SIP - Custom Binary Options

As Binary options pose a risk free gain to stakers, we want to attract as many bidders as possible.
We already saw interest in discord about custom markets, such as “Will Trump win the general election 2020?”, or “Will ETH 2.0. be released 2020”?
I wrote a SIP on how this could be implemented with minimum effort, by having a trusted governance council resolving these options.
Sip link will be added here once merged to the main repo.

To resolve custom markets a optionsDAO council would be formed. Its proposed that it is composed of 10 trusted addresses in the beginning (core team, guardians, grantsdao).
A custom martket has 3 outcomes:

  • Yes (LONG)
  • No (Short)
  • Cancelled

An outcome is decided by 7 optionsDao votes on chain.

Cancellation is there to deal with ambiguous markets as well as unpredicted scenarios, such as the general elections in the US getting cancelled due to Corona situation.
It also gives the optionsDao capability to prevent bad actors to create intentionally ambiguous markets, as those markets would get cancelled soon upon creation, and the bad actors would basically just waste the gas money for creating the market.

It is suggested to trial this approach by creating a few markets and checking how much interest they attract.

If the trial is successful and we want to give everyone a chance to create a custom market, it should be made clear that first a custom market idea should be pitched to the DAO and if approved generally (in the beggining do it offchain, in discord channel), they should proceed and create the market. Otherwise they risk having their market cancelled due to ambiguity in the custom question.

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I think being too casual about the members of the DAO is a potential problem. Being “trusted” members isn’t enough. This should be a compensated, serious responsibility with several layers of safeguards in place.

Don’t have a comprehensive design to propose yet, but these are some features I’d like to see:

  • Staked balances from each DAO member that can be slashed for bad behavior by a supermajority vote
  • A subset of the DAO randomly selected (Chainlink VRF?) to validate each outcome. Maybe 10 out of 20 total DAO members for each option. This makes insider corruption much much more risky
  • Some non-trivial percent of pool size paid out to DAO members
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Proposed members for the trial are core team members, guardians and grantsDao members, all of them already heavily invested/stakes in SNX. Their staking profits would also come from these binary options, so its in their interest to have them running smoothly.
Even assuming some bad actors, they would need 7 votes out of 10 to “fake” an outcome, which I believe will nip any attempts in the bud.

I agree with your points in terms of longterm vision, but I feel that the initial implementation should be as straightforward as possible, and any compensation logic would be a huge overhead.

My idea is to keep the effort minimal and have this implemented relatively quickly, so that we can create a few trial markets with arbitrary questions and see how much interest they attract, before contemplating a full blown solution.

I’m also of the opinion if we can put together a DAO to vote on these granular issues, that would be ideal. Potentially, if we can get token holders to vote for some sort of incentive, that could be a great decentralized solution. Maybe pDAO can vote with delegated powers from token holders, or a whole new DAO all together.

I like MJC’s perspective to keep a long-term approach with respect to formalizing the structure of an optionsDAO on an ongoing, into-perpetuity basis. These ideas are constructive and I think will come in handy. For the present purposes of testing a minimally viable DAO, a minimalist-overhead set up makes the most sense. By running 2-5 prediction markets by the end of 2020 on an iterative, experimental basis, the community will be in a much better position to:

  • derive lessons for what a formalized optionsDAO should look like based on experience and perhaps mistakes and scars

  • infuse more theoretical aspects from game theory and general ideas on how to make the voting optionsDAO a sustainable operating system

In order to reach a stage where the community can meaningfully perform this type of structural analysis I favor Danijel’s simplified, trial-based approach that focuses on standing up and generating interest for these markets on an expedited schedule.

fwiw, I think an iterative approach here makes the most sense. But in order to scale it out there will need to be some economic guarantees against corruption/collusion. One nice property of SNX is that a significant proportion of any holders SNX is in escrow at all times. This makes it easy to add the ability for the token holders to vote to slash a optionsDAO member if they are corrupt. The only issue is that the guarantees are then bounded by the collective value of the smallest escrow balances of the signer threshold. So if you only needed 5 signers to collude and they each had $100k SNX then slashing all of it could still be insufficient given the potential size of any single options market…

There are a few options, including forcing unanimity for a market to be resolved. And then for any unresolved market throwing it back to a token holder vote where voting on the wrong side of the market results in slashing. Though this obviously creates a significant burden on stakers, though given they are the ones facilitating these markets through collateralising the network this may be acceptable.

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That’s an awesome suggestion to use escrow balance as guarantee. I think that’s really all that is needed.
If we think about hypothetical situations: very large pools are only likely to happen when odds are close (60-40, 50-50), so colluding in such cases doesn’t really make much sense. Also the idea of having 5 random guys colluding in this space where everyone wants to be anon is pretty much impossible, unless ethereum implements messaging. Unless we are talking about known team members and guardians colluding, which I find impossible considering their stakes and trust built on historical behavior.

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