Gnosis Review: Decentralised Blockchain Predictions Market

Gnosis (GNO) is a decentralized application built on top of the Ethereum blockchain and functions as a predictive market platform.

The Gnosis team are trying to develop the "world's most effective" forecasting tool. The project is also well known for the high profile ICO that is held back in 2017. However, there are number of competing crypto predictions markets that they have to contend with.

So, can Gnosis really execute on their vision?

In this Gnosis review, I will give you everything that you need to know about the project including tech, development and roadmap. I will also analyse the long term adoption potential and use cases of the GNO tokens.

Basics of Gnosis

The Gnosis prediction market uses crowd-sourced wisdom to make predictions about the outcome of future events. Each outcome has an associated token, and users can purchase, sell, and trade these tokens. Because the probability of an event occurring is constantly changing, the value of the tokens is also constantly changing to reflect users beliefs.

Eventually, the final outcome arrives and the token representing the actual outcome becomes fully valued, while all the other tokens associated with the event become worthless.

Consider this example of how Gnosis works:

Users are able to register their own event questions, so someone asks the following on the prediction market, “Will Bitcoin reach $20,000 again before its halving event?”

This is a simple example because it has just two possible answers, “yes” and “no”.

When the market for this question opens the value of yes and no may be nearly even, but as time passes and the halving event nears the value of each is likely to move, possibly dramatically, in relation to the actual movement in the price of Bitcoin.

If Bitcoin does reach $20,000 before the May 22, 2020, halving the “Yes” tokens will become fully valued and the “No” tokens will be worthless. On the other hand, if the halving event arrives and Bitcoin hasn’t climbed to $20,000 the “No” token will be fully valued and the “Yes” token will be worthless.

There will be two ways to make money off this. One is to buy and hold the event tokens and hope you’re right about the outcome. Another will be to trade the outcome tokens as sentiment shifts and prices change.

Prediction Market Value

As mentioned above, Gnosis uses crowd-sourcing, also called the “wisdom of the crowd” as a way to predict future events. There have been studies showing this phenomenon of group predictions is often more accurate than individual predictions, even when the individual is an expert.

A prediction market can be useful in any scenario where a future outcome can be predicted. This not only includes price forecasting as used above, but also for sports betting, election outcomes, climate changes, and many other scenarios.

Of course, financial markets have seen the usefulness of prediction markets in determining future prices of assets. There has also been success in using them in governance to determine which policies are most positive for entire populations.

Gnosis Architecture

Let's take a closer look into the technology that is powering the Gnosis network.

Like most blockchain projects, Gnosis has different technology layers. There are three distinct layers that make up the Gnosis prediction market and these are the Core Layer, the Service Layer and the Applications Layer.

1. Core Layer

This is the foundation of the platform, where the smart contracts for all the market mechanisms reside. These are the event contracts that will govern the outcome of the token creation / settlement. This layer will be free and open to use although there will be a slight 0.5% fee on token creation from a particular outcome.

The creation of new contracts and markets requires a "gas" cost only. This could make Gnosis more attractive and encourages participation in fee-less contract creation.

2. Service Layer

This will offer additional services on top of the Gnosis core. For example, this is where services such as stablecoins and chatbots reside. More features will be added to the services layer by the team if they are deemed useful.

The team expects this layer to see the greatest use in its interaction with consumer applications. Of course, some of the applications will still interact with the core layer.

3. Applications Layer

This is where all the consumer facing applications reside that will target a particular prediction market. While Gnosis will provide some applications, the majority are expected to come from third-party developers.

The goal of the Gnosis developers is to have a wide variety of prediction markets which will be built on top of the same platform and hence liquidity pool. The applications will most likely aim to monetise through charging their own additional fees or use alternative business models such as prediction data sales etc.

Gnosis Two Tokens (GNO and OWL)

Gnosis is somewhat unique among blockchain projects in having two distinct tokens, the Gnosis or GNO token and the OWL token.

The GNO token is the token based on ERC-20 and runs on the Ethereum blockchain. The team minted 10 million GNO, sold them in an ICO event, and will not mint any additional GNO. These are the open market tokens traded on cryptocurrency exchanges.

Users can stake GNO tokens to receive OWL tokens. The amount of OWL received when staking depends on how long the GNO is locked for, and the total supply of available OWL. The goal of the team is to keep OWL supply at 20x greater than the average OWL usage from the previous 3 months.

The first OWL generation occurred following the launch of Apollo in June 2018.

OWL tokens were created as a stablecoin with 1 OWL always worth $1. The OWL tokens are used to pay platform fees, and any GNO used to buy OWL are not held by Gnosis, but are burned. Platform fees can also be paid with any other ERC-20 token, in which case Gnosis uses these fees to purchase GNO and burn them.

The staking and burning mechanisms used by Gnosis is expected to keep the value of the token high. The OWL token will be held to its $1 value by adjusting the distribution of OWL tokens.

The Gnosis Team

The Gnosis team has been working on the Gnosis platform since January 2015, with Martin Köppelmann and Stefan George as the founders. Martin Köppelmann remains as the CEO and leader of the Gnosis team, and Stefan George is the CTO of the project. They have been joined by Dr. Friederike Ernst as the COO of Gnosis.

Gnosis was the very first major dApp on Ethereum when it was launched in August 2015.

The team has been very steady in the development and launch of products, with Olympia launching in December 2017, DutchX launched in the second quarter of 2018, and Apollo launching in May 2018. As previously mentioned, the latest development has been the 0.2.2 version of the Mercury product in April 2019.

They have also successfully launched the Gnosis personal safe and are working on delivering the Team Safe.

In addition to a strong team, Gnosis has a notable set of advisors, including Ethereum co-founder and Consensys founder Joseph Lubin, and Ethereum founder and chief scientist Vitalik Buterin.

Gnosis Development

The development team at Gnosis released the Olympia test prediction tournament in 2017 to gather information about how a prediction market would actually function. That test system used Olympia tokens (OLY) that were distributed to all participants so users could bet on various prediction markets. Winners received GNO tokens which have an actual value.

There was also a behind-the-scenes look at the planned Management Interface that would allow users to create prediction events and monitor all the events currently in the market, not to mention making predictions for ongoing events.

The team launched Apollo in May 2018. Gnosis Apollo is a collection of packages that allows you to roll your own Prediction Market Interface or Prediction Market Tournament based on the Gnosis Prediction Market Framework.

The team also released version 0.2.2 of the Mercury smart contract development framework in April 2019. The smart contract development framework remains experimental and under active development.

If you wanted to get a sense of just how much work is being done on the Gnosis project then you can jump into their official GitHub. This is a rough rule of thumb that I use in order to judge project activity.

There are numerous repositories in the Gnosis Github but below are the code commits of three of the most active pinned repos.

So, as you can see, the team is quite active pushing code. It is also worth pointing out that there are a total of 108 repositories in total. Many of them have similar levels of coding activity over the past 12 months.

In fact, if we were to compare the total level of coding activity at Gnosis to other projects in this space then you could check out CoinCodeCap. Here, Gnosis is ranked at number 28 which places it above many other larger and more established projects in the ecosystem.

Of course, using GitHub commits as a complete measure can sometimes be quite arbitrary. However, this is a positive factor to consider when looking at Gnosis. If you want to keep up to date with all of their developments then you can follow their official blog.

GNO Token Trading

The GNO token got off to a somewhat controversial beginning. The Gnosis team held an ICO in April 2017, and they chose to use a Dutch auction for the ICO. That allowed them to raise their hard cap of $12.5 million in just 10 minutes, selling just 5% of the total token supply.

That meant the team retained control of 95% of the token supply, which was extremely troubling to investors. To calm them the team promised not to dump these coins on the market and have said they will give three months notice before any sale.

From the ICO price of roughly $50, the coin took off, hitting a high of $388.62 on June 20, 2017. It spent about a week above $300 and then began pulling back, trading below $200 by August 2017, and then under $100 by the fourth quarter of 2017.

It got caught up in the crypto rally of December 2017 / January 2018 and reached its all-time high of $461.17 on January 5, 2018. And then it crashed along with the rest of the market. It traded steadily lower throughout 2018 and reached levels just below $10 by November and December 2018 for a loss of more than 98% from its all-time high.

Since then it has recovered, more than doubling from those lows and reaching above $30 by May 25, 2019. Continued gains are possible in the event of a broad based rally.

The GNO token can be purchased on a number of platforms, with the greatest volume found on Kraken and Bittrex. Other acceptable choices would be BX Thailand, Mercatox, the Bancor Network, or HitBTC.

Something that is slightly concerning about GNO is the limited volume that is has even though it is listed on all of these exchanges. This could present issues for liquidity if you were trying to exit a large position. It also means that the coin remains vulnerable to selling from the founding team as they still hold 90% of the tokens off the market.

Storage Options for GNO

Given that GNO tokens are ERC20 standard, this leaves you with a whole host of options when it comes to storing them.

Perhaps your safest bet is to use a hardware wallet like a Ledger Nano. This is a multicurrency hardware wallet that can store over 1,000 coins and tokens. You can buy it directly from Ledger for €79.

Moreover, because it is a hardware wallet, it is ultra secure. This is because all of your private keys are kept on the device. You can also use the Trezor Model One which is a competing hardware device with similar functionality.

Of course, you can also use a whole host of other web wallets, desktop and mobile wallets. One of the easiest (although least secure) is to use MyEtherWallet / MyCrypto. These are the web wallets that the hardware devices will use when interacting with the Ethereum Blockchain.

Finally, you can also make use of Gnosis' unique "Safe Wallet". This was released last year and is still in Beta mode. The goal of the wallet was to provide users with a secure yet convenient way to manage their funds and interact with the Ethereum network.

It is currently available on the Google Play Store as a mobile version and in the Chrome store as a browser version. They have labelled it as still a "Beta version" as they are still formally verifying the most current version of the smart contracts.

However, the wallet is safe to download and start using. You can read more about how the wallet works in this blog post.

Gnosis vs. Augur

One of the most relevant competing blockchains to Gnosis is that of Augur (REP). This was one of the first projects to complete an ICO on the Ethereum blockchain and they already have a sizable first mover advantage over Gnosis.

Adjusted for current exchange rates, Augur also raised much more ETH and BTC in that crowdsale. In this crowdsale, Augur released close to 80% of the total supply of REP whereas the Gnosis team still controls over 90% of their GNO tokens.

However, one of the most important considerations is the technology that is behind these projects. Augur has spent a great deal of their effort in developing their decentralised oracle. This was essential to the operation of a trust-less and decentralised prediction market.

So far, Gnosis has not built their own decentralised oracle. Until they have fully built this into the protocol, there will be those in the community who will worry about the potential for centralisation.

Conclusion

Gnosis is one of the leading prediction markets, and it is also proving to be successful in the Dutch auction and multi-signature wallet development niche. The team has said they want to make Gnosis the most accurate and efficient forecasting tool, and their efforts show that they are seriously pursuing that goal.

One downside to the project, at least for investors, is the extremely centralized distribution of GNO tokens. The fact that the development team holds 90% of the GNO tokens makes it probable that these tokens will at some point get dumped into the open market, depressing prices for weeks, if not months.

The team continues delivering on its promise though, and a long-term investor might overlook the current token distribution issues, understanding that in the coming years those issues will work themselves out.

While Augur may have a head-start in the prediction market space, Gnosis is developing a whole host of other unique technology that could see increased adoption. We will keep an eager eye on the project to see how these developments progress.