vitalik.eth
06-01 19:21
@VitalikButerin
@AndyGuzmanEth We should go a step further, and move beyond the USD index itself
Have personalized per-user indices (think: consumer prices, labor prices, energy prices, rent)
then do PMs/options over all of the above
So combine https://t.co/efALVOuJjf and https://t.co/isSkr3901W
@VitalikButerin:Recently I have been starting to worry about the state of prediction markets, in their current form. They have achieved a certain level of success: market volume is high enough to make meaningful bets and have a full-time job as a trader, and they often prove useful as a supplement to other forms of news media. But also, they seem to be over-converging to an unhealthy product market fit: embracing short-term cryptocurrency price bets, sports betting, and other similar things that have dopamine value but not any kind of long-term fulfillment or societal information value. My guess is that teams feel motivated to capitulate to these things because they bring in large revenue during a bear market where people are desperate - an understandable motive, but one that leads to corposlop.
I have been thinking about how we can help get prediction markets out of this rut. My current view is that we should try harder to push them into a totally different use case: hedging, in a very generalized sense (TLDR: we're gonna replace fiat currency)
Prediction markets have two types of actors: (i) "smart traders" who provide information to the market, and earn money, and necessarily (ii) some kind of actor who loses money.
But who would be willing to lose money and keep coming back? There are basically three answers to this question:
1. "Naive traders": people with dumb opinions who bet on totally wrong things
2. "Info buyers": people who set up money-losing automated market makers, to motivate people to trade on markets to help the info buyer learn information they do not know.
3. "Hedgers": people who are -EV in a linear sense, but who use the market as insurance, reducing their risk.
(1) is where we are today. IMO there is nothing fundamentally morally wrong with taking money from people with dumb opinions. But there still is something fundamentally "cursed" about relying on this too much. It gives the platform the incentive to seek out traders with dumb opinions, and create a public brand and community that encourages dumb opinions to get more people to come in. This is the slide to corposlop.
(2) has always been the idealistic hope of people like Robin Hanson. However, info buying has a public goods problem: you pay for the info, but everyone in the world gets it, including those who don't pay. There are limited cases where it makes sense for one org to pay (esp. decision markets), but even there, it seems likely that the market volumes achieved with that strategy will not be too high.
This gets us to (3). Suppose that you have shares in a biotech company. It's public knowledge that the Purple Party is better for biotech than the Yellow Party. So if you buy a prediction market share betting that the Yellow Party will win the next election, on average, you are reducing your risk.
Mathematical example: suppose that if Purple wins, the share price will be a dice roll between [80...120], and if Yellow wins, it's between [60...100]. If you make a size $10 bet that Yellow will win, your earnings become equivalent to a dice roll between [70...110] in both cases. Taking a logarithmic model of utility, this risk reduction is worth $0.58.
Now, let's get to a more fascinating example. What do people who want stablecoins ultimately want? They want price stability. They have some future expenses in mind, and they want a guarantee that will be able to pay those expenses. But if crypto grows on top of USD-backed stablecoins, crypto is ultimately not truly decentralized. Furthermore, different people have different types of expenses. There has been lots of thinking about making an "ideal stablecoin" that is based on some decentralized global price index, but what if the real solution is to go a step further, and get rid of the concept of currency altogether?
Here's the idea. You have price indices on all major categories of goods and services that people buy (treating physical goods/services in different regions as different categories), and prediction markets on each category. Each user (individual or business) has a local LLM that understands that user's expenses, and offers the user a personalized basket of prediction market shares, representing "N days of that user's expected future expenses".
Now, we do not need fiat currency at all! People can hold stocks, ETH, or whatever else to grow wealth, and personalized prediction market shares when they want stability.
Both of these examples require prediction markets denominated in an asset people want to hold, whether interest-bearing fiat, wrapped stocks, or ETH. Non-interest-bearing fiat has too-high opportunity cost, that overwhelms the hedging value. But if we can make it work, it's much more sustainable than the status quo, because both sides of the equation are likely to be long-term happy with the product that they are buying, and very large volumes of sophisticated capital will be willing to participate.
Build the next generation of finance, not corposlop.
Grayscale
06-01 18:30
@grayscale
Hyperliquid
A DeFi platform built on perpetual futures, now rivaling traditional exchanges.
Spot, futures, and outcome markets in one place.
US access could be the next catalyst for $HYPE
Read the full article from @LowBeta on the Stack: https://t.co/uQEUE3w35R https://t.co/k0S5vGyZWh
vitalik.eth
06-01 15:31
@VitalikButerin
@llamaonthebrink If you guys succeed at building an oracle that is extremely robust under contention (of if @UMAprotocol themselves makes an improved design, which I would love to see!), then here's another use case for it:
https://t.co/V8LCXIkcB2
vitalik.eth
06-01 15:28
@VitalikButerin
See also: the bottom half of this earlier post
https://t.co/Y2jOdoltdT
Moving away from fiat currency, and toward price stability through each person and institution getting their own customized basket.
vitalik.eth
06-01 14:08
@VitalikButerin
See also: my criticism of the idea that ZK alone, even if well implemented, is sufficient to make "identity verification" pro-freedom: https://t.co/rye1q5G90G
(And some alternative ideas for how to solve underlying goals)
@mullvadnet:The EU age verification app is presented as “completely anonymous”. But the risk is that member states (the countries are supposed to create their own versions of the open-source EU app) use it to introduce identity verification that makes it impossible to post anonymously on social media.
The idea behind “completely anonymous” is to use Zero-Knowledge Proof (ZKP) cryptography to break the link between the age credential issuer (EU governments) and the regulated services/sites. Currently, the EU app does not have ZKP functionality, contrasting Ursula von der Leyen’s claim that the app ”is technically ready to be used”. But more importantly, the app is designed to always function without ZKP technology; if ZKP is unavailable, the app falls back to a non-ZKP model. Even if fully developed ZKP technology could be implemented in the future, it would remain an optional extra feature that countries may choose to disable and that the EU could remove at any time.
This means that the EU could decide at any time that ZKP may no longer be used, and in one stroke the app would fall back to its default mode, meaning that every post on social media carries an ID tag. By that point, an infrastructure will already have been rolled out; people will have gotten used to it, and it will be harder to roll it back.
More details on https://t.co/wTVKHMS1zg
vitalik.eth
06-01 13:13
@VitalikButerin
This is why:
* Self-sovereign identity, data and money (so you control your account, not a third-party provider)
* CROPS AI (so other people cannot do this to *your computer* https://t.co/zmG8wrfzAi )