Prediction markets (PMs) in blockchain systems are based on smart contract technology and need oracles. These oracles in Amoveo are directly based on the principles of futarchy.
There are two types of oracles in Amoveo: Question Oracle and the Governance Oracle. The purpose of the first one is to deliver information about past and present facts, thus ensuring the operation of the PM and other smart contracts. The purpose of the second is to manage the development of the Amoveo network itself. But the principle by which both oracles operate is very similar, since they ask participants a certain question and the community answers by placing bets. The winning outcome is the one that attracts the most money. Read more about the Amoveo oracles here.
To start off with, let us briefly review the work of the Question Oracle in the PMs.
Let one of the PM participants say that by the end of the year Bitcoin (BTC) will cost more than $8,000, and the other one will say that it will be less. We’ll call them players. Both players bet VEO coins on it, for the Question Oracle to be activated. If one of the participants wins, he will take all the VEO staked on that bet.
When the time comes to close the contract, the oracle sends the question to the network participants: Does the current BTC rate exceed $8,000? Those who are interested (let's call them a jury) should give an answer and back it up with money. Three types of answers are possible: TRUE, FALSE and BAD QUESTION. The jury independently ascertains the information and then answers by making their own bets. The option on which they bet the most is considered to be true. The winner among the players is determined on those bases. The jury that voted for any other answers loses their stakes in favour of the supporters of the winning option.
In fact, here we have two nested disputes. One is that the rate of BTC at the end of the year is unknown when creating a contract between the participants. And the second is that the rate is already known, and the jury team determines the winner.
Such a system does not guarantee that all of the answers will be reliable, as one can also present ambiguous options, which we will discuss in more detail here. But, at least, it is capable of providing higher reliability than a simple “public opinion” (the sum of the participants' opinions regardless of their degree of competence).
Now let us discuss how the Governance Oracle works.
The Governance Oracle only deals with internal network development. For instance, a question could be: ‘Should miners’ reward be raised to N?’ or ‘Should Amoveo be renamed to VEO?’ Just like a Question Oracle, a Governance Oracle relays the question to all network participants. But in this specific case, their answers are based on their interests, rather than their knowledge. Those in favour of raising miners’ reward (most likely the miners themselves) will bet on TRUE. Those, who don’t want accelerated inflation due to this change will bet on FALSE. After comparing all the bets, the oracle will raise the reward or leave them as is.
What does futarchy give here in comparison with democracy’s “1 person - 1 vote”? Obviously, in a futarchy, the probability of increasing the miner’s reward is higher. Miners are a minority, they are interested in increasing their rewards, but most ordinary users can vote against simply out of envy. In a democracy with universal suffrage of network members, it would be difficult for miners to raise their rewards. But in a futarchy, the average vote weight of the miner and the average user is different, since the miner is willing to risk money for greater profits, while the average user is unlikely to risk for a mundane reason.
The Amoveo futarchy provides for advantages both over oracles and PMs by other projects, as well as over blockchain governance projects. For example, BTC itself, where the weight of users' votes is not equal as it’s determined by the number of coins in their wallets. At the same time, only miners can vote. Such a cut-off helps protect the network from the most incompetent users, but it does not bring the level of weight in terms of responsibility that Amoveo has, as in comparison, Bitcoin voters do not risk losing money. Managing the BTC network is reminiscent of an archaic democracy with property qualification that is in some sense even less democratic than the futarchy of Amoveo. The betting system allows Amoveo to flexibly endow all users with the ability to manage the system in general, while protecting the network from “mob rule”.