The decentralized prediction market Gnosis is one of the latest products coming out of the development studio, ConsenSys. The ten-minute presentation by the Gnosis team laid out the power and fascination of this new economic tool.
Their presentation on the third day of Devcon2 focused on how we incentivize action, predict information through precise contracts, and use decisions made by prediction markets as government mechanisms.
The principal mechanism of Gnosis is that it allows users to store any type of collateral token, like Ether, Bitcoin or stablecoins in a contract. The contract then creates tokens for different types of future outcomes from the event. An oracle, a smart contract service that allows for easier communication between blockchains when you are unable and or unwilling to fetch data on your own, will ping the contract and set it in a way that determines which of the outcomes is correct. The collateral tokens stored in the contract then flow to the outcome token and can be exchanged.
This simple mechanism allows for a vast variety of applications in practice. In its principal form as a prediction market, it allows users to buy and sell information privately. Markets are created for certain outcomes in which “prices are discovered”. Anyone who agrees or disagrees with an outcome has a direct incentive to trade against the outcome by purchasing opposing tokens. By doing so, they either speculate or reveal private information to the market, changing its outcome. Eventually, every market converges towards one token as the outcome is revealed.
Gnosis also allows users to generate action incentives by creating a market for something we want to occur. For example, imagine the creation of a market to clean an oil spill or change a controversial government policy. Collateral will flow into one outcome token until the event takes place and monetary incentives become too significant.
Finally, Gnosis’ project Futarchy could provide a framework for decentralized governance by leveraging the impact of prediction markets to guide decision-making processes in a Decentralized Autonomous Organization (DAO). This could be achieved by providing a continuous market for a DAO, maximizing its token value for example, or building prediction markets on the outcomes of proposals submitted by its users.
The Gnosis roadmap includes a specific focus on data generation and experimentation with the platform. Gnosis will fascinate users for years to come and could generate entirely new economic mechanisms. The team finished with “Could we challenge Google’s Alpha Go as a collective market by betting on the moves with the highest chance of winning, beating AI as a collective?” Interesting question, indeed.