The Decentralized Reputation Ledger

21 Pages·2017·0.96 MB·English

Amulet: The Decentralized Reputation Ledger
AndreyLukatsky AlexLukatsky,PhD
Bachelor’sinComputerScience Ph.D.inTheoryofFunctions
UniversityofCalifornia,Berkeley andFunctionalAnalysis
Berkeley,CA94720 LomonosovMoscowStateUniversity
[email protected] Moscow,RU119991
[email protected]
HoriaMargarit,MS AdamHooker
Master’sinStatistics Bachelor’sinSoftwareEngineering
StanfordUniversity UniversityofAdvancingTechnology
Stanford,CA94305 Tempe,AZ85283
[email protected] [email protected]
Abstract
Thestatusquoforhowfinancialmarketexpertsachievecompensationisfunda-
mentallystructuredtoproducelow-quality,misguidedadvice. Manyexpertsearn
income by posting eye-catching content on websites that pay per one thousand
impressions,likeSeekingAlpha. Inthismodel,entertainment-valueoutweighs
accuracy and actionability of advice. Others receive affiliate compensation for
promotingdubiousinvestmentopportunitiesthathavenolegitimateprospectof
generatingrevenue. Lowquality,misleadingadvicehasbeenproliferatedbyindi-
vidualsseekingtocapitalizeontheseincentivemodelsandthishasgoneunchecked
byanysignificantnegativeconsequences. Furthermore,inthestatusquo,experts
inexclusivepossessionofausefulinsighthoardtheirinsighttoavoiddilutingtheir
ownabilitytoprofit. Theneteffect,isthatvaluableadviceisextremelyscarceand
impossibletotellapartfromthenoise.
Amulet solves this problem with the first of its kind Decentralized Reputation
Ledger. Amuletincentivizesqualifiedexpertstocontributeverifiablepredictionsto
theledger,sothatinvestorscanobservehowaccuratetheyareovertime. Investors
canbegintofilteroutadvicefromexpertswhoaren’trightoftenenoughfortheir
liking. The incentive for market experts to participate is a large payout for the
expertwhocorrectlypredictsaneventcontrarytothepredictionsofotherexperts
ontheAmuletmarketplace. Expertsarealsoabletotouttheirsuperioraccuracy
(verifiable by anyone via the blockchain) as a reason why their advice should
commandahigherpremiumfromadvice-seekerswhosubscribetothemviathe
AmuletMarketplace.
1 Introduction: WhyTheMarketForFinancialExpertsIsBroken
Whenevaluatingwhichcryptocurrenciestobuy,hold,orsell,you’remakingapredictionaboutwhat
will happen to the price of this coin in the future. You would benefit from a detailed prediction
fromaqualifiedexperttogutcheckyourown,butwherewouldyougoforreliablepredictionsfrom
verifiablemarketexperts?
Currently,thereisnoserviceavailableforinvestorstoauditathird-partymarketexpert’strackrecord.
Thisleavesmanyinvestorsinacatch-22: theyneedadvicefromindividualswithdifferentexpertise
thanthemselves,buttheylacktheexpertisetovalidatethequalityoftheseindividuals. Eveninvestors
whoareequippedtodothiswell,lackthebandwidthtodoitrepeatedly.
Nowsupposeyouareontheotherend-youareareahighlyskilledfinancialmarketexpert,and
youwanttoprofitfromcorrectlypredictingmarketoutcomes. Youlookforservicesthatwillpay
youfairlyforyourcontent,anddiscoverthattheyallpayyoubasedonhowmanyimpressionsyou
generate.
You need a large following but what strategies will you employ to win over followers against
the backdrop of dump scams, shilling, FUD and infeasible technology pitches being hawked by
established, celebritypersonalities? Unfortunately, theansweristocreatesensationalcontentto
generate louder noise than your competitors. There is no financial incentive for you to publish
accuratepredictions,thereareonlyincentivesforwinningoveralargeaudience. Thisrendersall
currentdomainsandservicesformarketadviceuseless.
Amuletsolvesboththeproblemofverifiableexpertpredictions,andofdiscoveringexpertsbased
onthequalityoftheirexpertiseratherthantheirsocialpopularity. TheAmuletplatformenables
marketexpertstogrowtheirreputationthroughafirst-of-its-kindDecentralizedReputationLedger.
TheAmuletReputationLedgerwillhelpinvestorsdiscoverthemostobjectively-qualifiedCrypto
investmentexpertstofollowbasedonthemetricthatmattersmost: howoftenthey’vebeenright.
Webelievethatblockchaintechnologyiscriticalforthetaskoftrackingreputationsbecausetrusted
third-partiescanbecorruptedorbiasedbytheverypeopleitpurportstorate. Onlyatrustlessrecord
ofreputationliketheAmuletDecentralizedReputationLedgerfitsthebill.
SohowdoesAmuletuseblockchaintechnologytoestablishanobjectiverecordforexperts? Amulet
accomplishesthisbytreatingfinancialmarketpredictionsinasimilarwaythatBitcointreatshashing.
Everypredictionanexpertmakescoststheexpertmoneybeforeitcanbepublished. Thisislikethe
investmentaBitcoinminermustmakeinhardwareandelectricityandtime. Butonlythewinning
predictionwillearnthepayoutfromthepot. ThisisliketheBitcoinminerwhoonlywinstheblock
rewardaftersuccessfullyminingavalidblock.
ThisisimplementedthroughasmartcontractwhichdefinestheAmulettoken. Thesmartcontract
enablesanexperttosubmitacryptographichashoftheirpredictionsoncetheypayasubmissionfee.
Thisdatagetsimmutablywrittentotheblockchainalongwithatimestamp. Thesmartcontractwaits
apredeterminedamountoftimeuntilthepredictioncanbeverified. Afterthetimehasexpiredand
thepredictionhasbeenverified,marketexpertssubmittheplaintextversionoftheirpredictiontothe
smartcontractandthehashischecked. Thesmartcontractpermanentlyrecordswhichexpertswere
correctintheirpredictionontheblockchain,andrewardsthem.
Amuletthereforereliesonblockchaininthreecrucialways. First,itisbuiltonthephilosophyof
economicdisincentivefromcheating,asfamouslypioneeredbyBitcoin. Second,itimplementsthe
smartcontractforthehandlingofpredictionpayoutsinapublic,permissionless,andfullyauditable
blockchain.Third,itleveragescryptotokenstobecometheuniversaltransactionmediumforfinancial
predictions,completelyunrestrainedfrombordercontrols,fiatcurrencyexchanges,andmanipulation
fromtraditionalcorporatefinanceplayers.
Weareenvisioningaworldinwhichinvestorsbegintoviewanauditablehistoryontheblockchain
asaminimumrequirementforexperts. Manyunqualifiedcommentatorshavebeengettingafree
pass,butAmuletisputtingthemonnotice. Ifyoucan’tstandbehindyourrecordofpredictingcrypto
markets,thenyouwillbedisqualifiedfromgivingadvice. Lendersdon’textendcredittoentities
withoutacredithistory,andwebelieveinvestorswillstoplisteningtoexpertswhodon’thavean
Amuletreputationrank.
For real experts, this presents a massive new opportunity. They can finally prove their value -
objectively-bydisplayinghowoftentheybeatthemarketthroughtheirskilledpredictions. They
canchangetheconversationfrom"I’mpopular",to"I’musuallyright",andthiswillhelpthemboth
growtheirfollowingandjustifygreatercompensation. Theyalsogainaccesstoanaudienceviathe
Amuletplatform,andcanpublishtheiraccuracywherevertheywant.
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1.1 AmuletTokenandAmuletPlatform
Ourproductofferingconsistsoftwoproducts,broadlyspeaking. ThefirstistheAmuletToken,which
isanon-chaindecentralizedreputationmanagementsystem. ThesecondistheAmuletPlatform,
whichhostsoff-chaintoolsforadvancedfinancialmarketpredictions.
Amulet’stokenfullyutilizessmartcontracttechnologytobecometheuniversalmediumfortrans-
actingfinancialpredictions. Itaccomplishesthisbyrequiringmarketexpertstopaybeforetheycan
respondtoarequestforafinancialprediction(RFP),andsimilarlybyrequiringaninvestortopay
beforetheycanreceivetheresponsestoanRFP.Thedetailsofthetokenanditsimplementationcan
befoundinchapter2.
TheplaformprovidesmorevaluetotradersandexpertsbeyondthetokenandDecentralizedRepu-
tationLedger. Thissuiteofbest-in-classmachinelearning-powereddatatools,providesreal-time
MarketSentimentAnalysisandothercrucialtradingsignalsthathavebeenpromisedbymany,but
deliveredbyfew.
AmuletPlatformisoneofmanyfutureservicesleveragingtheAmuletToken.Theseparationbetween
tokenandplatformisnecessarytoempoweraboomingeconomyforbothmarketexpertsandfor
investors. Thiseconomyanditsecosystemisdetailedinchapter4.
Ourplatformprovidesasuiteofmarketinsighttoolstoenablemarketexpertstoformulatethebest
responsestoanyrequestforprediction(RFP),andtoenablethereceivinginvestorstovalidatethe
assumptionsmadebysaidmarketexperts. Ourplatformalsoempowersinvestorstoformsyndicates
tokeepthecostperpersonlowwhileenablinglargepayoutsforcorrectpredictionsfrommarket
experts. AmuletPlatfomanditsimplementationisdetailedinchapter3.
2 AmuletToken: ACryptoeconomicSolutionToThisTrustProblem
2.1 AmuletToken: TheUniversalMediumForTransactingFinancialPredictions
Atahighlevel,thisishowtheDecentralizedReputationLedgerwillwork:
• Investorssolicittime-boxedrequestsforprediction(RFPs)fromparticipatingexperts.
• ExpertspaywithXAMtooffertheirpredictionswhicharerecordedwithatimestampon
theblockchain.
• InvestorspaywithequalincrementsofXAMtoreceiveexclusiveaccesstothepredictions
expertssubmitpertainingtotheRFP.
• Allpayinginvestorswillgettoseealloftheexpertssubmissions,andanyinvestorwho
wishestoreceiveanexpert’spredictionwithoutotherinvestorinterestcanrepeatedlybuyin
multipletimes.
• AfterthetimingspecifiedintheRFPhastranspired,asoftwareoracleintroducesdatafrom
real-worldeventspertainingtotheexperts’predictionssothatarecordingcanbemadeof
whethereachpredictionshascometofruition.
• ExpertswhomadeaccuratepredictionsarerewardedinXAMtokenspertheexecutionof
smartcontracts.
• WhenfewerexpertsarecorrectforagivenRFP,thepoolofXAMcontributedbyhighest
bidding investor and by all experts who answered the RFP is divided up between fewer
winnersyieldingalargerpayout.
• AfteranexperthasansweredmanyRFPsapictureemergesofhowaccuratetheytendtobe,
intheformoftheirAmuletreputationrank.
• Thisranktakesintoaccount: therecencyofpredictionsmade,thedifficultyofpredictions
madeandotherfactors.
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• Expertswhohaverecentlystartedcanchoosewhentheywishtoassociatetheiraccountwith
theirpublic-facingidentitytoshowcasetheirAmuletreputationrankasameasureoftheir
accuracytotheirfollowers.
TheAmuletreputationrankgivesinvestorsanobjectivebasistoevaluatethemeritofanexpertand
theadvicetheyoffer. Thecomputationofthisscoreisdetailedinsection2.2.1. Weenvisionthat
themarketwilleventuallydictatethatexpertsmustparticipateinthisobjectivescoringinthesame
waythatcreditorsdemandthatlendersbuilduptheirreputabilityviaacreditscore. Bothtradersand
marketexpertswillbenefitinthissystem. Thefollowingsectionsgooverindetailthemechanicsof
howthisDecentralizedReputationanditsparticipantswilloperate.
Seefigure1forahigh-leveloverviewoftheend-to-endprocess.
Figure1: High-leveloverviewoftheend-to-endprocessforExpertReputationManagement
2.1.1 UsersDepositAmuletIntoReputationSmartContract
Allusers(investorsandexperts)willfirstneedtodepositAmuletTokensintotheReputationContract
wallet. TheReputationContractkeepsamappingofuseraddressesandbalances. Whenauserwants
touseafeatureoftheReputationContract,tokensaredeductedfromthisbalance.
2.1.2 CreatingRequestsForPrediction
Investorscreaterequestsforpredictions(RFPs)relatedtospecifictopicsinwhichthey’reinterested.
CreatinganRFPcostsanominalfeeinAmuletTokenstodisincentivizespam.
AllRfPswillrequirebuy-inbyinvestorswhowishtoreceivearesponse. Thisbuy-inwillbein
equallyspacedincrementsofAmulettokens(eg.,10XAM).AfterRFPcreation,alltheinvestors
whowishtoviewtheresponsesfrommarketexpertsmustpaysomeintegermultipleoftheequally
spacedincrement. Thispaymentwillgetdeductedfromtheirtokenbalance.
InordertoensurethattheRFPsaremeasurable,Investorswillbeprovidedwithtemplatesthatthey
canuse. WhentheRFPissubmittedtotheReputationSmartContract,theRFPwillalsobeverified
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off-chain(toensureit’svalidandmeasurable),anda"verified"flagwillbesetontheRFPwithinthe
SmartContract.
FieldsWithinAnRFP Arequestforpredictionwillhavethefollowingfieldsuponcreation:
• Body-RFPtextdescribingtheoutcometobepredicted
• Options-Listofpossibleoutcomesthatmayoccur
• Buy-InPeriod-Daterangewhereinvestorsbuy-intoreceivetheexperts’predictionsinthe
formofresponsestoaparticularRFP.
• PredictionPeriod-Daterangewhereexpertscancontributetheirpredictionsasaresponse
toaparticularRFP.
• Event Date - Date when the outcome being predicted occurs and will be verified by an
oracle.
• Buy-InIncrement-TheequallyspaceincrementsofAmulettokens(XAM)willvaryin
spacingfromoneRFPtothenextbasedonthesupplyandcirculationvolumeofXAM(eg.,
lowcirculationvolumemayyieldbuy-inincrementsof1XAMwhereashighcirculation
volumensmayyieldbuy-inincrementsof10XAM).
• VerifiedStatus-WhetherthisRFPhasbeenverifiedtoensurethatitismeasurable
2.1.3 Buy-InProcessForARequestForPrediction
OncetheRFPisverified,investorsbuyintotheRFPduringtheBuy-InPeriod. Whenaninvestor
payswithanintegermultipleofthebuy-inincrement,theXAMisdeductedfromtheirtokenbalance.
InvestorssendthefollowinginformationtotheSmartContractwhentheybuyintoaresponse:
• UniqueIDoftheRFP-Therecouldbehundredsofrequestsforpredictionssoinvestors
mustexplicitlyspecifyforwhichRPFsthey’repayingforaresponse.
• IntegermultipleoftheBuy-Inincrement-ThisquantityoftheXAMwillgetdeducedfrom
theirAmulettokenwallet.
• Public Key - If this RFP receives responses from market experts, the public keys of all
bought-ininvestorswillbeusedbytheexpertstoencrypttheirresponsessothatonlythe
payinginvestorswillbeabletoviewthepredictions.
2.1.4 ExpertsSubmitPredictions
Afterthebuy-inperiodisover,ExpertscanchoosetorespondtoanRFPbysubmittingaprediction.
Expertsareincentivizedtoparticipatebasedonthesizeofpooledbuy-inincrementsfromallthe
investorswhopurchasedaresponse. Thispoolwillgetrewardedtotheexpertsiftheirpredictions
turnouttobecorrect. Ifnomarketexpertsrespondwithpredictions,thentheinvestorbuy-inamounts
areallreturnedtotherespectiveinvestors.
If Experts decide to submit a prediction, they send the following data to the Reputation Smart
Contract:
• Hash of prediction concatenated with a 64-character random string (this secret ensures
thatadversariescan’tdeterminetheexpert’spredictionsbyhashingallthepossibleevent
outcomes).
• Encryptedpredictionandthesecret(samerandomstringasabove)usingthepublickeysof
allbought-ininvestors.
• Hashofexplanatorytextthatdescribeshowexpertsarrivedattheiranswer(optional)
• URLofthetextfilecontainingtheencryptedexplanatorytextusingthepublickeysofall
bought-ininvestors(optional)
TheInvestorswhoboughtintoreceivingaresponseforthisparticularRFPareabletoaccessall
thepredictionssubmittedbyExpertsinresponsetotheRFP.Saidinvestorscanviewthehistorical
performanceofeachexpertwhoofferedaprediction,whichwillprovideusefulcontextifthereis
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disagreementinthepredictions. TheInvestorusestheirPrivateKey(thatcorrespondstothePublic
KeythattheysubmittedwhentheyboughtintothisRFP)todecrypteachExpert’sprediction(figure
2).
Atfirst,onlytheseInvestorareabletoviewthepredictionswithwhichtheExpertsrespondtothe
RFP-nooneelse,noteventheSmartContract,canviewtheirpredictionsatfirst. AftertheEvent
Date occurs, Experts are required to submit their plaintext predictions to the Smart Contract for
verificationasdescribedbelow.
Figure2: ExpertssubmitpredictionstotheblockchainthroughtheSmartContractandanyoneofthe
bought-inInvestorsreadsthem.
2.1.5 ExpertPredictionVerification
AftertheEventDateoccurs,Expertshave72hourstosubmittheirplaintextpredictionsalongwith
thesecretusedduringthehashingprocesstotheSmartContract,andaURLtotextfilecontaining
theiranalysis(unencrypted;andoptional).
72hoursaftertheEventDate,anOracleperformsthefollowingactions(seefigure3):
• UsingeachExpert’splaintextpredictionandsecret,computesthehashandcomparesitto
whattheExpertsubmittedtotheSmartContractduringthePredictionPeriod. Ifthisdoesn’t
match,thepredictionisconsideredincorrect. ThepurposeistoensuretheExpertaccurately
reportsthepredictionsheoriginallyprovided.
• UsingeachExpert’splaintextpredictionandsecret,alongwiththePublicKeyofanyone
of the bought-in Investors, encrypts the prediction and compares it to what the Expert
submittedduringthePredictionPeriod. Ifthisdoesn’tmatch,thepredictionisconsidered
incorrect. ThepurposeistodisincentivizeExpertsfrompredictingoneoutcome,butgiving
thebought-inInvestorsanother.
• VerifiestheactualoutcomeoftheeventusingaWebAPI(e.g. GeminiAPI)andwritesthe
resulttotheblockchainviatheSmartContract. IfanExpertfailsoneofthe2checksabove,
theOraclewillnotifytheSmartContractandthatExpert’sanswerwillbemarkedincorrect.
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AfterreceivingtheactualeventoutcomefromtheOracle,theSmartContractawardstheExpertswho
predictedcorrectlywiththeprizepoolasdetailedinsection2.5,andthereputationofallparticipating
Expertsgetsupdatedasdetailedinsection2.2.1.
Figure3: Aftertheeventoccurs,ExpertssubmittheirplaintextpredictionstotheSmartContract. An
OracleensuresthattheplaintextpredictionmatcheswhattheExpertpreviouslyreported,andrecords
theactualoutcomeontheblockchainthroughtheSmartContract.
2.1.6 OrderofOperationsRecap
2.1.7 Scenarios
CommonCase InvestorAlicecreatesaquestionrelatedtowhichcryptocurrencyoutofalistof10
willappreciatethemostinthenext2weeks. Shepaysanominalfeeof1XAMtowritethisquestion
totheblockchain. Shebuysinwith10XAM.Alice’s10XAMareheldinescrow. AnOraclechecks
thatherquestionismeasurableandmarksitasVerified.
InvestorBobseesherquestionanddecidesthathetoowouldliketoseetheanswer,sohebuys-in
with15XAM.Bob’s15XAMareheldinescrow,raisingthevalueofthepotforarequesttothis
RFPto25XAM.Thebuy-inperiodends.
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The Prediction Period begins. Expert Charlie sees this question and decides that the prize pool
(25XAM)isworthhistime. Heperformssomeanalysisandcomesupwithaprediction. Healso
generatesa64-characterrandomstring(thesecretinfigures2and3). UsingthePublicKeysofboth
bought-ininvestors(AliceandBob),expertCharlieencryptshisplaintextprediction+thesecret.
Separately, expertCharliehasheshisplaintextprediction+thesecret. Hesubmitstheencrypted
predictionandthehashedpredictiontotheSmartContract,alongwiththe5XAMrequiredtosubmit
ananswer. Theprizepooltherebygrowsto30XAM.AnotherExpertDaveseesthisquestion,comes
upwithaprediction,andperformsthesamesteps,increasingtheprizepoolto35XAM.
Alice queries the Smart Contract to see that her question has 2 predictions. She retrieves the 2
encryptedpredictionsfromtheSmartContractanddecryptsthemusingherPrivateKey. OnlyAlice
andBobknowtheirrespectivePrivateKeys,soonlytheycanreadtheresponsesencryptedwiththeir
publickeys. WhilereadingCharlieandDave’spredictions,AliceusestheAmuletPlatformtosee
howaccurateCharlieandDavehavebeeninthepast(asdetailedinchapters3and4). Sherealizes
thatalthoughDavehasaccuratelypredictedmoreevents,Charliehasperformedbetterwithhertype
ofquestion.
The Prediction Period ends, and everyone waits for the actual event to occur. For this specific
question,thewaittimeis2weeks. AftertheEventDateoccurs,ExpertsCharlieandDavesubmit
theirpredictionsinplaintexttotheSmartContract.
AnOracleencryptsandhashestheplaintexttoensureitmatcheswhattheExpertssubmittedduring
thePredictionPeriod. Ifamismatchisfound,theExpert’spredictionisconsideredincorrect. Charlie
andDavearehonestandthechecksucceeds. TheOraclereportstheactualoutcomeoftheeventafter
consultingaWebAPItotheSmartContract(whichofthose10coinsgrewthemostin2weeks).
TheSmartContractdeterminesthatCharliewascorrect,whileDavewasnot. Charlieearnsareward
as detailed in section 2.5. Charlie receives 35λ XAM where 1-λ represents the commission rate
takenoutbyAmuletplatform,andwherethe35XAMcomefromthe10XAMinAlice’sbuy-in
fortheRFPplus15XAMinBob’sbuy-infromtheRFPplusthe5XAMstakedforeachofthetwo
responsestotheRFP.
(AliceandBobcaneitherrepresentindividualsorsyndicatespoolingmoneytogether)
InvestorSubmitsAnInvalidRequestForPrediction InvestorAlicecreatesanRFPthatisnot
specificormeasurable,"Whatcrytocurrencyisbetter?"Shepaysthe1XAMfeeandattemptsto
buy-inwith10XAM,whichgetsheldinescrow. AnOracleparsesthisRFPandcomparesitagainst
alistofknowntemplates. ItdeterminesthatthisRFPisinvalid. TheRFPgetslockedandAlice’s
buy-inof10XAMgetsreturnedtoher. However,sheforfeitsthe1XAMfee.
InvestorDoesn’tReceiveAnyPredictions InvestorAlicecreatesanRFPandnoExpertssubmit
predictions. Thelikelycauseisthattheprizepoolwastoosmall(aninsufficientamountofXAM
wasbought-intoenticeanyExperts). WhenthePredictionPeriodends,anyoutstandingbuy-insare
returnedtotheInvestors.
InvestorDoesn’tReceiveQualityPredictions InvestorAlicecreatesanRFPthatgetssuccessfully
verified. Shebuys-intoreceivearesponsefromtheExperts,asdootherInvestors. ExpertsCharlie
andDavesubmitpredictionsthatareoflowquality. Aliceandtheotherbought-ininvestorscheck
the reputations of Charlie and Dave on the blockchain and know not to act on their predictions.
Unfortunately,nootherExpertrespondstotheRFPwithasubmittedpredictionofacceptablequality.
WhentheOraclesubmitstheactualoutcomesoftheeventtotheSmartContract,itturnsoutthatboth
CharlieandDavewerewrong. BecausenoExpertspredictedcorrectly,allofthebought-ininvestors
XAMarereturned,exceptforAlice’sstakeof1XAMforcreatingtheRFPinthefirstplace. The
ExpertsdonotreceiveanyrefundfortheirownXAMwhichtheystakedtosubmitaprediction.
ExpertDoesn’tSubmittheirValidPlaintextPrediction AftertheEventoccurs,Expertshave
72hourstosubmittheirplaintextprediction. ExpertsCharlieandDaverealizethattheypredicted
incorrectly. Charliedecidesnottosubmithisplaintextpredictionaltogether,andDavedecidesto
submitadifferentplaintextpredictionthantheoneheoriginallychose.
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72 hours after the Event, the Oracle checks the blockchain for the plaintext predictions from the
Experts. Because Charlie didn’t submit any plaintext, the Oracle skips verifying his previously
submitted encrypted string and hash. The Oracle knows that the Smart Contract will mark his
predictionasincorrectbecauseitismissing. ForDave,theOracleattemptstocomputetheencrypted
string and hash using the submitted plaintext. It doesn’t match what Dave previously submitted
duringthePredictionPeriod,sotheOracleinstructstheSmartContracttomarkDave’spredictionas
incorrect.
In summary, the Smart Contract will mark both Charlie’s and Dave’s predictions as inaccurate,
adverselyimpactingtheirreputationandreturningthebought-inXAMtotheinvestorsbutkeeping
thestakepostedbytheexpertstorespondtotheRFP.
ExpertSubmitsTheirOwnRequestForPrediction ExpertCharlieisverygoodatrespondingto
RFPsrelatedtothefutureofLitecoin. However,hedoesn’tseeanyRFPsrelatedtoLitecoinbeing
postedbyInvestors. SohecreatesanRFPaboutitandpostsittotheblockchainwithanominal
buy-inamountof5XAM.InvestorAliceseesthisRFP,becomesinterested,andbuys-infor10XAM.
Atthistime,thetotalprizepoolforaresponsewithacorrectpredictionis15XAM.Attheendof
theBuy-InPeriod,Charlieissatisfiedwiththepotentialprizepoolandstakes5XAMtosubmithis
prediction. IfnootherExpertssubmitaresponse,andifCharlie’spredictioniscorrect,thenhewould
earn20λXAM.Where1-λisthecommissionoftheAmuletplatform.
UnexpectedEventOccurs BetweenthetimeanRFPhasbeenverifiedbytheOracleandtheprize
poolpaidout,anunexpectedeventoccursthatrenderstheRFPinvalid. Forexample,theRFPisabout
acertaincryptocurrencyandthatcoinceasestoexist. AnotherexampleisifanRFPaskedtopredict
whichofasetof3coinswouldgrowththemost,buttheyallgrewthesame. WelldefinedRFPs
willensurethatthesetypesofscenariosarerare,buttheymayoccur. Inthesecases,thebought-in
XAMwillbereturnedtoallbought-inInvestorsandallXAMstakedbyExpertstorespondwitha
predictionwillalsoberefundedtoallrespondingExperts.
ExpertLosesTheSecretUsedToEncryptTheirSubmittedPrediction ExpertCharliedecides
to respond to a particular request for prediction (RFP). To submit his prediction, he generates a
randomsecretstring,concatenatesittohisprediction,andencryptsandhashesitbeforesendingto
theSmartContract. Unfortunately,Charlieforgetstosavethissecret. AftertheEventoccursandit’s
timetosubmithisplaintextpredictionalongwiththesecret,he’sunabletodoso. Themostlikely
scenarioisthattheExpert’spredictionwillbemarkedasincorrect. However,thereissomehope
forCharlie. Thebought-inInvestorswillhaveaccesstothesecretkeythatCharlieused. Ifthey
cooperateswithCharlieandsendittohim,Charliewillbeabletosuccessfullysubmithisplaintext
predictionandsecret.
2.2 RankingReputation
Disincentivizingcheatingthereputationsystemrequiresdevaluingbeingcorrectonpredictionson
whichmanyotherexpertsarealsocorrect. Thisdevaluationistopreventcollusion,wheretwoor
moremarketexpertsjointlyrespondtothesamerequestforprediction(RFP)inthesameway. Sybil
attacksareaspecialcaseofcollusion,whereamarketexpertcolludeswithoneormoreclonesof
herself.
Amulet platform therefore ranks the reputation of market experts as a percentile rank of their
probabilitiesofcorrectlyrespondingtoanRFP.Ifyoucolludebygivinggoodpredictionstoothers
(ortoclonesofyourself)thenyou’reincreasingtheratioofmarketexpertswhoarescoringatleastas
highasyou. Bydefinition,asmallerratioofparticipantsscoredstrictlylowerthanyou. Colluding
hasthereforedecreasedyourpercentilerank.
Percentile rank also ensures the Amulet platform is welcoming to market experts at all stages
throughouttheplatform’slife. Thisisbecauseexpertsarenotpenalizedforthenumberofincorrect
predictions. Rathertheyarepenalizedforbeingoutperformedbyotherexperts.
Amulettokenensuresthatthispercentilerankreflectstheglobalparticipationofmarketexperts. Ifa
marketexpertrespondstoanRFPwhichwaspostedbyanotherplatform,sheshouldberewardedif
fewotherexpertsrespondedcorrectlytothatprediction. Itwouldnotbefairtoonlyconsiderher
responsestoanRFPfromasingleplatform.
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2.2.1 DefiningReputationRankWithFairUtilityEstimates
Supposewewantamathematicallyreusablerepresentationoftheperformanceofamarketexpert.
Oneattemptatimplementingthiswouldbetoestimatetheprobabilitythatexpertℓwillyieldacorrect
predictiononthej+N attempt,giventheirperformanceonthepreviousN predictionattemptsfor
j ∈{0,1,2,3,4,...}. Formally,
(cid:16) (cid:17)
Pr{correctprediction |previousN outcomes}=E 1{correctprediction }|previousN outcomes
ℓ,j+N ℓ
j+N−1
1 (cid:88)
≈ 1{correctprediction }
N ℓ,n
n=j
=ρ
ℓ,j+N
whereyouneedtocomputeρ asasimpleorexponentialmovingaveragetoguaranteethathigh
ℓ,j+N
values remain high only if active participation and correct predictions are sustained. This is fair,
becausewewanthighrankingmarketexpertswhobecomelazytolosetheirranktohardworkingbut
relativelynewmarketexperts. Thesimplemovingaverageisdefinedin3.3.1butisreproducedhere
forconvenience
1 (cid:16) (cid:17)
ρ = 1{correctprediction }+Nρ −1{correctprediction }
ℓ,j+N+1 N ℓ,j+N ℓ,j+N ℓ,j
(1)
1 (cid:16) (cid:17)
= 1{correctprediction }−1{correctprediction } +ρ
N ℓ,j+N ℓ,j ℓ,j+N
Whichyieldstheintuitiveresultthatyourρ decreasesforeverynewwrongpredictionifyou
ℓ,N+1
usedtomakecorrectpredictions. Similarlyyourρ increasesforeverynewcorrectpredictionif
ℓ,N+1
youusedtomakewrongpredictions. Butthisprobabilityisnotthebestscoretousewhenranking
marketexpertsbecauseitdoesnotaccountforthedifficultyofanRFP.
Amulet assumes that the free market will price the RFPs based on difficulty. In other words, it
assumesthatadifficultRFPwillprovideenoughvaluetotheinvestorsthattheywillbidhigherand
highertohaveitansweredbymarketexperts. Thereforewecanleveragetheρ todefinethe
ℓ,N+1
expectedmonetaryreturnofhavingaparticularexpertrespondtoasequenceoftheM mostrecent
requestsforprediction. Formally,theexpectedmonetaryreturnforexpertℓrespondingtotheM
mostrecentRFPsisdefinedas
µ =E (cid:0)θ(cid:1)
ℓ,j+M ρℓ
j+M−1 m
≈ 1 (cid:88) θm+1 (cid:88) 1{correctprediction }
M N ℓ,n
m=j n=m−N+1
j+M−1
1 (cid:88)
= θ ρ
M m+1 ℓ,m+1
m=j
where N ≤ M and where j ∈ {0,1,2,3,4,...} as before and where θ is the total amount
m+1
of Amulet tokens available to be won if you correctly respond to the m+1th RFP and where the
probabilityofmarketexpertℓcorrectlyrespondingiscomputedasbeforeusingasimplemoving
averageofthepreviousN results. Factoringthistosubstitutethecomputedvaluesρ istrivial
ℓ,m+1
andyieldsthesimplemovingaverageoftheutilityfunctionoverawindowoftheM mostrecent
RFPs.
1 (cid:16) (cid:17)
µ = θ ρ +Mµ −θ ρ
ℓ,j+M+1 M j+M+1 ℓ,j+M+1 ℓ,j+M j+1 ℓ,j+1
(2)
1 (cid:16) (cid:17)
= θ ρ −θ ρ +µ
M j+M+1 ℓ,j+M+1 j+1 ℓ,j+1 ℓ,j+M
Amuletthensortsthevectorµcontainingtheutilitiesforeverymarketexpertℓandreportstheir
percentilerank. Meaningtheirreputationscorewillbethepercentageofmarketexpertswhohavea
strictlysmallerµ.
ThepercentilerankensuresfairnessthroughouttheentirelifecycleofAmulet,becausemarketexperts
willnotbepenalizediftheirrawnumberofcorrectpredictionsislow. Rathertheywillbepenalized
ifothermarketexpertsareoutperformingthem.
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