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What are Decentralized Prediction Markets?


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A presentation on prediction markets and their usefullness for Sofia Crypto Meetup.

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What are Decentralized Prediction Markets?

  2. 2. WHAT ARE PREDICTION MARKETS? • A collection of people speculating on a variety of events • exchange averages • election results • commodity prices • quarterly sales results • gross movie earnings • Mini Wall Streets in which participants buy and sell ‘shares’ in a future event at a price that reflects their collective wisdom about the chance of the event happening • Futures / Binary Options / Two-way Pegs
  3. 3. • Making forecasts about events • Allow individuals to bet on uncertain future events • Produce prices that can provide valuable information • The price of the share is an indication of what all the participants think will be the outcome • Aggregate information without the biases of traditional forecasting methods – polls or expert opinions • Opportunity to surface information that otherwise might not be made public for use by academics and decision-makers Direct Purpose: Allow individuals to bet on uncertain future events Indirect Purpose: Provide valuable information Aggregation of a wide and diverse pool of knowledge WHAT ARE PREDICTION MARKETS USED FOR?
  4. 4. • For economists - there's no difference between betting and trading • “The law” / Regulation • Coefficient/Odds “From what I see of the betting . . . I do not think that Mr. Roosevelt will need my vote. I am sure of his election.” 1904, Andrew Carnegie PREDICTION MARKETS ≠ BETTING?
  5. 5. InTrade examples (author found PMs to beTHE BEST available source of info): • Whether the Higgs boson particle would be discovered • Whether the Patient Protection and Affordable Care Act (Obamacare) would pass • Whether Lebron James would sign to play for the NewYork Knicks • Whether Ben Bernanke would be reconfirmed as Fed chair • WhetherTreasury Secretary Geithner was going to be fired • Whether Sonia Sotomayor would be confirmed to the Supreme Court Companies using PMs internally: • Hewlett-Packard (forecast sales of printers / computer memory) • Siemens (delivery of a new product on time) • Best Buy (demand for variety of products) • Chrysler • ElectronicArts • Intel • Microsoft • Motorola • Nokia • Pfizer • Qualcomm • TNT • General Electric • CIA EXAMPLES OF REAL PREDICTION MARKETS
  6. 6. Centralized • InTrade (very popular, shut down) • PredictIt (politics only) • IEM - Iowa Electronic Markets (politics only) • PredictWise (various topics, research) • Fairlay (bitcoin!) Decentralized • Augur (Ethereum, beta) • Gnosis (Ethereum platform, apps coming soon) • Truthcoin/Hivemind (Bitcoin-based sidechain) • ~Steemit (Blogging/Social platform) ATTEMPTS AT PREDICTION MARKETS
  7. 7. • Market to IncentivizeActions • Has a particular event occurred? • Will a zero-day exploit be discovered in our software? • Will this legislation pass? (Automated political action committee or PAC) • Markets for Insurance • Will this area flood in the next year? • Will earthquake over 5.0 magnitude occur within 50 miles of this location? • Will this flight be cancelled? • Markets for Financial Instruments • What will this corporation’s Q4 gross revenue be? • What will the Ether/USD exchange rate be at a future date?” (Stablecoins) • Markets for Information Sales (sales of insider information and sales of device data) • Will corporation A acquire corporation B within set time frame? • What is the speed limit on this road (sensors)? • Markets for Governance PREDICTION MARKET USE-CASES
  8. 8. FUTARCHY • Moving away from Democratic or Autocratic decision making processes • Markets decide • A governance model for DAO-like organizations Robin Hanson Researcher at Oxford's Future of Humanity Institute
  9. 9. • Efficiently aggregate a variety of information and beliefs • Create financial incentives for truthful revelations • Provide incentives for gathering relevant information • Incorporate new information quickly • Difficult to manipulate ADAM OZIMEK’sVIEW
  10. 10. VITALIK’s CRITIQUE PRO CON 1. Futarchy fixes the “voter apathy” and “rational irrationality” problems of democracy 1. A powerful entity can manipulate the market 2. In time they will become better - good predictors will stay in the system 2. Markets are “self-referential” – not good aggregators of actual information 3. Reduces potentially irrational social influences 3. Estimated effect of a single policy on a global metric may be very small 4. Human values are complex – there might be much disagreement on the metric to be used 5. PM are zero sum – irrational to participate (1) making it harder for executives managing the funds to cheat both the organization and society for their short- term interest (2) making governance radically open and transparent
  11. 11. ISAAC ASIMOV’S FOUNDATION • Psychohistory - a fictional science which combines history, sociology, and mathematical statistics to make general predictions about the future behavior of very large groups of people • The Seldon Plan • Statistical in nature • Events are described as being probabilities • The variables require very large amount of human beings (in order to reduce randomness)
  12. 12. CONCLUSIONS • DPMs allow everyone to use their knowledge in order to profit.These opportunities have been strongly limited by governmental regulation. • DPMs redistribute wealth from the less informed (biased, emotional) to the better informed. Smart people can benefit from the folly of the masses. • DPMs will be used to supply information to blockchains in a decentralized way, enabling a myriad of new applications. • DPMs research and improvement will allow the introduction of improved PoS-based blockchains. • DPMs will provide a new, more efficient way to govern blockchain systems. • DPMs will create information (in the form of questions/answers) that otherwise would not have existed. • DPMs, in combination with other sources, could prove to be the best way to make predictions about the future.