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What are the relative strengths and weaknesses of the Gnosis and Auger blockchain prediction markets?
Hello! Thanks for asking Wonder about relative strengths and weaknesses of the Gnosis and Augur blockchain prediction markets.
In short, differences between Augur and Gnosis blockchain prediction markets include the way they use oracles, the currency they use, ownership of outcome shares, market creation processes, and the use of Oracle backstops. Similarities include their Ethereum blockchain technology architecture and the types of events they allow. Augur's strengths include its more plausible Oracle backstop, while the instability of the Ethereum tokens may be a weakness for both platforms. Below, please find the results of my research.
METHODOLOGY
To provide the technical analysis you desire, I have searched for articles, white papers, reviews, or other documentation from industry experts espousing the qualities of both Augur and Gnosis blockchain prediction markets. I found articles that talk about the similarities and differences between the two platforms, but fewer references to strengths and weaknesses. I searched for existing SWOT analyses of these companies, but did not find any. This dearth of information is likely because the companies are quite new, with Augur still in beta mode and Gnosis entering beta this year. I have quoted some of these experts directly to ensure that I do not miscommunicate any of the technical aspects they discuss.
An article at Medium by Alexey Akhunov, a software specialist at Goldman Sachs, was one of the few articles I found that offers a comparison of Augur and Gnosis. In his conclusion, he offers a few comments that suggest strengths or weaknesses with the platforms, which I elaborate on below. Another article, which appears to be written by Dan Antonov of CryptoPortfolio, offers a comparison of the REP tokens of Augur and the GNO tokens of Gnosis, but it also elaborates on the work of Akhunov. I know you are not interested in the Gnosis ICO or token prices, so I will leave out those portions of Antonov's comments and focus on technical aspects. The Antonov article, however, offers a useful chart outlining the comparisons made by Akhunov.
SIMILARITIES
Augur and Gnosis are both decentralized prediction markets that allow people to buy and sell shares based on the potential outcome of an event. They use the openness and transparency of blockchain to allow a wide variety of people to participate in trading. Both platforms are built by experienced teams that have been working on prediction market concepts for a couple of years. Augur and Gnosis are both built on Ethereum blockchain technology, "a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference."
According to Akhunov, both platforms offer three event types: binary (yes or no outcomes), categorical (multiple potential outcomes), and Scalar (upper and lower boundaries defined for an event).
Akhunov also states that both platforms "explore the possibility of off-chain trading, and both platforms mention State Channels as the most probable solution. Antonov states both platforms plan to improve transaction speeds.
DIFFERENCES
According to an article at Coindesk, "there are aspirational and technical differences between the two platforms. For example, questions are resolved by oracles on Gnosis and Augur in different ways. While Augur uses many oracles to determine the outcome of an event, Gnosis uses a mechanism whereby only one or a few oracles provide the outcome, a feature they say will lead to faster validation. If any one oracle disagrees with the conclusion, the decision falls to a pool of oracles to decide as a "last resort"."
Augur allows traders to use ETH (ether digital currency) as collateral, while Gnosis allows traders to specify their collateral token upon the creation of a market. Since Gnosis offers configurable collateral tokens, the shares can be used for other markets.
According to Akhunov, "In Augur, the ownership of outcome shares is currently recorded in the data structures of the smart contracts, and transfers are tightly controlled by the trading functions," allowing Augur to gather fees when shares are traded. He states that, "In Gnosis, on the other hand, the outcome shares can be “detached” in the form of ERC-20 tokens, and traded elsewhere (however it is still possible to trade them directly on Gnosis)," allowing for liquidity to be moved and aggregated in unpredictable ways, but making it difficult for Gnosis to collect fees.
In terms of market creation, the market creator can add initial liquidity to create a more attractive market. However, with Augur, shares are placed in order books based on "what the creator believes is the current fair price," while with Gnosis, "the creator attaches a market-maker contract," which determines pricing.
Both Augur and Gnosis allow oracles to be specified, but outcomes are resolved by those oracles in differing ways. According to CoinDesk, "While Augur uses many oracles to determine the outcome of an event, Gnosis uses a mechanism whereby only one or a few oracles provide the outcome, a feature they say will lead to faster validation."
Both platforms have Oracle backstops, which are "basically the ability to resolve the outcomes which are challenged by users." With Augur, they are based on the holder of the REP, "which decide on the event in case of an outcome challenge." With Gnosis, the backstops are "based on ETH voting in case of an outcome challenge."
STRENGTHS AND WEAKNESSES
In his conclusion, Akhunov notes that technologically speaking, the two platforms are quite similar, though the specifics of their processes vary, as noted above. He points out that the economic models differ, suggesting that time will tell which is more lucrative and, therefore, a strength of one over the other.
Akhunov also states that he feels that Augur's Oracle backstop "looks more plausible. It has some features of Proof Of Stake, with similar notion of selection weight, slashing, and subjectivity (via REP forks)," indicating this may be a strength for Augur.
According to Microsoft researcher David Rothchild, in an article at Wired, "The instability of the Ethereum tokens that people use to make bets on these markets could undermine their accuracy," indicating a potential weakness for both platforms. The article also notes that the "Augur reporting engine, lacking a critical mass of participants, remains unproven." So this concern could connote weaknesses for Augur.
AUGUR - A BRIEF OVERVIEW
Augur is a San Francisco-based nonprofit that allows anyone to join prediction markets. Founder Joey Krug built Augur with "$5.3 million in crowdfunding" in 2015, but the platform is still considered to be in beta mode. Augur's digital token is the Rep, so-called because it tracks a trader's reputation, in other words tracking how often they tell the truth. As of March 2017, it had a market cap of $89 million, up from $50 million the month prior.
An article at Wired describes Augur's process this way: "After one group of people joins a prediction market and bets on an outcome, Augur pays others to identify that outcome—to verify what happened. But it doesn’t just pay them a flat fee. On its blockchain, Augur houses its own cryptocurrency, a digital token that encourages people to get things right. “If you’re not telling the truth, you stand to lose a bunch of money,” Krug says."
GNOSIS - A BRIEF OVERVIEW
Gnosis, a spin-off of ConsenSys, allows developers to create prediction markets for an event, such as an art auction or sporting event. The company was founded in 2015 but will officially have its beta launch in August 2017. People can buy shares in a particular outcome, indicating their prediction, and the final outcome "is determined by one or more oracles — human, hardware, or software agents that find and verify the outcome of a real-world event and then submit it to a blockchain."
A white paper by Gnosis outlines, in great detail, its token mechanism, platform model, applications and industries served, architecture, and more.
In a CoinDesk article, it states, "Gnosis founder Martin Köppelmann further says that Gnosis boasts features Augur doesn’t have, such as a long-term plan for incorporating futarchy, an experimental form of government that uses prediction markets."
SUMMARY
To sum up, Augur and Gnosis differ in terms of the way they use oracles, the currency they use, ownership of outcome shares, market creation processes, and the use of Oracle backstops. Their similarities include their Ethereum blockchain technology architecture and the types of events they allow. Augur's strengths include its more plausible Oracle backstop, while the instability of the Ethereum tokens may be a weakness for both platforms.
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