A prediction market as a distributed set of oracle federations

See also: Truthcoin as a spacechain.

This is not Truthcoin, but hopefully the essence of what makes it good is present here: permissionless, uncensorable prediction markets for fun, profit, making cheap talk expensive and revolutionizing the emergence and diffusion of knowledge in society.

The idea

The idea is just to reuse Fedimint’s codebase to implement federated oracle corporations that will host individual prediction markets inside them.

Pegging in and out of a federation can be done through Lightning gateways, and once inside the federation users can buy and sell shares of individual markets using a native LMSR market-maker.

Then we make a decentralized directory of these bets using something simple like Nostr so everybody can just join any market very easily.

Why?

The premise of this idea is that we can’t have a centralized prediction market platform because governments will shut it down, but we can instead have a pseudonymous oracle corporation that also holds the funds being gambled at each time in a multisig Bitcoin wallet and hope for the best.

Each corporation may exist to host a single market and then vanish afterwards – its members returning later to form a new corporation and host a new market before leaving again.

There is custodial risk, but the fact that the members may accrue reputation as the time passes and that this is not one big giant multisig holding all the funds of everybody but one multisig for each market makes it so this is slightly better.

In any case, no massive amounts are expected to be used in this scheme, which defeats some of the use cases of prediction markets (funding public goods, for example), but since these are so advanced and society is not yet ready for them, we can leave them for later and first just try to get some sports betting working.

This proto-truthcoin implementation should work just well enough to increase the appetite of bitcoiners and society in general for more powerful prediction markets.

Why is this better than DLCs?

Because DLCs have no liquidity. In their current implementations and in all future plans from DLC enthusiasts they don’t even have order books. They’re not seen very much as general-purpose prediction markets, but mostly as a way to create monetary instruments and derivatives.

They could work as prediction markets, but then they would need order books and order books are terrible for liquidity. LMSR market makers are much better.

But it is custodial!

If you make a public order book tied to known oracles using a DLC the oracle may also be considered custodial since it becomes really easy for him to join multiple trades as a counterpart then lie and steal the money. The bets only really “discreet” if they’re illiquid meaningless bets between two guys. If they’re happening in a well-known public place they’re not discreet anymore.

DLC proponents may say this can be improved by users using multiple oracles and forming effectively a federation between them, but that is hardly different from choosing a reputable oracle corporation in this scheme and trusting that for the life of the bet.

But Hivemind is better!

Yes.