Notably, DXdao, the self-governing organization behind Omen, may also decide to function as a competent arbiter in the future.
What are the other key differences between Augur and
Augur Omen Information
Validation System Uses internal rewards
and penalties to control Outsourced to external DAO-type arbitrators Liquidity Traditional order book
+ 0x protocol for decentralized implementation
Automated Market Maker
Governance Admin key that are burned means there are no further updates
DAO
Tokens REP (REP + REPv2) -
Outcome Tokens ERC-1155 ERC-1155 but may be wrapped into ERC-20 tokens to access liquidity pools from other DEXs
Market Pairs DAI 30 pairs
Supported
Blockchains Ethereum Ethereum and xDai
We do not have access to either protocol’s market data, but an arbitrary scan (conducted on 28 April 2021) of both protocol’s websites will show that there is very little activity going on.
For Augur, there are only seven markets created. Only the top three have actual trading volume which collectively add up to just shy of $3,000.
And as for Omen, there are only four markets but have a combined trading volume of roughly $7,200 (not reflected in the image but is shown on another webpage).
Associated Risks
The biggest concern with prediction markets is the reliability of data. While there are multiple profit-based incentives to minimize data manipulation, irrational actors could try to jeopardize outcomes. Furthermore, challenged outcomes could lead to situations that are time-consuming and costly.
Notable Mentions
● Polymarket
As of April 2021, Polymarket has a beta product that is live on Ethereum. The whitepaper for the protocol has yet to be published, but they appear to be a hybrid between centralized and decentralized
structures. The protocol seems far more popular than Augur or Omen - our quick scan on 28 April 2021 showed a booming market activity with over sixty prediction markets. The most popular market alone reached about $2 million in trading volume.
Conclusion
Prediction markets is an interesting space because there are implications beyond betting - it allows users to hedge risks. Traditional derivatives allow buyers and sellers to hedge against particular outcomes by holding the right to trade a specific good in the future at a particular price. For example, a rice farmer may enter into a derivative contract to sell 1,000 kilograms of rice on 31 December 2021 for $5,000 if he expects the price to be lower during that time.
Prediction markets can be based on anything and not just rice. Rather than hedge against the price of rice, the rice farmer may decide to hedge against the weather instead. In other words, prediction markets allow users to hedge against more specific risks.
Prediction protocols provide a platform for anyone to hedge against anything. Not only that, but prediction markets can also act as “de facto”
polls. Participants in prediction protocols effectively share their opinions on different matters, which can be extrapolated for general insights on a wide range of topics.
The future for prediction protocols is exciting because their principles could be the foundation for real-life use cases. One could imagine using similar resolution systems to bring legal contracts on-chain, as the arbitration methods function very similarly to the juror-based justice system. However, in the near term, we expect more protocols to leverage the power of prediction protocols and utilize them to create innovative hedging instruments.
Recommended Readings
1. Prediction Market Basics
https://augur.net/blog/prediction-markets 2. Pricing in Prediction Markets
https://medium.com/veil-blog/a-guide-to-augur-market- economics-16c66d956b6c
3. How resistant Prediction Markets are to Market-Manipulation https://blog.gnosis.pm/how-manipulation-resistant-are- prediction-markets-710e14033d62
4. Key differences between Augur and Omen
https://blog.gnosis.pm/omen-and-the-next-generation-of- prediction-markets-2e7a2dd604e
CHAPTER 11: DECENTRALIZED FIXED- INTEREST RATE PROTOCOLS
If we look at traditional finance, where most financial consumers reside, globalization has led to an increased demand for stable financial ecosystems.
Indeed, it has been over 20 years since the European Parliament first acknowledged the need for more price stability in their working paper entitled “The Determination of Interest Rates”:
“The integration of the world’s financial markets is increasing the pressure of external factors in the determination of domestic monetary policies. In addition, though the approaches of the world’s major central banks towards the conduct of monetary policy differ in detail, there is broad agreement on fundamentals: the pursuit of price stability and the stability of financial markets.”68
The key point here is integration. Analogous to how the crypto industry operates, the space has matured to a point where DeFi has become the industry standard for protocols. Often referred to as financial Legos, blockchain technology has allowed developers to integrate with other protocols and build innovative financial products. However, such progress does not change the fact that the crypto industry is unpredictable and highly volatile.
68 Patterson, B., & Lygnerud , K. (n.d.). The Determination of Interest Rates.
https://www.europarl.europa.eu/workingpapers/econ/pdf/116_en.pdf.
Stable interest rates are an important facet of every financial ecosystem.
Although there is an abundance of lending protocols and yield aggregators that offer interest rates to lenders in the crypto industry, relatively few of them offer fixed interest rates.
With the growing popularity of yield farming and the demand for more stable lending and borrowing rates, several DeFi protocols have attempted to address the ever-increasing demand for stable interest rates and become the hallmark for reliability. This has bred a new class of protocols known as Fixed-Interest Rate Protocols (FIRPs).
Compared to traditional finance, where fixed interest rates come in the form of fixed deposits (or bonds), FIRPs leverage their underlying tokenomics structure and offer different incentives to maintain their interest rates. At this point, the FIRP ecosystem can be broadly classified into two categories:
1. Lending/Borrowing 2. Yield Aggregators
Even under this umbrella classification, FIRPs come in many shapes and sizes. Each protocol has its method of “fixing” interest rates which leads to different use-cases. Some offer a “fixed interest rate” or a “fixed interest- earning ratio”. Moreover, some FIRPs do not offer fixed interest rates at all but rather create an environment that facilitates fixed-interest rates.
We will cover three examples in this chapter.