the smart contract engineer who built the core AMM — later hired formally via metadao-hire-advaith-sekharan (different person, but same pattern of proposal → hire)

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Full Proposal Text

Overview

In the context of Futarchy, CLOBs have a couple of drawbacks:

1. Lack of liquidity
2. Somewhat susceptible to manipulation
3. Pass/fail market pairs cost 3.75 SOL in state rent, which cannot currently be recouped

Lack of liquidity: 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 the main reason for switching to AMMs.

Somewhat susceptible to manipulation: With CLOBs there is always a bid/ask spread, and someone with 1 $META can push the midpoint towards the current best bid/ask. Though this could be countered with a defensive for-profit bot, and as Proph3t puts it: this is a 1/n problem. Still, users can selectively crank the market of their choosing. Defending against this (cranking markets all the time) would be a bit costly. Similarly, VWAP can be manipulated by wash trading. An exponential moving average has the same drawbacks in this context as the existing linear-time system.

State rent costs: If we average 3-5 proposals per month, then annual costs for market creation is 135-225 SOL, or $11,475-$19,125 at current prices. AMMs cost almost nothing in state rent.

Solution

An AMM would solve all of the above problems and is a move towards simplicity. We can use the metric: liquidity-weighted price over time. The more liquidity that is on the books, the more weight the current price of the pass or fail market is given. Every time there is a swap, these metrics are updated/aggregated. By setting a high fee (3-5%) we can both: encourage LPs, and aggressively discourage wash-trading and manipulation.

These types of proposals would also require that the proposer lock-up some initial liquidity, and set the starting price for the pass/fail markets.

With this setup, liquidity would start low when the proposal is launched, someone would swap and move the AMM price to their preferred price, and then provide liquidity at that price since the fee incentives are high. Liquidity would increase over the duration of the proposal.

The current CLOB setup requires a minimum order size of 1 META, which is effectively a spam filter against manipulating the midpoint within a wide bid/ask spread. AMMs would not have this restriction, and META could be traded at any desired granularity.

What if a user wants to provide one-sided liquidity? The most recent passing proposal will create spot markets outside of the pass/fail markets. There will be an AMM, and there is no reason not to create a CLOB as well. Most motivations for providing one-sided liquidity can be satisfied by regular spot-markets, or by arbitraging between spot markets and pass/fail markets.

Switching to AMMs is not a perfect solution, but I do believe it is a major improvement over the current low-liquidity and somewhat noisy system that we have now.

Implementation

Program + Review:

• Write a basic AMM which tracks liquidity-weighted average price over its lifetime
• Incorporate the AMM into autocrat + conditional vault
• Get feedback to decide if the autocrat and conditional vault should be merged
• Feature to permissionlessly pause AMM swaps and send back positions once there is a verdict
• Feature to permissionlessly close the AMMs and return the state rent SOL once there are no positions
• Loosen time restrictions on when a proposal can be created after the markets are created
• If a proposal instruction does not work, revert to fail after X number of days

Ownership: joebuild writes program changes. Review by an expert in MetaDAO with availability. Frontend integration by 0xNallok.

Timeline: Estimate 3 weeks from passing proposal + additional week of review and minor changes.

Budget: 400 META on passing proposal + 800 META on completed migration.

Risks:

• Standard smart contract risk
• Adoption/available liquidity: similar to an orderbook, available liquidity will be decided by LPs. AMMs will incentivize LP'ing, though adoption within the DAO is not a certainty.

Feedback changes during vote: It was pointed out that there are ways to recoup openbook state rent costs, though it would require a migration of the current autocrat program.

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Raw Data

• Proposal account: CF9QUBS251FnNGZHLJ4WbB2CVRi5BtqJbCqMi47NX1PG
• Proposal number: 4
• DAO account: 7J5yieabpMoiN3LrdfJnRjQiXHgi7f47UuMnyMyR78yy
• Proposer: XXXvLz1B89UtcTsg2hT3cL9qUJi5PqEEBTHg57MfNkZ
• Autocrat version: 0.1
• Completed: 2024-01-29

Relationship to KB

• metadao — parent entity, core infrastructure
• amm-futarchy-reduces-state-rent-costs-by-99-percent-versus-clob-by-eliminating-orderbook-storage-requirements — the state rent problem this solves
• liquidity-weighted-price-over-time-solves-futarchy-manipulation-through-capital-commitment-not-vote-counting — the mechanism this introduces
• high-fee-amms-create-lp-incentive-and-manipulation-deterrent-simultaneously-by-making-passive-provision-profitable-and-active-trading-expensive — the dual-purpose fee design
• 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 — this proposal created the AMM that Autocrat uses