Guesser’s High-Stakes Strategy to Win in Prediction Markets
Augur-based dapp is doubling down after competitor failed.
|Camila Russo||Jul 22, 2019|
Good morning defiers! Today’s Defiant is Spanish-themed: I’m in Galicia and my interviewee is Spanish and based in Madrid –in the very same street I lived in a few years ago!
Jose Garay is the co-founder of Guesser, a prediction markets company built on top of the Augur protocol. Competitor Veil shut down recently, so I wanted to hear from Jose what they’re doing to avoid a similar fate and his thoughts on the future of decentralized betting platforms, whose volumed has been disappointing so far.
Guesser co-founders Carlos Gonzalez and Jose Garay.
He’s betting on a simple user interface, sharing liquidity with Augur even if that means having to pay gas fees, concentrating volume on a handful of markets, and disagrees with Veil’s assessment that apps need to be either fully regulated or fully decentralized. Jose is feeling good in the middle ground. He also talks about how tokenized bets can be given as gifts and even passed down as inheritance.
The interview has been edited for clarity and brevity and I’ve bolded the quotes I thought were the most interesting.
Camila Russo: How did you first become interested in crypto?
Jose Garay: My partner Carlos and I were studying engineering in Madrid and not very happy with the university system started to look for things we could do on the side. One of those things was crypto and we liked Ethereum because of the flexibility for programmers, and Bitcoin because we thought the economic and monetary side was interesting, and we started contributing to open source projects, going to events, hosting events, until I realized I was spending so much time in the space, it would be better to just get a job there. So i got a part time job in Stampery, which does blockchain data certification, in early 2018, then around October, November, The Stampery guys introduced us to the guys from Boost VC, Tim and Adam Draper. In January we started with guesser full time.
CR: Did you finish school first or did you drop out?
JG: We still have some courses to finish but I’d say that’s on hold.
CR: That’s a common theme in among Ethereum developers. Why did you decide to go into prediction markets?
JG: We started seeing what peer-to-peer tech could do with smart contracts, which we thought was so interesting that they could execute automatically, and we started seeing how that affected prediction markets, lending, dexes, and we just thought prediction markers were more fun. We could create a product that is interesting for non financial people and non crypto people, like betting on how much money a Spiderman movie could earn, and that would attract a wider audience. It was more playful than a straight financial application.
CR: How did the initial idea evolve?
JG: In summer of 2018 we launched a first prototype that was similar to Guesser, which was a smart contract that collected money and then distributed it when something happened. And right after that, like one month later, Augur launched on the mainnet in July of 2018. We saw it had a smart contracts infrastructure that was a lot more complex than ours and that we could use right away, and that could save us time in the backend development, and we also thought that Augur as a decentralized project would focus on the smart contracts working well and core layer working well and we could focus on building a great product for people to use.
In October or November that year we decided to build an interface for Augur, taking advantage of the Augur’s infrastructure and the community of early adopters that was already around it and in January we launched the first version.
CR: How has the experience of building on Augur and Ethereum been like?
JG: It’s a slow experience, everything is in beta, Guesser is in beta, Augur is in beta, even Ethereum is kind of in beta, so everything breaks and there are many headaches. There also aren’t many cohesive standards, so people will use MetaMask, or Coinbase, or a hardware wallet and if any of those apps or the connections with them break, it also affects us. It's a lot more difficult than building say, a dog food app where you can just build for iOS and Android. You have thousands of complexities. But that said, the Ethereum the community is very open and there are ways of fixing things and always people willing to help, and even if it’s hard in that everything is new, that challenge is also fun. Being the first to solve something is exciting.
CR: Because it’s so new, there are also many grey areas with regulation. I saw on your website that you’re not accepting users from the U.S. Why is that?
JR: Augur built a protocol which is permissionless and those smart contracts are peer-to-peer and you can participate in the U.S. through a local console. It’s technical, but it can be done. But Guesser is a company building on top of that. We’re doing everything for free now, but in the future we’ll take fees and in the U.S. prediction markets are practically banned, and on top of that crypto regulation also isn’t very clear. But in other areas there's more flexibility. For now, none of the people building on top of Augur can cater to the U.S. user, which is a pain because there's a big crypto market there.
CR: So when Veil shut down, they made an interesting point about being either fully decentralized or fully regulated, but that it’s not good to be somewhere in the middle. What are your thought son that and why wasn’t it worth it to try to build something that was fully decentralized?
JG: We don’t think it’s black and white. Between Coinbase and a dex there are many different levels. Binance for example isn't as regulated as Coinbase. So we’re also somewhere in the middle. We have a bit more freedom because Guesser is in Europe, and we comply with regulations here, but we’re not . Being in the U.S. is very black and white, you're either fully regulated or not. But outside, there’s a bit more flexibility. We decided to go the regulated route because it’s an investment in UX. It’s easier for a non-crypto native person to use Coinbase than to use a dex.
CR: Veil also restricted some users, what else are you doing to make sure you don’t have to shut down?
JG: When we were in Boost VC for three months in the accelerator and did the funding round, everyone was asking about Veil because they had raised money from Paradigm, Sequoia and other big funds. And they were great, but from the start we knew we wanted to build something different. In Veil you could open orders, trade them, close them, it was more trader based. Guesser is more for just making a bet. You go from zero to making a bet in three clicks.
On a company level, it’s a prediction markets company. We have the product that brings people in, but also give liquidity to the rest of the market. We share our liquidity with Augur, while Veil’s was separate, they had their bets on [decentralized exchange] 0x to have cheaper transactions and not have to pay gas fees every time. But to use 0x they had to keep their liquidity separate. We think Augur’s community is the early adopter niche that's perfect for Guesser and so we thought it’s worth doing the trades on-chain and pay the gas fees to access that community. We won't use 0x until they’re connected directly to Augur.
We also think that blockchain right now isn't at the stage for doing small-time bets. You have more high-stakes user than an every-day user betting $10. So we thought high gas fees wouldn't be such a big problem, because people betting high amounts would be getting much higher fees and a lot more problems using a regular betting agency, so it will be worth it for them to use a peer-to-peer system.
Also instead of including every market, we’re only offering a few events. We started at one, and are now at six, but we change them every week or every couple of weeks. That way we concentrate liquidity.
CR: Has your strategy paid off? How much volume are you seeing?
It’s paid off. We’ve been live for five months and have had $300,000 of bets on Guesser markets. That would have been harder to get separating liquidity. Last month we had $125,000, without counting our liquidity. That's something else that we’re doing differently, we’re often taking the other side of the bet. So we’re growing but still very far from the volumes we want.
CR: Where would you want to be at the end of the year?
JG: At the end of the year or early next year we hope to see $1 million traded on Guesser.
CR: Do you foresee Ethereum scalability becoming a problem, or has it been a problem so far?
Guesser’s user numbers today are not very high. The website visits are in the couple of thousands, but probably 100 to 200 people are betting per month –it’s hard to say because they’re just Ethereum accounts. But they're betting high amounts. The highest bet we had was for $28,000 and we see $1,000, $2,0000 many times per week. There aren't many low stakes bets because it doesn’t make sense with gas costs. For now it’s good to have a few people, but betting high amounts, and little by little start building liquidity and start opening to the more mainstream audience.
Ethereum can't support one million monthly active users, that's why we're not in a hurry to have low-cost transactions. It will come in time. We’re adapting to the technology and growing alongside it.
CR: How do you plan to make money with this?
JG: Decentralized prediction markets have key benefits: There's no counter-party risk, the betting house can’t freeze your funds, can't take your funds away, there are no betting limits, so we think people will want to access these markets. And just like exchanges, we’ll take a fee per bet or the spread between the two sides. It’s not very different from regular betting house. Guesser is innovative but the betting house model is very old and it’s a very big industry, it’s a $100 billion market. The way of earning money is pretty straight forward and we’re offering a good interface that’s complying with local regulations.
CR: So with all those advantages, why hasn’t decentralized prediction markets picked up, in the same way that trading and lending has?
JG: Many reasons. First, applications like Maker and Dharma in terms of lending, are closer to a financial audience. Prediction markets mix the financial aspect with higher risk because you're betting on the outcome of a particular event, so it’s not so much an investment. That adds to the fact that liquidity is very low right now. The largest market is in the tens of millions of dollars, because someone has to be on the other side of the bet. If you want to open a CDP [collateralized dept position in MakerDAO] you can do it with your own money. You need more pieces for the whole thing to work. And then things like UX need to improve. We’re working hard on that but you still need MetaMask, you need to buy ether, so that restricts the number of users. We’re at a very early stage.
CR: What’s the big picture with decentralized prediction markets in the future?
For me prediction markets could compete with the big betting companies that do billions in volume every year because we have a good value proposition. Betting agencies can cancel your bets, can freeze your funds, their fees are around 8 percent, they set limits. In an inefficient market, smart contracts are valuable.
There are also things that aren’t just hard or expensive, but that just can’t be done in regular betting agencies. Bets in Augur are tokens. That means you can send them to your wallet, give them to someone else… So for example, one funny thing that happened recently: A user wanted to bet that the 50 percent of the world economy will be in a blockchain in the year 2100 and give the token to this grandson as inheritance. You can’t do that outside of the blockchain world.