Gnosis Impact: Explainer
The Gnosis Impact app is a tool for projecting into the future. The app uses simple analysis of prediction markets to expose the price that traders are willing to pay for an asset in the condition that a particular event occurs. This information is an invaluable decision-making tool as it gives insight into how the market perceives the event impacting the relative value of asset pairs.
Gnosis Impact is available as a standalone app or as a plugin on the popular Snapshot governance platform for off-chain, gasless signalling. By entering information from two prediction markets on the Omen platform that were configured for Gnosis Impact, users can easily surface the potential price impact of an event.
Give it at try at impact.gnosis.io!
If you’d like to learn how Gnosis Impact can support your organization’s governance, please reach out on the Gnosis Discord Server. If you’d like to dive deeper into how Gnosis Impact works, continue with our example below.
Let’s take an example
To understand how we calculate the Gnosis Impact Score, let’s imagine two hypothetical traders, Jerry and George, and a real world event, the ETH2.0 launch.
Jerry believes that if ETH2.0 launches before 2021, ETH will be worth more than it is today. So they would like to buy ETH, but only if ETH2.0 actually launches before 2021.
Using Omen, Jerry can do just that!
There are two markets on Omen for the question “Will Ethereum 2.0 Phase 0 launch before 2021?”, one collateralized in USDC and one in ETH.
Let’s say Jerry starts with 1,000 USDC. By buying just the right amount of “no” in the USDC market, then converting the remaining USDC to ETH and using it to buy “yes” in the ETH market, Jerry can create a position where they get 1,000 USDC back if ETH2.0 doesn’t launch by 2021, and ETH in the event that it does. Follow along to find out how.
Assuming that both markets are trading at the same odds, then Jerry would be able to create this position and pay the current price of ETH. But these are two separate markets whose prices can diverge.
Let’s try this using the current prices and odds at the time of writing.
Here is how the two markets look:
- Yes: 91%
- No: 9%
- Yes: 93.18%
- No: 6.82%
For Jerry to get their USDC back in the case that ETH2.0 doesn’t launch on time, they need to buy ~90 USDC worth of “no” shares, which should give them ~1,000 shares (In this case, we’ll assume there is enough liquidity that Jerry doesn’t move the price). Jerry then converts the remaining ~910 USD to 1.88 ETH (at a price of $484.03/ETH) and buys ~2.02 “yes” shares. The combination of this “no” position in the USDC market and this “yes” position in the ETH market is a conditional purchase of ETH.
The current price of ETH is $484.03. So if Jerry were to convert all 1,000 USDC to ETH, rather than buying the positions in both markets, they could buy 2.06 ETH. While in the conditional purchase described above, the price of ETH works out to be $495. This means Jerry would have to pay a premium on ETH to buy it in the condition that this event occurs. So long as Jerry thinks the price will increase at least to the price they paid, then this is a very attractive option.
Bob, seeing the divergence in price between the USDC market and the ETH market, realizes that they can buy ETH at a steep discount on the current price, in the case the ETH2.0 doesn’t launch by 2021.
Let’s say Bob starts off with 1,000 USDC as well. Bob could buy ~910 “yes” shares, worth ~1,000 USDC in the case that ETH2.0 does launch before 2021. Bob could convert the remaining ~90 USDC into ETH and buy ~2.726 “no” shares in the ETH market. If ETH2.0 does not launch by 2020, Bob will have paid ~$366 / ETH.
There is a 35% difference between the price that Jerry and Bob would pay for ETH in the case that ETH2.0 does or does not launch, respectively.
Regardless of whether anyone actually buys either of these specific combinations of positions, we can derive this information from the divergent odds/prices of the two markets. The further the two markets diverge, the greater the market perceives the impact of the event on the ratio of the two tokens.
In our example above, the Gnosis Impact of the event on the USDC price of ETH is 35%; the market is willing to pay 35% more for ETH in the case that ETH2.0 launches before 2021 than in the case it does not.
Conditional Investing
The example above illustrates the core concept behind Gnosis Impact: what we’re calling “conditional investing.” This means investing in a digital asset if and only if a certain event occurs. We hope that we’ve made this simple yet powerful aspect of correlated prediction markets accessible. Check out our website to learn more about the conditional tokens framework, a new standard developed by Gnosis that powers prediction markets like Omen and the Gnosis Impact app.
Please be aware that the displayed predicted impact on token price is based on the markets that feed into Gnosis Impact. However, token prices may be influenced by events that do not effectively feed into Gnosis Impact.
