Crypto VC Paradigm Invests in MetaDAO as Prediction Markets Boom

MetaDAO, a governance experiment based in Solana, has raised millions of dollars from venture capitalists who believe prediction markets should determine efficiency outcomes.

Paradigm led the financing round for a months-long project that aims to establish governance structures based on market forces rather than votes.

Political bettors are betting hundreds of millions of dollars on expected outcomes in cryptocurrency-powered prediction markets: for example, who Vice President Kamala Harris will pick as vice president.

MetaDAO takes this idea even further: The Solana-based governance experiment has raised millions of dollars from venture capitalists who think prediction markets should determine outcomes.

Venture capital giant Paradigm recently led a $2.2 million funding round in MetaDAO, a months-long project that builds governance structures based on market forces rather than votes. This structure is called futarchy. Proponents believe that market participants are guided to make better choices than, say, politicians.

The round comes as the 2024 elections shine a spotlight on crypto’s incredibly popular prediction markets. Market leader Polymarket currently has about $90 million in open interest, a record for contracts that ask bettors to predict the outcomes of world events like political upheavals, according to data site Dune.

The noise around prediction markets gave MetaDAO an advantage in raising funds, MetaDAO’s pseudonymous founder Proph3t told CoinDesk in an interview. He emphasized the similarities in his pitch to investors: “If we view the polymarket as a machine, it made sense that we would want to use a reality machine to make decisions.”

Paradigm was founded by Fred Ehrsham, co-founder of cryptocurrency exchange Coinbase. The company has been a vocal supporter of prediction markets, for example, as a way for businesses to hedge against political risk.

According to MetaDAO pseudonymous founder Proph3t, Paradigm will hold 3,035 tokens, representing 14.6% of the total supply, making it the largest single holder of META. Approximately 30 angel investors purchased an additional 965 META tokens for a total raise of $2,229,950.

Futarchy in action

MetaDAO’s futarki depiction focuses on the value of its token, META. Any bid the group makes will receive a “pass” and a “fail” market where investors can speculate on META. The outcome of the bid depends on which of these markets ends with a higher token price. A bid will only pass if META is more valuable in the “pass” market than the “fail” market.

Last month, MetaDAO’s chief “futards” (known by their nicknames Nallok and Proph3t) proposed that the project sell several million dollars worth of META tokens to cover engineers, office space, and other start-up costs. META traders agreed: they bid up to $435 for META on the “pass” market, while contracts on the “fail” market were at $386. The offer was accepted; fundraising continued.

The story continues

MetaDAO has a different governance approach than other self-proclaimed “decentralized autonomous organizations” (DAOs) in crypto. Most DAOs view their tokens as votes and token holders as voters. On MetaDAO, anyone with money to spend can directly influence an outcome.

The project gained significant traction in the Solana ecosystem at the mtnDAO hacker house meetup in Salt Lake City in February. It has since become an active evangelist for futarchy. MetaDAO is working with a handful of Solana-based projects to implement their own betting market-based systems.

One of these partners, trading platform Drift, uses MetaDAO technology to determine which projects will receive grants of the DRIFT token. Co-founder Cindy Leow told CoinDesk that the app is “showing really positive signs,” with one proposal being accepted and another being rejected.

“This shows that our community is thinking very carefully about spending and administrative budgeting,” he said.