What is a prediction market?
Prediction markets are sometimes called information markets, idea futures, event derivatives, decision markets, or virtual stock markets. In essence, a prediction market is a vehicle for aggregating information about the expected outcome of a future event. Participants receive a set of tokens reflecting each possible outcome and may then trade these with either other market participants, or a market maker. The current market price reflects the probability of the specific outcome to occur. The set of outcome tokens has to cover all possible outcomes so that the probability of all outcomes adds up to 100%. Once the event outcome is known, the winning outcome has a probability of 100% and therefore is worth 1 while all other losing outcomes have the probability of 0% and therefore are worth 0.
In short: At Gnosis, we strongly believe that prediction markets will be the next generation forecasting tool!
What makes prediction markets such a powerful tool?
Prediction markets have a great mechanism to incentivize participation and aggregate relevant information. Due to financial incentives, it pays off for participants with superior knowledge and beliefs to participate. New information will be incorporated quickly into an open market. The markets are impossible to manipulate unless the manipulator has more money than every other knowledgeable person combined, an unlikely scenario for most markets with a reasonable number of participants.
What are some of the use cases of prediction markets?
The range of use cases for prediction markets is huge. Ranging from information gathering (e.g. predicting climate change, gauging the price of a piece of art before the auction, or predicting epidemics), incentivizing a certain behavior, making governance decisions (futarchy, governing a DAO), to use cases for insurance and hedging instruments (e.g. flight insurance), we see numerous possibilities to apply this forecasting technology and believe that it will revolutionize current pricing mechanisms.
Applications stretch from “simple” markets to more complicated conditional markets. And this is exactly why we are building Gnosis as a platform—we could never think of and develop all possible use cases. However, we can provide all the information needed in order for you to build your own forecasting applications on top of the Gnosis platform.
What is the difference between categorical events and scalar events?
Events can either resolve to an outcome out of a defined list of outcomes (categorical events) or to a number within a defined range (scalar events). An example for a categorical event would be “Where will Amazon locate its next headquarters?” Outcomes: A) Phoenix, B) Chicago, or C) Austin. An example for a scalar event would be “What will Apple's stock price be at the end of Q4 2018?” The outcome is a scalar value, in this case a price in USD. Scalar events are represented with two outcome tokens. One outcome token for long positions [“the price will rise”], and one for short positions [“the price will fall”].
What is a collateral token?
The collateral token can be any ERC-20 token and defines the currency in which the event is traded. The collateral token used is defined by the market creator. It is always possible to redeem a full set of outcome tokens for one collateral token because all outcomes together always add up to a probability of 100%.
What are outcome tokens?
For every event outcome, an ERC-20 compatible outcome token is created. That means that every event contract will be associated with at least two outcome tokens. For a prediction market on a categorical event, such as "Where will Amazon locate its next headquarters?", the outcome tokens would be A) Phoenix, B) Chicago, C) Austin, or D) other. For a prediction market on a scalar event where the outcome is a scalar value, such as "What will Apple's stock price be at the end of Q4 2018?", the outcome tokens would be a short outcome token and a long outcome token.
What is an oracle?
To resolve an event, an event contract needs to get the information about what actually happened in the real world — who won the presidential election? What is Apple’s stock price at the end of the year? Oracles capture this real-world information and set the outcome for an event in the event contract. Gnosis is agnostic towards oracles and in principle allows use of any oracle. We will implement new oracles into the oracle interface as they are created by other teams.
What is a centralized oracle?
For some applications it will be fine to rely on a single data provider. In some cases, there simply is a single source of truth —e.g. a sensor measurement by a specific sensor, or data on who won the Nobel prize for medicine from a prespecified newsfeed. If those data are available in a structured format, only a signature of the issuer is necessary to make them smart contract compatible. This is what we call a centralized oracle.
What is a decentralized oracle?
Many proposals have been made for how to implement decentralized oracles. The common scheme is that the truth is a schelling point. Different decentralized oracle mechanisms usually set up various coordination games where participants are voting in an economically incentivized way. If they vote along with the majority, they gain some value, and if they vote against the majority, they lose value.
What is the Ultimate Oracle?
Within the Ultimate Oracle framework, anyone can make a claim that a specific event had a specific outcome by putting money on the line. Anyone can dispute this claim by putting more money on the line on an alternative outcome. The Ultimate Oracle will decide on an outcome if it continues to be the frontrunner (outcome with most money behind it) for a specific period of time (e.g. 24h). In this case, all funds that are put on losing outcomes will be distributed to those who put money on the winning outcome.
What is the Event Factory?
The event factory contract allows the creation of an event contract corresponding to a new prediction market. Every event contract needs to include the following pieces of information:
2. Outcome tokens
3. Collateral token
What is the Market Maker and what does it do?
To buy and sell event outcome tokens, the market contract calls a Market Maker, a bot which is pricing the outcomes given the current state of the market. An example: As part of this framework, Gnosis implemented an automated market maker based on the Logarithmic Market Scoring Rule (LMSR) developed by Robin Hanson. An LMSR market maker simply reacts to the supply and demand of outcomes — the prices of outcomes vary as their relative demands do. The more funding a market gets, the larger the trading volume would have to be in order to move the price.
Gnosis Platform Layers
The Core layer provides the foundational smart contracts for Gnosis use: Event token creation and settlement, a market mechanism, oracles, and a trading interface.
On top of the Gnosis Service layer (or in some cases, just Gnosis Core) is the Application Layer. These applications are primarily front-ends that target a particular prediction market use case and/or customer segment. While some of these applications may be built by Gnosis, most will be built by third parties. Our vision for Gnosis is to have a wide variety of prediction market applications built atop the same platform and liquidity pool.
Gnosis Service Layer
The service layer will offer additional services on top of Gnosis Core and will use a fee model. These services will comprise optimization tools like chatbots and stable coins.
Gnosis tokens (GNO) are ERC-20 compatible tokens that have the ability to generate OWL tokens. OWL tokens can only be created via activating the utility of GNO tokens. This is done via a smart contract system.
OWL tokens are ERC-20 compatible tokens that can be used to pay platform fees and fees for additional services on the service layer, subsidize the fees of other participants, and to provide initial subsidies for markets. The OWL token will be pegged to 1 USD. In this way, OWL acts as a coupon for 1 USD fee credit for use within Gnosis.
Gnosis Olympia, the alpha version of our prediction market platform, provides participants with a playful environment to try out trading in prediction markets and win GNO tokens as a reward for successful predictions. The more profits players make from correctly predicted events, the more GNO tokens they win. The first round of the tournament ran from December 18th, 2017 to January 5th, 2018. Stay tuned for additional rounds and check out our setup here.
The Gnosis Trading Interface allows users to trade in prediction markets. Users are able to buy and sell shares in prediction markets and navigate to their current holdings. Depending on whether they're predicting a categorical event or a scalar event, they'll be able to trade outcome or short/long tokens. Most parts of the interface have already been implemented, and we're hoping to launch it on the mainnet within the next couple of weeks.
Gnosis Safe comes in two editions: Enterprise and Personal.
- The Gnosis Safe Enterprise Edition is a standard multisignature wallet. It can hold Ether and other ERC-20 tokens, will support offline signing (cold wallets), and hardware wallets (ledger wallets). It will also support native mobile clients (Android, iOS) and a Chrome extension, allow users to configure both the owners and the number of required signatures as well as extend the Gnosis Safe with additional functionalities.
- The Gnosis Safe Personal Edition offers the same functionality but is geared towards single users using 2 or more factor authentication. The additional factors can be held by mobile devices (phones, tablets) and hardware ledgers.
Gnosis Dutch Exchange
The Dutch Exchange is a fully decentralized exchange for ERC-20 token pairings, based on the Dutch auction principle. Sellers submit their tokens ahead of an auction. Then, the auction starts with a high price which falls until the market for the specific token-pairing clears. Buyers submit their bids during the auction but pay the same final price. Hence, the dominant strategies of buyers to reveal their true willingness to pay will result in fair market prices, which, however, comes at the cost of slow trading.
The switch to an auction based trading mechanism is a real paradigm shift: It solves the front-running problem currently faced by decentralized exchanges and makes price finding on illiquid markets much more efficient, while retaining the low risk of fund loss that decentralization implies.
How can I build on Gnosis?
As a decentralized, permissionless platform, our goal is to make it as easy as possible for others to create prediction market applications on top of Gnosis. We are currently building a developer kit to make it as simple as possible to build your own use case application with Gnosis.
pm-js is an easy-to-use tool enabling website developers to build applications on top of Gnosis. pm-js integrates with redesigned, more modular smart contracts and TradingDB as only back-end.
Storage of data on a blockchain is very expensive. The blockchain should only be used to verify the accuracy of information. TradingDB is a generic database layer combining cheap storage with the advantage of fast document search and retrieval.
Gnosis X is a recurring developer competition designed to encourage developers to build dApps on Gnosis. Throughout the year, we will be announcing different categories for prediction market applications. The dApps should strive to aggregate relevant information and carry a clear value-add for the designated category. To maximize the reach of the dApp, it should be easy to use and have an appealing UI. The best application will be rewarded with GNO worth of $100.000. We highly encourage everyone interested in building on Gnosis to participate in Gnosis X. Throughout the entire program, we will offer dedicated developer support for participating teams. The first competition categories will be released early 2018.
Gnosis Y will be an ongoing challenge. It will pose fundamental questions on blockchain technology and prediction markets which are still unanswered. We expect these answers to benefit the ecosystem as a whole and will thus reward the winning contributions with large cash prices. More information and the first challenges will be announced early 2018.
Full Node is a workspace located in Berlin Kreuzberg. On a mission to ground and grow the emerging blockchain community with a physical space to work, the teams behind Gnosis and Cosmos have joined forces to create Full Node that will open in March 2018. It shall provide a base for members by the members of the blockchain ecosystem, facilitating close collaboration, experimentation, and innovation.
Visit Full Node
Gnosis Legal Footing
The Gnosis team and our advisors are resolutely pursuing strategies to bring the benefits of Gnosis and the information sharing economy to the world as quickly as possible. We are closely working with well-established law firms in various jurisdictions and seek legal clarity regarding the required approvals.