Crypto-Enabled Gambling Platforms Are Flawed. Here’s Why.
Las Vegas, turn of the century, the gambling mecca of the world founded by William A. Clark, owner of three railroads, saw the auction of 1,200 lots in 1905. From these humble beginnings, explorers and miners headed west as part of the California gold rush to settle, dig and gamble, leading to the launch of the city’s first and original casino, the Golden Gate Hotel.
However, it was not until recently that innovation in cryptocurrencies and blockchain technology have led to significant changes in online gambling, with casinos and slot machines positively impacted by the global pandemic. In fact, it was a time in history that saw consumers flock to engage with online betting platforms to bridge their financial, social, and psychological needs during lockdown.
The Problems With TradFi Gambling
Despite these impressive numbers, the traditional gambling venues and bookmakers we use today face a number of unresolved issues and pain points:
Lack of control and ownership
Funds paid by you are no longer owned by you, yet can be disputed, lost, revoked, suspended indefinitely, or locked away pending an investigation, denying you access to any winnings with potentially little recourse.
Additional counterparties to trust
TradFi gambling platforms also add extra parties that users have to trust every time a platform integrates a new payment provider, bank, or another third party collaborator, who can disavow or reject your account.
Bookmakers retain control and custody of your funds
As custodians of your money held in their bank account, payouts can be unduly influenced by in-house teams or third parties acting in the interests of their business, its Directors and/or shareholders.
The limitations of today’s crypto-enabled gambling platforms
The recent parallel explosion in DeFi and crypto has left many traditional operators scrambling to implement their own crypto-enabled products and services — but these are just scratching the surface. They do not take advantage of the underlying tenets of the blockchain ecosystem, leaving features like transparency, autonomous operations, community ownership, and decentralized security/governance on the table. This effectively results in crypto being used by betting platforms purely as a payment method and means to capatalize on a growing trend.
Hardly the “future of finance” we were promised with crypto, and a far cry from a fair and financially inclusive betting experience.
Familiar betting practices like “cash outs, in-play sports, multipliers and accumulators,” need to be innovated using smart contract and autonomous community integration, beyond centralized payment function and deposit convenience.
For the most part, existing blockchain technology implementations are strictly used as an alternative to credit and debit card processing, not a solution for a trustless autonomous betting platform, or placing peerless bets in conjunction with the house.
This is because many companies fail to fully understand the full scope of benefits that blockchain technologies offer, leveraging only features like “provably fair” randomness and “crypto deposits”. Whether this is a move to keep revenue and control of the project centralized, or just a simple failure to innovate beyond outdated technologies, is a topic for another day.
For now, let’s take a look at what could be achieved in an ideal betting platform that leverages crypto, DeFi, and blockchains to their fullest.
What state-of-the-art DeFi gambling could be
Community-owned liquidity pools that fuel gambling payouts and rewards its contributors, and provide the ability to place peerless bets in a smart contract using oracle and prediction protocols, are undeniably the future of decentralized betting. Let’s continue with this premise as we dive into the features of our idealistic DeFi-enabled betting platform.
Peerless betting
In TradFi, platform bets are often waged against ‘the house’ who offer odds over which you calculate personal risk. You then decide if you wish to place a bet, meaning if you win the house loses, and if you lose the house keeps your money.
Most DeFi users will be familiar with the concept of liquidity pools. These allow community members to deposit funds to be used to fuel token swaps. In exchange, these so-called ‘liquidity providers’ earn rewards. These liquidity pools have the benefit of not requiring a central party to custody the funds and handle payouts between users, like a centralized exchange.
The parallel can be drawn between centralized exchanges and centralized betting platforms. Our model proposes a method by which liquidity pools are leveraged to enable bets between a decentralized ‘house’, where bets are matched via oracles and smart contracts. In this way, users do not have to find a counterparty for their bets, or trust a centralized bookmaker to pay out their winnings.
Community revenue sharing
TradFi betting platforms are set up such that the house always wins. This is a perfectly acceptable business model, and accepts that a lucky few will win and turn a profit — but typically, all the revenues generated are awarded straight to the business owner. No traditional betting platform today allows users to participate in revenue sharing, and patrons have no clear way to contribute or benefit from the TradFi platform’s success, unless they become a shareholder.
In most cases this is not possible unless you are one of 2.9 million global FCA approved accredited investors, which is not the case with cryprobased DeFi platforms that have no bar to entry.
In the model described above, the “house” is actually a collective of DeFi participants, all of whom are entitled to a share of platform revenues, the variables of which are hard coded via community governance, and are statistically guaranteed.
Content Betting through Community ownership using a DAO
To make this process as fair and trusted as possible, the betting platform forms a DAO with its patrons, a ‘Digital Autonomous Organization’. This involves the use of smart contracts to enable the community to affect changes in the way the platform operates or pays out its winnings, meaning you do not need to trust your betting platform or bookmaker. You remain in control.
This DAO’s source of funds is protocol-owed, as it is held in a liquidity pool on the blockchain, with the advantages of guaranteed and immediate settlement made by your smart contract to the winning party, removing counterparty risk. Users can place bets in the liquidity pool, safe in the knowledge that their gamble is oracle confirmed and odds optimized.
DAO driven DeFi platforms do not make centralized decisions, but instead derive aggregated odds from impartial, realtime blockchain oracle data, through a fair, decentralized and community-owned protocol. Most betting platforms simply do not leverage blockchain in this transparent way which is a core function of Blockchain thinking.
Uncensorable and autonomous
Because the blockchain is immutable and all smart contracts can be publicly viewed, patrons have full autonomy regarding bets, which means they cannot be lost, revoked, suspended or locked down. TradFi gambling platform users have no such guarantees and have to trust their platform (and any third party payment processor) will payout. Odds remain centralized, predictions based on personal punter opinions, meaning they could be skewed or manipulated, with no way to verify that any payout has been calculated competitively or part of any potential bookmaker price fixing claim. Individual users, and the platform itself, are resistant to attack and censorship due to the distributed security provided by the underlying blockchain.
All operations are managed in a decentralized way via smart contract, allowing users to audit transactions and check the validity of the underlying code.
These problems being solved today. Introducing: LunaFi
LunaFi is a community-owned, trustless, peerless and decentralized gambling protocol. It was created to provide a fairer and more transparent gambling experience separating itself from traditional bookmakers through blockchain and smart contract implementation.
In the LunaFi ecosystem, users can play, invest, take profit, and for the first time ever, share in the profits of the house. We reduce risk by placing bets using secure, trustless, smart protocols which only users have the power to cancel, or claim winnings from.
LunaFi’s goal is to make betting as fair, transparent, and community-driven as possible, and this is achieved in a seamless betting experience, that doesn’t rely on centralized middlemen or counterparties. We bridge the best that betting, DeFi and cryptocurrencies have to offer by addressing a broader audience, bringing together the worlds of traditional betting, Crypto, and DeFi.
Join the LunaFi community:
