We are excited to announce Zeitgeist - an evolving blockchain for prediction markets and futarchy (more on this below). Zeitgeist is built for the Polkadot and Kusama ecosystem and envisions itself as a hub for prediction markets on Web3.
At the core of Zeitgeist is an open prediction market platform that is built with Polkadot’s blockchain framework, Substrate. Zeitgeist builds on ideas and concepts that have floated around in prediction markets technology and literature for over a decade, however it will push these boundaries further to accomplish the following:
- Zeitgeist will deploy as a Kusama parachain to enjoy cross-chain interoperability with all parachains and applications in the Kusama and Polkadot ecosystem.
- Zeitgeist will be community-owned by the token holders of the platform, where the base protocol can evolve over time with new input from its users or informed by new research that is discovered.
- Zeitgeist will apply the concept of futarchy as one of the primary governance mechanisms of its base layer chain, and will be one of the examples to use this experimental governance system in a real economic environment.
- Zeitgeist will use an on-chain treasury which will incentivize teams to build on the protocol and create prediction market verticals which will benefit the network.
- An open SDK will be developed to enable engineers and entrepreneurs to deploy their own applications on Zeitgeist based on prediction markets.
Zeitgeist is not only building a platform, but also an ecosystem for prediction markets. We are creating a community where participants can have a voice in how the protocol changes over time. This is enabled particularly by a set of primitives built for a court system, and leverages a robust on-chain upgradable governance system. Researchers will be able to propose new ideas, traders can discuss and request new markets, developers can build on the open protocol, and entrepreneurs have the freedom to create their application that targets a niche vertical market.
Zeitgeist provides the best interface to decentralized prediction market primitives. Not only does this include implementation of Categorical, Scalar, and Combinatorial prediction markets, but also innovations in trading mechanisms such as the Liquidity-Sensitive Logarithmic Market Scoring Rule (LS-LMSR) AMM. By using the Zeitgeist SDK, developers and builders will be able to quickly get started integrating the Zeitgeist protocol as the backend to their applications based on prediction markets.
Zeitgeist’s goal is to deploy as a parachain on Kusama in late 2021. An exact timeframe is unknown since it is partly reliant on Kusama’s schedule of parachain lease auctions. There is not yet a definite plan for a parallel deployment on Polkadot, but with enough demand from the community we will evaluate the possibility at a later date.
The core team building Zeitgeist has extensive experience in the blockchain and prediction markets industries. Two members of the team have special insight into the Polkadot ecosystem by working at Web3 Foundation for two years over the timeline of the launch of both Kusama and Polkadot. A third member has worked on prediction markets for over 15 years.
Logan Saether is a technologist who has a background in engineering projects in both the Ethereum and Polkadot ecosystems. At Web3 Foundation, Logan helped to build critical tooling and operation around the launch of both Kusama and Polkadot, as well as wrote extensive documentation about Polkadot including major contributions to the Polkadot Wiki. He also helped to set up and manage the Thousand Validators Program for both networks, which is the community-focused initiative to decentralize and expand each network’s validator sets.
David Perry has an extensive career and experience with prediction market platforms. In 2005, he co-founded one of the first commercial prediction market software companies, Consensus Point. Since then he has worked to drive prediction market adoption in hundreds of organizations, including General Electric, Qualcomm, Best Buy, and the U.S. Government. For the past five years he has been working in the blockchain space, spending three years at Consensys where he focused on product strategy.
Chris Hutchinson is one of the industry’s best community builders. He started his blockchain career at Status.im, where he led the community efforts during the 2017 - 2018 Ethereum boom. In early 2019, he joined Web3 Foundation to build the Polkadot Ambassador Program from scratch, which now boasts over 1500 active members from over 300 cities worldwide. Additionally, he led many key marketing and community initiatives over the last couple years to promote both the Kusama and Polkadot networks, such as ‘Hackusama’ and ‘Hello World’ by Gitcoin.
What are Prediction Markets?
Prediction markets are open markets that trade assets which are tied to potential outcomes of a future event. They are a tool for aggregating information from a diverse set of participants and create strong probability signals for future events.
Prediction markets have been demonstrated to be an excellent tool for creating accurate signals of probabilities, beating out other usual methods such as polling. They accomplish this by providing incentive for individual participants to reveal their knowledge of events through the trades of the assets. The information is high-fidelity since the participants must put skin-in-the-game and stand to lose money if they are on the losing side of the outcome.
As mentioned above, Zeitgeist’s prediction market primitives will cover a wide range of capabilities. Below are some explanations and examples of each of these primitives:
A categorical prediction market is a market that can have multiple outcomes of different categories. You can think of a sports tournament where there are multiple teams that could all be the potential winner of the tournament. The market in this example would ask “Which team will win the tournament?” and each category would be a different team. The most basic form of prediction markets, the binary prediction market, is really a categorical market with only two categories of outcomes: YES or NO.
A scalar prediction market is a market that has a range of possible outcomes, and participating in this market resembles going long or short on the current price. Scalar markets are useful for numerical outcomes, such as financial markets. An example market would ask “What will the price of Bitcoin be on April 24, 2021?” and set a minimum and maximum price such as $40,000 - $60,000. Buying a LONG asset would mean you think the price will be closer to $60,000 while buying a SHORT asset would mean you think the price will be closer to $40,000. Scalar markets can also be used as leverage if you tighten the range that’s being traded.
A combinatorial prediction market allows traders to place wagers on compositions of interconnected outcomes. For example, let’s take a scenario in which a public company wants to use a prediction market to get a better idea of how a particular strategy impacts their market capitalization. They could make a combinatorial wager on the price of their shares after a certain date, composed of whether or not a particular strategy is implemented. Combinatorial markets are ideal for aggregating precise information.
The Liquidity-Sensitive Logarithmic Market Scoring Rule (LS-LMSR) is an automated market maker based on the original LMSR design by Robin Hanson. It was improved by Othman, Pennock, and others to be sensitive to the liquidity that exists inside of the market maker. Without this it requires maintenance from the liquidity providers (LPs) to change parameters in order to keep it efficient. LS-LMSR is a perfect fit for prediction market trading, and will likely be necessary for Zeitgeist’s combinatorial markets.
What is Futarchy?
Futarchy is a governance system that makes policy decisions according to the signals that are produced by prediction markets.
It was first conceptualized in a short article by Robin Hanson titled Vote Values, But Bet Beliefs where he sheds light on how it may provide an improvement to certain facets of how democracy is currently conducted - most notably by creating a better way to judge the potential benefits of policy decisions.
However, futarchy has typically been too alien a concept for the proper application in the contexts where it could really make a difference such as corporate governance, public policy decision, or city planning.
We believe that blockchains are the perfect fit for an experiment with futarchy and will be implementing futarchy as one of the key parts of Zeitgeist’s decentralized on-chain governance.
Build the Prediction Market Hub with Zeitgeist
We encourage anyone interested to join us on this exploration into a new ecosystem for prediction markets and futarchy. Stay on the watch for the upcoming announcement and public release of our testnet, Battery Park, with an incentivized testnet program. The best way to stay informed is by subscribing to our newsletter and joining our Discord server.
We will also host more community initiatives that will support those looking to build a product on the Zeitgeist protocol, including an upcoming grants program.
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