Drawbacks

But of course, futarchy isn't perfect. These are some potential pitfalls with the approach.

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Sometimes, investors buy what they think others will buy, not what they think the fundamentals support. The GameStop short squeeze is an example of this, and many more can be found in crypto.

A potential solution to this is to use whitelisted markets. Investors would apply to be a part of futarchic markets, demonstrating that they have traded based on fundamentals in the past.

Conditional Markets are Zero-Sum

Futarchy uses conditional markets, which are zero-sum: any gain you have in the market is someone else's loss. Since intelligent market participants don't engage in zero-sum games, this will constrict liquidity and participation in futarchic markets.

You may be able to resolve this by providing an incentive to trade or provide liquidity in the markets. Because the futarchy creates positive externalities (good decisions), this incentive can be sustainable.

Scalability

Futarchy is good for big decisions like whether to fire the CEO, but not as good for smaller decisions like whether to fire a division leader because those actions are usually too inconsequential to reflect in the share price.

A solution to this problem is described in MetaDAO's whitepaper.