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Governance Betting
How SX is building the governance system of the future
Public blockchains face challenges such as stakeholder alignment, funding, and upgradability due to their decentralized and open-source nature. The informal off-chain governance systems of open-source software arenβt well suited to manage this because of the large economic stakes that are involved and the coordination problems inherent in a decentralized network.
SX Network has unique solution to the age old problem of governance: the free market.
By utilizing the native SX prediction market to create one of the worldβs first market-based governance systems (also known as Futarchy). This involves using a token voting system to determine objectives, and then using a prediction market to determine the optimal policy for achieving that objective.
By doing so, it prevents governance systems from political capture and replaces it with an objective, market-based system in which bettors with real skin-in-the-game, rather than politicians, make decisions. We will be publishing more research in the following weeks on our governance design.Market action decides whether a proposal passes or not. If it doesnβt pass, bets are void. If it does pass, bettors that bet on it win their bets if the settlement rule is achieved by the expiration date, and vice versa.
SX Network is unique in that itβs being built with a native prediction market protocol integrated into the chain. This makes SX Network uniquely positioned to utilize prediction markets for governance decisions (also known as Futarchy). This involves using a voting system to determine objectives and values, while using a prediction market` to determine the optimal policy for achieving the objective.
Utilizing market-based governance on SX Network involves creating a proposal that had an objective desired outcome that can be measured explicitly with a data feed. The objective, for example, could be the trading volume of SX on a basket of trusted decentralized exchanges. A prediction market would thus be formed in which holders of staked SX would wager their tokens on whether the proposed policy would best achieve the desired outcome.
If the market price of the YES market surpassed the NO market, then the proposed policy would be implemented and funded. Bettors on this market would thereafter have their tokens locked up until the expiration date of the policy. At that point, the data feed would indicate whether the desired outcome was achieved with YES bettors winning the stake of NO bettors in the event it did, and vice versa.
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