Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Gnosis and Stox are Cryptocurrencies based on Prediction

Replication has become one of the most interesting, and potentially most disruptive aspects of the current cryptocurrency market. Gnosis (GNO) and Stox (STX) are two Ethereum blockchain platforms trying to do the same thing: build online markets for predictions.

The two platforms have so many similarities that they look like twins or clones. Both are building markets for predictions, both are Ethereum-based, and both are issuing ERC20 protocol utility tokens that are integrated with the Bancor Protocol. The designers of each solution claim that prediction markets old the key to the future of finance.

Are Prediction Markets for Real?

A prediction market is actually a surveying mechanism designed to determine the probable outcome of a course of events. The market does this by taking bets on the outcome of an event such as an election, the Academy Awards, or a sporting contest.

The thinking behind a prediction market is that the wisdom of the crowd can determine the outcome, and collecting bets is the best means of learning what the wisdom of the crowd. The belief is that markets are the more efficient mechanism for gauging human opinion and that taking bets is the best way to get honest results from a survey.

Prediction markets are nothing new, before World War Two they were commonplace in American cities. Prediction-market specialists called “betting commissioners” even operated on Wall Street and sold betting contracts, MIT Professor Andrew W. Lo noted in his book Adaptive Markets: Financial Evolution at the Speed of Thought.[1]

Stox and Gnosis both aim to recreate those markets with the Ethereum blockchain. Their business plan is to take bets in Ethereum-based ER20 utility tokens. They hope to offer more liquidity and make payment faster by integrating their tokens with the Bancor Protocol.

 Stox vs Gnosis

Stox is designed to take prediction markets to the masses through a “fully functional prediction market app.” The idea is that anybody will be able to log in, make wagers on events, and create their own prediction markets.

The Gnosis Olympia App is a prediction market platform that will reward people with GNO tokens for successful predictions. Persons who make predictions in Olympia will be rewarded with the OLY “play money.” The purpose of this is probably to get around laws against online gambling such as the American Wire Act. One reason why prediction markets disappeared in the U.S. was that the Wire Act made it illegal to take bets across state lines.

The Gnosis team thinks that it can make money by using the market for price discovery. For example determining how much artworks will sell for at market, or predicting the price of stocks or real estate. The team hopes to create options similar to the pre-World War II betting contracts, the Gnosis Whitepaper states and sell them in a marketplace.

Stox intends to conduct peer-to-peer trading in predictions. It plans to manage the predictions and the market for them through Stox Smart Contracts, which would be Ethereum decentralized (DApps). The smart contracts would be the basis for a decentralized prediction market built on the Ethereum blockchain that anybody would be able to access.

Are Prediction Markets good Investments?

There are some serious problems with prediction markets including laws against betting. Such markets would be illegal in the United States under the Wire Act so Americans would not be able to participate in them for example.

Despite that, there is a huge market for predictive betting in countries like the United Kingdom where gambling is legal. That means there is a potential to build a large lucrative prediction market. Few investors seem to agree with this assessment, Coinmarketcap data indicates.

Stox (STX) tokens had a Coin Price of 22.6¢ on 25 March 2018. That gave Stox a Market Cap of $9.522 million and a Market Volume of $708,541 on the same day. This makes it overvalued because neither the business model nor the Market Cap justifies the Coin Price. Stox had a Circulating Supply of 42.120 million STX and a total supply of 57.606 million STX on March 22, 2018.

Gnosis (GNO) was ridiculously overvalued with a Coin Price of $71.79 on March 26, 2018. That gave Gnosis a moronic Market Cap of $79.296 million and a high Market Volume of $2.759 million on the same day. Gnosis had a Circulating Supply of 1.05 million GNO and a total supply of 10 billion GNO on 22 March 2018.

There is absolutely nothing in Gnosis’s business plan to justify the high Coin Price, although if you believe the efficient market or adaptive market theories on which prediction markets are based it is justified. My suggestion would be to avoid both GNO and STX because it is unclear whether these platforms would work, and quite probable that their business models may be illegal.

If you must buy a predictive market-based token buy Stox, at least it is affordable. Investors should stay away from Gnosis until it can demonstrate that its markets can make money.


[1] Adaptive Markets: Financial Evolution at the Speed of Thought. Princeton University Press 2017 pages 38 to 40.