Simple Summary
This proposal adds a futarchy requirement for any proposal that increases the supply of PNK.
Abstract
This proposal introduces a new constitutional safeguard for Kleros DAO to protect PNK token value. It requires that any proposal increasing, directly or indirectly, the PNK supply must demonstrate, through conditional prediction markets, that the expected PNK price if the proposal passes is not lower than if it is rejected. By integrating futarchy principles into governance, the DAO can better align decisions with economic outcomes, preventing harmful dilution and strengthening trust in the decision-making process.
Motivation
PNK is the core asset securing Kleros courts. Any proposal that increases its supply risks diluting holders and weakening Kleros’s economic security. While community voting determines legitimacy, it doesn’t always reveal the expected market impact of a proposal, especially in cases involving complex tradeoffs, long-term consequences, or unevenly distributed information.
Futarchy, governance informed by prediction markets, offers a powerful complement. It creates measurable, incentive-aligned forecasts of a proposal’s expected effect on token value. By requiring proposers to surface a market signal before execution, KIP-76 introduces a safeguard: no supply-expanding proposal can pass unless the market expects the PNK price to be at least as high if the proposal passes as it would be if the proposal is rejected. This protects holders from hidden dilution, encourages economically sound policymaking, and builds confidence in governance decisions by tying them to observable, stake-backed expectations.
Specification
This rule applies to any KIP that directly or indirectly increases the circulating supply of PNK (“Issuance KIPs”) (i.e.: KIP-66). Before such proposals can be executed, they must pass both the regular DAO vote, and a futarchy-based market test (the “Futarchy Test”).
The Futarchy Test must be deployed using Futarchy.fi and Seer (the “Designated Platforms”). If Futarchy.fi ceases to operate or becomes unavailable, the Futarchy Test requirement shall be suspended for as long as the platform is not functional. During this suspension, Issuance KIPs may proceed based solely on the standard governance voting process.
The Futarchy Test requirement shall automatically resume once the platform is operational and capable of supporting a compliant Futarchy Test. If the platform becomes operational again after the voting period for a Issuance KIP has already begun, that Issuance KIPs is not required to undergo the Futarchy Test.
To satisfy the Futarchy Test, two conditional trading pools must be created using the Designated Platforms. These pools allow trading of PNK against a reference asset (e.g., sDAI) conditional on the proposal passing or failing, rather than directly estimating outcome probabilities.
- A “pass pool” is created to reflect the market value of PNK if the proposal passes.
- A “fail pool” is created to reflect the market value of PNK if the proposal fails.
These conditional pools allow market participants to buy and sell PNK under the assumption of one outcome or the other, thereby surfacing conditional price signals used to evaluate the proposal. Here is an example of how it could work.
The prediction markets must meet the following requirements:
- Markes must use a generally accepted market pair asset (i.e. sDai or wETH).
- Markets must be opened with enough lead time and remain open for the entire duration of the voting period.
- Both conditional pools combined must contain at least $100,000 conditional USD equivalent in full-range liquidity, using the full price range supported by the AMM. This threshold is measured at the time the liquidity is provided. The liquidity must remain in the pools until the end of the voting period, even if its value fluctuates due to market activity.
The Futarchy Test is considered passed if the time-weighted average price (TWAP) of the “pass” (yes) outcome over the final 24 hours of the Issuance KIP’s voting period is greater than or equal to that of the “fail” (no) outcome. If not, the proposal fails the futarchy test, regardless of the Kleros DAO vote result.
Submission for execution in the Kleros Governor of a proposal that failed the Futarchy Test compliant with the above mentioned requirements is grounds for challenge. It must be interpreted as failing to meet the Governor Dispute Guidelines’ requirement that states that the proposal must be accepted to be executed.
This rule applies to all qualifying proposals submitted after KIP-76 is enacted. Proposals submitted earlier and existing PNK issuance schedules are not affected.
Issuance KIPs must include a clear reference to the conditional prediction markets created for its evaluation. For example, by including in the body of the proposal URLs to the markets interface.
For any Issuance KIP, the referred conditional prediction market that meets all established criteria shall be considered the official futarchy market for evaluating that proposal. Any subsequently created markets for the same proposal must be ignored for the purpose of the Futarchy Test.
Rationale
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Dual Test Requirement (Vote + Market): Traditional DAO voting may overlook economic impact, especially when information is unevenly distributed. Futarchy acts as a protection toward token holders such that they can never be diluted in a way which would adversely impact the PNK price.
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Conditional Market Design: Two markets (pass vs. fail) allow the DAO to compare expected outcomes. This structure follows standard futarchy logic and enables evaluation based on relative expected value rather than absolute price.
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Market Requirements: Liquidity, Timing, and Transparency: The rule avoids rigid technical parameters and instead requires that markets be created with:
- Sufficient lead time before voting starts,
- Enough liquidity to ensure reliable pricing, and
- Clear visibility, with links included in the proposal.
This ensures markets are accessible, informative, and difficult to manipulate.
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Market Evaluation Rule (Pass ≥ Fail): The proposal passes the Futarchy Test only if the market expects PNK to perform at least as well with the proposal as without it. This avoids approving proposals that are expected to destroy value while allowing neutral or modestly beneficial proposals to proceed.
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Governor Enforcement & Challenge Mechanism: If an Issuance KIP that fails the market test is submitted for execution, it can be challenged under the existing Governor process. This provides accountability using already trusted infrastructure, without requiring new enforcement mechanisms.
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Reference and Market Identification Rule: This ensures transparency, allows verification by voters and challengers.
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First-Market Rule: Only the first valid market that meets the Futarchy Test’s requirements is used for evaluation. This avoids confusion, and concentrates liquidity in a single market, strengthening the quality of the signal.