The State of Gnosis

While crypto winter has come we’re just getting started

TL;DR

At Gnosis, we foresee a tokenized future — where no single currency is dominant and new tradable asset classes take on increasing informational complexity. Conditional tokens, that enable prediction markets, are one of these new asset classes. While public skepticism regarding blockchain technology may be at its peak, drawing lessons from the evolution of traditional asset classes, we believe a tokenized future is an inevitability. We wish to make that future accessible to all.

In this light, Gnosis platforms enable users to do three things:

1. Create conditional tokens, a new asset class with richer semantic capabilities that makes the outcome of any future event tradable.
2. Trade those assets (and others) using fully decentralized market mechanisms (DutchX and Gnosis Protocol).
3. Hold those (and other) assets in the Gnosis Safe, the best way to store conditional and other ERC20 tokens and interact with the decentralized web.

While all of our products are designed to work well together, each piece is permissionless and standalone. We hope they will become building blocks in platforms and applications that we have not yet imagined.

Create

Our core mission at Gnosis is to create an entirely new asset class conditional tokens that enable prediction market platforms. Conditional tokens represent a guaranteed payout of a collateral token if and only if one or many conditions are met.

Conditional tokens allow you to:

1. Make simple markets on the likelihood of a given event.
2. Markets about how the likelihood of an event is affected by any other event. For example, how is the probability of a global recession affected by a trade war between the United States and China over the next year?
3. Trade any asset under the condition that a specific event happens. For example, you can buy a tokenized equivalent of the British Pound but only under the condition that no hard Brexit happens. For market observers, these markets will surface asset prices in different possible futures.

Previously those instruments could only be created at a high cost by financial institutions. Our platform will bring down the costs to a few cents and give access to everyone. All conditional tokens can be globally accessible, and payouts are securely executed through smart contracts.

Trade

We are building trading engines that are best suited to the characteristics of this new asset class:

1. Optimized to counter low liquidity. With the potential to create millions of distinct markets, individual market liquidity is likely to be low. Our market mechanisms are optimized to still find a reliable price under these assumptions as trading on a fully decentralized exchange will unlock a shared global liquidity pool.
2. Interconnected prices dynamics. Take (1) the price of an asset, (2) the price of said asset in future A, (3) the price of said asset in future B, and finally (4) the likelihood of futures A and B. While each of these could have an individual market, with an individual price, the prices themselves are not independent. In other words, any 3 of those 4 prices dictates the 4th price. This information can be fed back into the market to make the mechanism itself more efficient.
3. A tokenized future (where no single currency is dominant). In the future, many conventional asset classes will be tokenized, and these tokens will be used as collateral/currency in markets that previously only supported a single currency. Think of markets trading on geopolitical events using a basket of stocks as collateral. An efficient market mechanism will be able to bundle that liquidity while minimizing the cost paid to arbitrageurs.

The first thing we built to meet these criteria is the DutchX protocol — a smart contract-based, decentralized exchange protocol that operates on the Dutch auction principle. The DutchX addresses criteria #1 through its auction format. We have also gone the extra mile to make it fully-decentralized. We claim it is the only mechanism on Ethereum right now that is both fully-decentralized (on-chain) AND does not have obvious attack vectors that can make average traders lose money.

To also meet criteria #2 and #3 we are hard at work on Gnosis Protocol, (formerly DFusion Protocol), a multi-token batch auction mechanism that uses zkSnarks for added scalability. Gnosis Protocol’s batching mechanism will be optimized for the looming multi-currency financial environment and for systems that use discrete time, like blockchains (where the smallest unit of time is one block).

The future multi-currency environment.

Hold

There are lots of crypto wallets on the market right now. Most of them are “all or nothing” wallets, which means you either have your private key and full control over your funds, or you don’t.

The Gnosis Safe is different. It’s a smart contract wallet, which means more recovery options, and even programmable rules for different types of transactions. Like the DutchX and Gnosis Protocol, the Gnosis Safe can live as a standalone product. But the Safe shines most as a portal or stepping stone onto our other platforms. In the near future, users will be able to store conditional tokens on the Safe and seamlessly trade for other assets using the DutchX or Gnosis Protocol.

GNO Tokens

We’ve avoided imposing fees or token mechanics in an active effort to not hinder the adoption of our products and platforms. Instead, we’ve built our GNO use cases around areas of scarcity on our platforms. The core component here will be the Gnosis Protocol which only allows a limited amount of orders per batch that can be executed atomically. The work around conditional tokens will create additional demand for this resource.

In this case, the ability to submit an order is a scarce resource and GNO holders will, therefore, be given control and access to it. This is similar to the Ethereum model, where the number of transactions that can be processed at any time will always be limited. Access to this limited supply is directly tied to ETH.

Looking Forward

We’ve made a lot of progress. But we also recognize that building truly-decentralized infrastructure takes time so we’ve made sure to plan for the long-term. In addition to our ether holdings, we have >$30M in fiat and a current burn rate of <$6M a year with a team of ~50. This budget additionally supports community activities like the Gnosis Ecosystem Fund, running the blockchain co-working space Full Node, and organizing DappCon — all of which we will continue to do.

In Summary

Conditional tokens (also known as “prediction markets”) are a new asset class. Like the ERC20 token or ERC-721 for NFTs, we want to establish conditional tokens as an open standard, and to this end, we’re building free, foundational infrastructure to support the widespread adoption of this new asset class. Decentralized exchanges — with a focus on the Gnosis Protocol DEX—will be central to our monetization strategy.

While new tokenized assets can be traded on any DEX (or even on centralized exchanges), we believe we have unique insight into the required trading mechanisms for a tokenized future that will make our exchange succeed. While such mechanisms are important, so is their user experience. That’s why we’re building the complementary Gnosis Safe, for the smoothest onboarding and accessibility possible for users of new assets and exchanges.

The future of Gnosis is bright, and we’re happy to continue supporting an even more brilliant community. See you all again in the new year.

Thanks to Steve Randy Waldman, Eric Gorski, and Kei Kreutler.