The goal of futarchy is to accept proposals that increase the value of the project.Unfortunately, you can’t just take prices at the end of the proposal because
those could be easily manipulated.So instead, we use time-weighted average prices (TWAPs).
TWAPs are lagged to mitigate the effects of manipulation
Normal TWAPs also have their flaws. For example, a Solana validator could
manipulate a TWAP by setting the price extremely high for a few slots.
If said validator controlled 1% of slots, they could force a proposal
through by 100xing the pass price during their slots.We deal with this by using a special form of TWAP we call a lagging price TWAP.
In a lagging price TWAP, the number that gets fed into the TWAP isn’t the raw price - it’s a number that tries to approximate the price but which can only move a certain amount per update.
We call the number that gets fed into the TWAP an observation.To take an example, imagine that a market’s initial observation is $500
and it can change at most $5 per minute. If market is currently trading
at $550, it will take 10 minutes before the last observation reflects
the price.
Thresholds make it slightly harder to pass proposals than to fail them
Futarchy is still new, and it seems prudent to bake in a threshold that makes
it harder for proposals to pass than to fail.So for a proposal to pass, its pass TWAP needs to be at least a threshold
percent above its fial price. By default, this threshold is set to 1.5%.
