Mara McCann in Conversation with Matt Liston, Strategist at Gnosis.
What is Gnosis?
Gnosis is a decentralized prediction market and oracle market platform built on Ethereum protocols. It allows anyone anywhere to make predictions on events. In addition to the prediction market, it offers an oracle market place service, which allows for resolutions of prediction markets and, any decentralized application, to find a specialized oracle for what they’re doing. Their focus is on being a platform for custom applications, and are building tools that make creating a custom prediction markets application as easy as creating a Facebook page.
Matt Liston, Strategist, Gnosis
Matt dove into the crypto currency space in 2013 after becoming fascinated by the potential for smart contracts and block chains to revolutionize information economies. Currently he works on strategy and communications for Gnosis. Prior to joining ConsenSys Matt founded Augur, consulted for EthDev, and designed an IoT block chain solution for Enlighted. When not DAO-whispering he composes algorithmic music and dreams of a future Skynet-on-a-blockchain.
McCann: Gnosis is a prediction markets platform, how do you see it being able to affect our current economy?
Liston: In terms of effecting the current economy, a long term grand vision, is based on that current financial markets are very inefficient, due to the fact that one, there currently isn’t good continuous data on company fundamentals, and two, traders don’t know exactly how specific fundamentals will influence stock price. So you can use prediction markets to create on those fundamentals things like, “how many iPhones will Apple sell in this quarter?” and you can get continuous updated information on that. You can also create markets asking, “If the iPhone sales are above a certain amount, what’s the effect on stock price going to be?” So, using those mechanisms, hopefully, we can enable more efficient financial markets. That’s one big probable use case for the scale of prediction markets.
On another note, in the very long term, I think that the next 100 years, 80 percent plus of economic activity am going to be artificial intelligence, and machine sensors doing information arbitrage. That will revolutionize everything. As the capitalistic model is going to have to adapt to that and all interactions are going to change. I see that prediction markets are the best avenues to conduct these types of information sales.
McCann: You mentioned that Gnosis could be used for sports betting, gambling, as well as in political predictions. How could Gnosis have worked during Brexit?
Liston: The way Futarchy works is, rather than having a vote to make a decision, you have markets to make the decision. And the market is going to give you an estimate on if we make or do not make the decision, what’s the outcome of some metric that we’re trying to optimize going to be?
In the case of Brexit, a pretty understandable metric is the value of the pound, so, two markets would have been created, one would have asked, “if we exit the EU, what’s the value of the pound going to be in 6 months?” and the other would ask the opposite- if we don’t exit the EU, what’s the value of the pound going to be in 6 months?” So, it’s very likely that the market would have realized, well, the pound is going to tank if we do this, and the Brexit would have never happened. Or in the alternate case, maybe the market would have estimated that the Brexit would have a better effect on the pound, and those traders would have lost a ton of money on that prediction. That’s presumable of course, because the 6 months haven’t concluded yet, but it’s definitely looking like it’s going to be very down. It shows you how if governance was something at stake, that it’s not just a simple, one vote one weight, it’s actually put your money where your mouth is. We think this will lead to more intelligent and effective decision-making.
We also plan to use a Futarchy mechanism for governance within our Gnosis entity, and I expect that to be very interesting.
McCann: How do use a Futarchy prediction market working now in the US with the Trump- Hilary election?
Liston: (laughs) I guess this isn’t a futarchy- but more of a joke- like, “if Trump is elected, what’s the chance we’re going to go into nuclear war?” and no one wants that. Most likely it would be just “if, Trump is elected what is our gross domestic product going to be in the next 4 years versus Hilary?” I would say that most financial institutions and more educated individuals realize that Hilary would probably have the higher outcome on our economy and similarly to the Brexit situation the decision would be made corresponding to that expectation.
McCann: Other people might comment and say, well, is there a way to swing that? If a mass of people is betting one way, can you swing a vote? For example, what happened in 2012 with Mitt Romney and the “Romney Whale”, where one trader dumped in 4 million of his own money to try to influence the outcome.
Liston: In the Mitt Romney example, it’s not a futarchy example- they realized that voters sometimes flock around other voters, and if the voters see a poll saying that Mitt Romney is going to win, then more people will follow that. Similarly with prediction markets. So, a lot of news sources were looking to prediction markets for predictions of the outcome and one trader used a few million dollars to buy positions in the prediction markets to make it look more likely that their candidate, Romney would win. However, the big thing is in prediction markets, if you do that, you’re making a losing bet, because the market already has a good estimate of the probability of what’s going to occur, and you’re not betting on insight, you just want to change the market value.
McCann: So ultimately, we can trust the market?
McCann: Do you see other countries adopting this type of prediction market before the US?
Liston: Yes, if we’re talking about Futarchy, first of all, it’s going to be a tough sell to get nation-states to adopt it, I think it’s more likely that, definitely DAO’s, start up organizations, eventually corporations, could adopt this. That said, if we were talking about nation state adoption, I would expect a country like Singapore to take more interest in it. As well as entities that are going towards a corporation state, because in that case using a market to optimize doesn’t seem like that much of a stretch. I would expect the US to need basically a reformation of the entire government for anything like that to occur.
On other cases, I expect some candidates could say we’re going to proxy a futarchy market. So we’re just going to vote along with the market, and that could be an interesting publicity stunt, but it won’t have an impactful long-term effect.
McCann: Along with other possibilities that Gnosis provides for prediction markets like sports betting, and gambling, what country do you see being first users?
Liston: Right now, anywhere except the US. The top three would be- Asian markets and in particular the Chinese market partially because it’s the largest in the world, and partially because of the legality situation. It’s illegal for Chinese citizens to use it, but widely used, so pretty much ok for a Westerner to offer the services. So that makes it an enticing first target market with those combination of factors. That said, it’s also very easy to license in the EU, and offer services to the EU. Third, is Latin America because of the interest in futbol, and it’s also a somewhat unregulated market.
McCann: This is opening a whole new world of making income, and making a living- do you see that a person could use prediction markets as a source of full time livelihood?
Liston: Yes, you can- by running markets. I see a few classes of participants, turning this into a job. One is market-creators; they essentially will get fee revenue, depending on the volume of the market. The other is Oracle providers, so someone saying I can settle these events for you, and I’ll do it for a fee. Then the other, is just traders on the market- they might be using complicated machine learning models or maybe they’re just super geniuses on a particular subject and they know they’re effective at predicting events, and so they make money off that. Then on a higher level, we expect many parties to want to build applications on top of this, and those can turn into independent companies.
Want to learn more about prediction markets or ask questions about Gnosis and how to use the software? You can join Gnosis on Slack: slack.gnosis.pm.