Clearmatics, one of many first startups to discover how monetary devices can stay on blockchains, is unveiling a completely new class of decentralized futures merchandise, which it’s calling forecast markets.
These totally on-chain devices take the type of dated futures contracts that may monitor any public time sequence knowledge, whether or not it is crypto indexes, inflation or temperatures, giving the looks of one thing extra akin to prediction markets akin to Polymarket than conventional derivatives.
Forecast markets can be supported on the soon-to-launch layer-1 blockchain Autonity and newly developed Autonomous Futures Protocol (AFP). The debut of the brand new Ethereum-compatible chain and the futures protocol will coincide with a “Forecastathon” subsequent month, a approach to invite quants, engineers and DeFi fanatics to take part in creating prototype merchandise on Autonity.
“AFP helps the permissionless creation of dated futures contracts that may monitor any underlying time sequence of curiosity, not simply market time sequence, however non-market time sequence, like GDP, inflation, world temperature, blockchain metrics and so forth,” CEO Robert Sams mentioned in an interview. “Principally any time sequence that the market cares about sufficient to invest on or hedge, you possibly can create a product for on Autonity.”
Regardless of sounding much like prediction markets, presently widespread owing to the success of Polymarket, the 2 do not work in the identical approach. Forecast contracts transfer one-to-one with some underlying issue offering a symmetrical payoff profile. Prediction markets ship a one-off payout.
When a prediction market occasion occurs, the profitable facet is paid out and the market goes away. A sequence of futures contracts on an underlying knowledge sequence, nonetheless, can go on in perpetuity, Sams mentioned. This permits liquidity to construct up over time, monitoring dangers that persist, while prediction markets are extra centered on topical narratives, he mentioned.
Forecast markets are usually not meant to compete with prediction markets, Sams mentioned.
“We see forecast and prediction markets as complementary to 1 one other, serving completely different wants in a shared and rising area of market-based mechanisms for managing uncertainty.”
The crypto derivatives area, which has been hotting up currently as some giant exchanges acquired derivatives firms, stays largely dominated by perpetual futures merchandise. Crypto perps can be supported in a future model of the AFP, Sams mentioned, however on-chain, dated futures with the potential to trace any real-world, measurable threat issue can create way more worth and social utility than protocols centered on crypto asset markets, he mentioned.
“There is a group of individuals in quantitative buying and selling and machine-learning analysis who would love to check whether or not their techniques have an edge in predicting issues that presently can’t be traded,” Sams mentioned. “The long-tail of worth creation will come when individuals uncover how these devices could possibly be used to scale back the volatility of asset portfolios. Each portfolio has publicity to threat elements for which there isn’t any corresponding monetary hedging instrument.”
Stanley Yong, head of the Autonity Basis, the blockchain’s decentralized governance entity, presents the pricing of Singapore’s certificate of entitlement (COE) for vehicles for instance of a real-world threat that can not be hedged at the moment.
“Singapore controls the variety of vehicles on its roads by rationing the availability of COEs via periodic COE auctions,” Yong mentioned. “All vehicles want a COE, so used automobile costs fluctuate with COE public sale costs. A forecast contract that tracks COE auctions would enable somebody trying to promote their automobile to hedge the quantity they obtain forward of time.”
A considerably geekier, market construction factor to the Autonity blockchain and the AFP is the separation of the trade half, the place patrons and sellers agree on a value and execute a commerce, and the clearing half the place good contracts maintain collateral, deal with margin necessities and public sale off under-funded positions. In different DeFi protocols, that is normally carried out in a vertically built-in structure the place a product may be traded solely on a particular buying and selling venue.
The AFP permits merchandise to be permissionlessly listed on a number of buying and selling venues however with all of the collateral and the cross-margining carried out on-chain, Sams mentioned. This makes it very capital environment friendly, and likewise solves one of many key structural points with the decentralized derivatives, which is the fragmentation of open curiosity throughout trade silos.
“We predict it is odd to name a market ‘decentralized’ when you possibly can solely commerce it via one buying and selling venue, even when that monopoly venue is a DEX,” Sams mentioned. “We predict a market is simply decentralized when contributors can enter a place via no matter venue they select and exit a place via no matter venue they select.”