What happens when markets become computers?

In this edition:

• Markets as information systems: How prediction markets address “the knowledge problem”

• Designing good governance starts with how (and why) token governance works

• a16z cofounder Ben Horowitz on how crypto can help solve AI’s pressing challenges

• How to make time for creativity (and still get things done)

• Launching a blockchain task force, and other things states can do to advance crypto legislation

• More news and updates: the S&P’s crypto index, an institutional take on prediction markets, tokenized deposits, and more

TOP OF MIND

When markets become computers: The promise of prediction markets through Hayek’s ‘knowledge problem’

Chris Dixon

Decades before the global internet, economist Friedrich Hayek articulated what every systems builder eventually learns: Information is everywhere, but no one person can see it all. The tacit, unspoken knowledge embedded in people’s unique experiences can help us make better decisions; the problem is that no centralized planner can access it.

This “knowledge problem,” as it has become known, is about coordination, not computation. Even today, it can’t be solved by better computers or more data. The solution, as Hayek wrote in “The Use of Knowledge in Society” (1945), is decentralization.

Markets, in Hayek’s view, aren’t just for allocating resources; they’re information systems. Prices compress local knowledge into signals, align incentives, and create feedback loops that process dispersed information and help society navigate the future.

Prediction markets make this idea concrete, turning collective knowledge into prices that reflect probabilities. And their adoption is happening at exactly the right time: With trust in institutions reaching historic lows, these systems offer a new kind of credibility that’s built on openness and transparency.

As DeFi reimagines finance and stablecoins reimagine payments, prediction markets reimagine forecasting, with implications that extend well beyond finance: businesses, analysts, policymakers, and everyone else can use prediction markets to hedge risk, access real-time forecasts, and better prepare for the future.

Read more on our investment in Kalshi (also here) or see our explainer on prediction markets and why they matter.

GOOD GOVERNANCE

Which tokens should include governance rights?

Andrew Hall

Builders often struggle with when — and whether — to give governance rights to tokenholders. A useful starting point for addressing these is going back to the basics: what is governance meant to do, and what can governance help protocols achieve?

Ultimately not every project needs token voting. What matters is designing governance ...