Token Sale

Gnosis: A platform for prediction markets

The problem of how to incentivise people to truthfully share what they know is a complex one. Collaborative information sharing is hard to initiate and even more difficult to sustain. One possible mechanism to inspire this kind of collaboration is a prediction market, which gamifies information sharing and rewards participants for contributing their opinions. Prediction markets have a diverse set of real world applications that range from sports betting to political polling, financial forecasting to risk assessment. Gnosis aims to facilitate information sharing by launching a platform for prediction markets on Ethereum.

Project Description

Prediction markets theoretically have incredible potential as a tool for aggregating diffuse information. Gnosis is providing a platform for the creation of prediction markets–a smart contract ecosystem that pays out rewards to users who successfully predict the outcome of a given event. Gnosis prediction markets work like this:

  • A statement is posed, such as “The price of Bitcoin will reach $2,000 USD by the end of 2017”.
  • A user buys a position in either the “yes” or the “no” side of the market.
  • When the market resolves–in this case, either when the price of BTC reaches $2,000 or at the end of 2017–the user receives a payout if their prediction was correct.
  • Winning shares are redeemable for $1 each. Losing shares become worthless.

Participants in a prediction market like the one above have skin in the game. They are only incentivized to participate if they believe that they have superior knowledge about the question they are weighing in on. This makes prediction markets a more reliable way of aggregating knowledge than a poll or a survey, where nothing is at stake.

Ask Me Anything

The first Dapp that Gnosis will launch on its platform is Ask Me Anything (AMA). The AMA dapp will support not only binary yes/no questions like the one above but also multiple choice questions and questions that require a numerical value input.  The AMA dapp will have a twitter integration that allows users to buy shares in a prediction market by replying to tweets (an active Uport identity is required).

What is the token being sold?

The object of the token sale is the Gnosis token (GNO). The GNO token’s only purpose on the platform is to generate Wisdom tokens (WIZ). WIZ tokens are redeemable for $1 worth of fees on the network. They essentially work as a coupon to pay fees, but they aren’t the sole means of paying fees on the network. The Gnosis platform will also accept payments in Ether and Bitcoin.

Users generate WIZ by locking a certain portion of their GNO tokens in a smart contract for a specified period of time. The longer the period and the greater the number of GNO tokens, the more WIZ tokens the user earns. When the GNO tokens are locked, 30 percent of the WIZ tokens are distributed to the user immediately. The remaining 70 percent are vested out over the duration of the smart contract’s life.

Token distribution

The token distribution will be determined by the mechanism of the Gnosis token sale. Gnosis is breaking from convention with the design of their token sale by adopting a system known as a reverse dutch auction. Rather than using bonuses that gradually decrease over the course of the sale, incentivising early participation, Gnosis developed a sale mechanism which provides no special benefits for participating early.

Here are some of the basic parameters of the Gnosis token sale:

  • A maximum of 10 million GNO will be created
  • 1 million GNO will be reserved for the development team
  • The sale will end when 9 million GNO are sold OR when $12.5 million is raised
  • At sale’s start the price of GNO will be $30
  • Every block, the price of GNO will fall
  • When the sale ends, every user will pay the last price for GNO, regardless of when they participated.

The decreasing price of GNO will incentivize participants to contribute when the price reaches the level that they believe is its true value. A participant who contributes early on is signaling that they believe GNO is worth more than a participant who waits to contribute when the price is lower. However, everyone will pay the same price per GNO as the very last contributor.

Pivot Funding Scenario

The sale ends when $12.5 is reached simultaneously as the last GNO token is sold. The price of GNO at this moment is $1.38. As a result, 9 million GNO are distributed to the token sale participants and 1 million is distributed to the development team.

This pivot scenario represents a hinge that the distribution of GNO turns on. If the sale ends before the price drops to $1.38, that means not all 9 million available GNO tokens will be sold off (scenario A below). Unsold GNO tokens are distributed to the GNO LTD. If the sale ends with the price of GNO below $1.38, then all 9 million GNO tokens will be distributed to participants, but the the proceeds of the token sale will be lower (scenario B below).

Funding Scenario A

$12.5 million is raised when the price of GNO is $5, triggering the end of the sale. This means that 1 GNO will be distributed for every $5 worth of contributions, resulting in a total token sale distribution of 2.5 million GNO. 1 million GNO will go to the development team. The remaining 6.5 million GNO will be distributed to the Gnosis LTD.

 

Funding Scenario B

The sale ends when 9 million GNO are sold. The final price is $0.05. One GNO is distributed for every $0.05 contributed, meaning that the token sale raises a total of $450,000.

 

The reverse dutch auction has several advantages. First, it will provide useful information about the value of the GNO token. Second, everyone who participates will pay the same price for the token, regardless of when they contribute. Third, the decreasing price of GNO should discourage whales from buying up large portions of GNO right out the gate, giving more people a chance to participate. Finally, since everyone who participates pays the last price of GNO, there’s less need to worry about Ether changing price during the course of the sale.

There has been some concern that an outcome like scenario A will lead to a centralized distribution of GNO tokens, with the Gnosis LTD controlling a majority share. However, since the GNO tokens don’t confer any special privileges on the network, like voting rights or block creation rights, and since fees and payments can all be made in Ether, this is less problematic than it could be. Additionally, the Gnosis LTD has pledged to use any share of GNO tokens in excess of 1 million to support developers who want to build on the network.

What is the project status?

The Gnosis project has been under development since 2015 and the underlying smart contracts, the general web interface, and the Gnosis.js library are already completed. According to the Gnosis whitepaper, several integrations with other projects such as  Uport, MetaMask and RealityKeys have been tested. Gnosis has also developed a multisig wallet that is being used by several other projects such as Golem.

The Gnosis AMA dapp will be fully operational by the end of 2017. Gnosis is currently running a beta prediction market  on the question “Will Gnosis AMA Dapp with twitter integration be delivered by the fourth quarter of 2017?”. At the time of writing, 80% of the market is predicting that yes, it will.

Competition and Challenges?

Augur

The most obvious source of competition for Gnosis is the prediction market Augur. In the short run, Augur and Gnosis are nearly direct competitors. However, Gnosis’ focus on being a platform for the creation of dapps will mean that Gnosis could eventually offer products and services that Augur does not. Augur and Gnosis also differ in several important ways.

  • Augur uses their REP tokens to stake to Oracles as away of ensuring that prediction markets can’t be gamed. Gnosis uses a combination of on chain oracles, centralized off-chain oracles, and decentralized off-chain oracles to resolve prediction markets. This gives Dapp developers a lot of flexibility in choosing how to resolve prediction markets.
  • Augur’s token holding requirements could represent a higher barrier of entry into the platform than Gnosis, which doesn’t require token holdings to participate fully on the network.
  • Gnosis will use state channels to achieve higher levels of scalability than can be achieved by resolving 100% of transactions on chain.

Ultimately, the value of Augur and Gnosis will be determined by which network can generate the most useful, actionable data.

Price volatility

Prediction markets built on volatile cryptocurrencies are bound to produce skewed data. Participants are going to make their decisions not only their relevant knowledge relating to the question at hand, but also on their speculative beliefs about the future price of their token holdings.

A stable coin built on the Ethereum network is needed to solve this problem. Fortunately, gold-backed tokens such as DGX and the multi-currency-backed DAI are currently being developed.

Regulation

The Gnosis platform itself isn’t at any particular risk of being regulated. However, many of the most useful applications that could be built on Gnosis are. Sports betting or gambling applications will be subject to regulation as will insurance applications and financial market applications.

Gnosis has set aside 7.5% of its operating budget to deal with potential legal challenges and to help Dapp developers navigate uncertain regulatory environments.

Who is the team behind the project?

Advisors

Gnosis is advised by an impressive cohort of blockchain innovators. Joe Lubin, an early supporter of the Gnosis project and the founder of ConsenSys, partnered with the Gnosis team to make it the first “spoke” in the ConsenSys ecosystem of Ethereum dapps. Indeed, two members of the ConsenSys executive team will serve as members on the Gnosis Board of Directors and one more is serving as a general advisor. Founder of Ethereum, Vitalik Buterin is also serving as an advisor and has supported the implementation of a reverse dutch auction design for the token sale.

Gnosis Team

The Gnosis team consists of 10 full time members, 5 of whom are developers. They hope to expand to 15 full time members by the end of the year. They would like to hire UI/UX designers and business development experts.

  • Co-founder and CEO Martin Koppelmann is the creator of the Bitcoin prediction market Fairlay.
  • Co-founder and CTO Stefan George leads development and the architectural design of Gnosis. He has developed a number of games and apps. Details can be found on his personal website.
  • Chief Strategist Matt Liston was a Co-Founder and CEO of the competing Augur project, then known as Dyffy.

Token Details

Role of token:      GNO generates WIZ which can be used to pay fees on the network
Token supply:      10 million
Distributed in ICO:
     Depends on token sale outcome
Emission rate:      No new coins created
Blockchain:      Ethereum

ICO Details

Sale period:      Begins April 24th, 2017
Token distribution date:      At the end of the sale
Minimum investment goal:
     None
Maximum investment cap:      $12.5 million
How are funds held:      Multisignature contract
Mainnet release date:      End of 2017

Official Resources

1 Comment

April 22, 2017 at 4:15 am, Kevin W. said:

Great work on breaking down Gnosis and its ICO. Thank you!

There’s also another upcoming ICO of an interesting project that I wish to see around here – VIVA (vivaco.in). As usual, a study from Smith + Crown is always valuable.

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