The Gnosis prediction market and the paradox of decentralisation.
The case of Betfair, the world's leading betting exchange, challenged the oft held notion that sufficiently attractive new trading systems will always be capable of attracting trading volume away from established incumbent systems.
Betfair was deemed by many traditional punters to be too complex; it became bogged down in a regulatory quagmire across the globe and it suffered from an absence of liquidity in many key betting markets, such as tennis. Accordingly, Betfair was forced to introduce fixed odds betting and to merge with a fixed odds betting company, the very type of institution that it had once threatened to destroy. In a nutshell, the dominant and historic liquidity advantage of the incumbent betting companies successfully nipped in the bud the challenge from what most people saw as being a unique and superior electronic trading system.
In its recent initial coin offering, Gnosis, a company that has the stated aim of creating decentralized prediction market applications on the ethereum platform, raised over USD 12m in 10 minutes.
In its whitepaper, Gnosis had stated that it was its belief that prediction markets would disrupt some of the largest existing industries in
the near term and, that the Gnosis prediction market platform would form the
basis for machine information economies on a global scale.
Noting that prediction markets had recently become popular because of their superior ability to effectively aggregate all available information
Gnosis stated that they would never reach their full potential if built on 21st
century database technologies because, these lack the resilience necessary to resist censorship and reach untapped liquidity pools
across the globe.....(and expose their users to) additional risk such as theft or other failure, and unexpected issues with payment processors.
Other unique features of the Gnosis prediction market platform will be, we are told, the elimination of fees at the most basic contract level
and, the lowering the barrier of entry for new entrants by at least 2 orders of magnitude.
Asserting that it competes indirectly with sports betting exchanges and option markets such as William Hill
and Nadex Gnosis said that it had achieved Massive growth in social media following. Surpassed 1000 slack members and 2500 Twitter followers.
On the core question of decentraliasation Gnosis had this to say; A core value proposition of Gnosis (and decentralization) is to guarantee future characteristics of platforms to both users and developers without relying on the trustworthiness of an operating
company. In order to do this, elements including fee rates, must be codified into the software itself.
However, and perhaps most importantly of all, the Gnosis whitepaper also contained the following statement;
Though we feel decentralization holds great promise, we
must, and intend to, operate our business in accordance with the laws of relevant jurisdictions. As
such, Gnosis may not be immediately available in certain jurisdictions. The Gnosis team and our
advisors are aggressively pursuing strategies to bring the benefits of Gnosis and the information
sharing economy to the globe as quickly as possible. First steps may include obtaining financial or
gaming licenses as required by law.
This would seem like a sensible decision, when one considers that Gnosis is now headquartered in Gibraltar, and that in its recent proposal for a Blockchain regulatory framework, the Gibraltar Financial Services Commission stated that:
A DLT firm must have systems in place to prevent, detect and disclose financial crime risks such as anti-money laundering and countering terrorist financing
(AML/CFT). DLT firms must adequately apply anti-money laundering and counter terrorist financing preventive measures which are commensurate with their risks, and report suspicious transactions. DLT firms need to be aware of the vulnerabilities of its products and services to financial crime risks and ensure that they implement measures to mitigate the risks. DLT firms will need to comply with the Proceeds of Crime Act and any guidance issued by the GFSC.
Those (many) that took part in the Gnosis ICO in the hope of getting their hands on a rapidly appreciating cryptocurrency, may be sadly disappointed.
In a recent interview, Gnosis founder Martin Koppelmann seemed to suggest that traction will not occur until cash becomes digitised and transferred on the ethereum blockchain.
At its most simple, decentralisation should equate to there being no company or central authority in control of what is being published. Moreover,
it should be the case that that which is published, should be published with no regard for national borders or regulations, and, once released, should not be capable of being shut down. Gnosis' assertion that it will run its business in accordance with the laws of relevant jurisdictions would seem to
fly in the face of the most basic definition of what decentralisation is. Moreover, the company's assertion that its prediction market will not gain traction
until such a time as fiat currency is available in tokenised form on the ethereum blockchain, calls into question the longer term function of the company's own