Decision markets dissolve the principal-agent problem in fund management rather than merely mitigating it. In traditional funds, LPs are principals who delegate to GP agents with asymmetric information, divergent fee incentives, career concerns, and different time horizons — the entire apparatus of fund governance (LPAC, key person clauses, clawbacks, reporting covenants) exists to contain this misalignment and never fully succeeds. Decision markets eliminate the agent: every participant who wants to influence capital allocation must trade, becoming a principal with skin in the game. The market itself is the mechanism, not an agent with its own interests. This is the revelation principle at work — an incentive-compatible mechanism where truthful preference revelation through capital commitment is the dominant strategy. Cheap talk is worthless; position-taking is costly; information gets priced.

The principal-agent problem is the central governance challenge of fund management. Jensen and Meckling (1976) formalized it: when one party (the agent/GP) acts on behalf of another (the principal/LP), the agent's interests diverge from the principal's interests, and the information asymmetry between them makes monitoring costly and incomplete. Traditional fund governance deploys an entire apparatus to contain this — Limited Partner Advisory Committees, key person clauses, clawback provisions, reporting covenants, high-water marks, preferred returns — and the apparatus never fully succeeds because the GP always knows more about the portfolio than the LP does. Decision markets take a fundamentally different approach: instead of constraining a powerful agent, eliminate the agent role entirely. In a futarchy-governed fund, every participant who wants to influence capital allocation must trade conditional tokens — committing capital to express conviction. This converts the principal-agent relationship into a market of principals. The revelation principle (Myerson 1979) provides the theoretical foundation: an incentive-compatible mechanism where truthful preference revelation through costly position-taking is the dominant strategy. Cheap talk is economically worthless; only capital commitment carries information. The mechanism designer (LivingIP/Teleo) retains structural power over rules and parameters — this is a real residual agency problem, but it is transparent, auditable, and governed rather than hidden in GP discretion.