What Is Gnosis (GNO)? | A Guide to the Prediction Market Platform

By Steven Butchko

Gnosis is a prediction market platform built as a decentralized application (dapp) on the Ethereumnetwork. The platform includes a multisig wallet as well as a Dutch Exchange, but we’re just going to focus on their flagship product, the prediction market, for this guide. More than just building a prediction market, though, Gnosis is creating an entire infrastructure layer that you can use to build your own prediction market app.

In this Gnosis guide, we’ll take a look at:

  • How Does Gnosis Work?
  • Gnosis Architecture
  • Gnosis Team & Progress
  • Trading
  • Where to Buy GNO
  • Where to Store GNO
  • Conclusion
  • Additional Gnosis Resources
How Does Gnosis Work?

To describe how Gnosis works, we first need to outline what exactly a prediction market is and why they’re valuable.

A prediction market utilizes user predictions to aggregate information about future events. Users in the market trade tokens that represent the outcome of a certain event. Because some outcomes are more likely to occur than others, these tokens end up having different values in the open market.

As time passes or related events unfold, some token outcomes may become more likely to happen thus increasing their value. Once the event occurs, the tokens representing the final outcome receive full value while the rest of the tokens become worth nothing.

A user registers an event question on the prediction market, “Where will Amazon locate its new headquarters?” She includes the answer options: Chicago, Atlanta, Austin, New York, and Other. Othermust be included to ensure that the probability of all answers adds up to 100 percent. If she didn’t include Other, there would’ve been a possibility that none of the answers end up being correct.

When the market opens, Other tokens probably fetch the highest price because it’s incredibly likely that one of the hundreds of other cities will get the bid over the four specific options. However, as cities get eliminated, the prediction market prices will adjust accordingly.

Say Amazon announces a final four city selection: Chicago, Atlanta, Los Angeles, and Boston. The prices for the Austin and New York tokens will almost immediately drop to zero as people rush to sell their worthless tokens. If the news is well-known, most holders won’t even be able to find a buyer.

gnosis interface
Gnosis Prediction Market Examples

Now, the prices even out to reflect the announcement news. The price of an Other token should be about twice that of the Chicago and Atlanta tokens. However, this may not be the case. The community may believe that, even with the announcement, Chicago has by far the best chance of being chosen. Therefore, the Chicago token may have a higher price than the Other token even though it’s one city against two.

Finally, Amazon announces that they’ll be setting up shop in Chicago. The prediction market closes and Chicago token holders can claim their reward.

There are two ways to make money in a prediction market. The obvious way is to correctly predict the outcome of events. Less obviously, you can trade outcome tokens for a profit as the market conditions change.

The Value of Prediction Markets

Prediction markets take advantage of the “wisdom of the crowd” – a phenomenon in which the collective predictions of a group of people is usually more accurate than that of an individual, even if they’re an expert.

There’s no end to the types of scenarios that prediction markets help to…predict. They’re useful in gathering information for topics like climate change, epidemics, and price forecasting. You can also use them for different governance models to determine policies that will have the most positive effect on the entire population. And, they’re valuable for insurance purposes to help hedge risks.

The financial sector has also found prediction markets to be useful in probabilistically determining the future prices of assets.

Gnosis Olympia + Management Interface

Olympia is Gnosis’s test version of their prediction market app. At one point, they were hosting free tournaments in this product, so you got a chance to try it out without having to spend money. Every two days, the team would allocate you a certain amount of Olympia (OLY) tokens that you could use to bet on different prediction markets. If you did well in the market, you won Gnosis (GNO) tokens. You could then sell GNO on the open market, giving them some monetary value.

Note: It looks as if the Gnosis team has since pulled Olympia out of the market. It’s unclear when it’ll return.

The next phase of Gnosis is its Management Interface. The team released a beta version in December 2017 but haven’t announced a date for the main net release. The Management Interface is basically your dashboard for Gnosis’s prediction markets. It’s here that you check your balance, participate in markets, and even create your own market.

Since the Apollo (version 1.0 of the prediction market protocol) launch in May 2018, the Gnosis team has seemingly switched their focus towards the Gnosis Safe. The Safe is effectively a cryptocurrency wallet and browser to interact with Ethereum dapps.

This article by Steven Butchko was originally published at CoinCentral.com.

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