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. 2 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. 3 • 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 4 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 5 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. 6 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. 7 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. 8 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. 9 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. 10
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