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DAO Integration Guide

This page explains how a DAO can set up futarchy evaluation in practice.
It covers liquidity, oracle setup, thresholds, governance hooks, and pilot timelines.

Liquidity

Default pilot size: ~$100k of protocol-owned liquidity (e.g. 50/50 TOKEN–stable).
- At this depth, a $500 trade moves price ~2%.
- Ensures informed traders can shift prices, but prevents cheap manipulation.
- The DAO earns LP fees back on its own liquidity.

Flexibility:
- Milestone markets can use less liquidity (e.g. $25–50k).
- Concentrated liquidity (v3-style) or weighted pools can reduce capital requirements.

Oracle Setup

Futarchy requires a way to determine which market (YES or NO) should pay out:

  • Default: Reality.eth + Kleros arbitration to attest to whether the proposal was approved or rejected according to the DAO’s governance process. See Custody and Oracles for the underlying contracts and resolution flow.
  • FAO mode (Futarchy Autonomous Optimizer): In fully autonomous futarchies, the Futarchy Oracle contract compares TWAP(YES) vs TWAP(NO) over the decision window. The oracle result directly triggers execution. For how this ties into proposal sequencing, see the Proposal Lifecycle.

Decision Window

  • Default: 7 days.
  • Shorter: 3 days for fast-moving proposals (higher risk of thin markets).
  • Longer: 14–21 days for high-stakes proposals.

During the window, prices are continuously tracked, and the oracle computes a time-weighted average (TWAP) to prevent last-minute manipulation.

Thresholds

  • Default: 1% difference between YES and NO (YES > NO + 1%).
  • Critical proposals: Require higher thresholds (e.g. 5–10%).
  • Sponsored futarchy: Threshold may scale with sponsorship size, ensuring bigger proposals need stronger market support. (This scaling is a governance rule defined by the DAO or FAO, not enforced implicitly by the protocol.)

Liquidity Management

Funding source: Liquidity can come from the DAO treasury or external sponsors.

Multisig custody:
We recommend a 2-of-3 multisig to hold funds allocated to futarchy markets.
- Signers: typically 2 DAO representatives + 1 neutral technical co-signer (e.g. Futarchy.FI operators or another trusted infrastructure provider). - Why 2/3: lightweight enough for quick operations (creating/redeeming conditional pools), but still secure.

Lifecycle:
1. DAO approves a proposal committing funds for futarchy liquidity.
2. Funds are moved to the multisig.
3. The multisig creates positions in YES/NO pools for proposals (and optionally milestones).
4. After resolution, funds are redeemed and returned to the DAO treasury (minus IL, plus any LP fees earned).

Allocation of Liquidity

  • DAO Proposal: The DAO decides how much liquidity to allocate (e.g. $100k).
  • Multisig Execution: The multisig chooses which proposals/milestones to seed liquidity for, following the DAO’s guidance.
  • Example: “DAO commits $100k to futarchy. Multisig will allocate to proposals that have cleared the futarchy slot auction.”
  • Milestones: If milestones are funded, the DAO should pre-approve which ones are eligible.

Governance Hooks

DAOs can decide how to use futarchy recommendations:

  • Advisory (recommended default) — futarchy evaluation runs on proposals and the results are shown alongside Snapshot/on-chain votes, guiding delegates.
  • Veto — proposals must pass futarchy evaluation before advancing to a vote or execution, with outcome attested via Reality.eth + Kleros.
  • Autonomous (FAO, Futarchy Autonomous Optimizer) — the Futarchy Oracle result triggers automatic execution on-chain.

Important: The oracle does not publish thresholds. It only publishes the binary outcome (YES/NO) or whether a proposal passed the required threshold, via Reality.eth + Kleros. The futarchy evaluation process performs the threshold check.