Why is Kleros valued so low?

post by ChristianKl · 2021-07-21T13:50:11.732Z · LW · GW · 6 comments

This is a question post.

Kleros provides a system that allows smart contract in natural language to be written by letting randomly drafted juries evaluate the contract. It seems to me that this principle is incredibly powerful for all sorts of real world applications whether it's arbitrating the outcome of a prediction market or making sure that the events listed in the prediction market follow rules spelled out in natural language. 

At the moment it seems like Ethereums transaction costs are still limiting the utility of Kleros but either further progress in Ethereum or a Ethereum Virtual Machine on another chain is likely soon able to allow Kleros to provide the services more cheaply. 

Kleros Market cap is currently at $58,597,050 (with $73,236,896 fully diluted) which is relatively low compared to other crypto-assets especially given that it has potentially so much real world use-cases compared to a lot of other blockchain projects without real world usecases. Either there's some argument against Kleros that I'm not seeing or it should be valued 100-1000X of what it's current value happens to be.  

Answers

answer by lifelonglearner · 2021-07-21T18:12:11.358Z · LW(p) · GW(p)

As a defi user / Ethereum dev, there are two things that seem relevant:

  1. Many of the use-cases for which Kleros seems good for (e.g. arbitrating social contracts, prediction markets, etc.) is not where most of the capital is on Ethereum. Most capital is engaged in various overcollateralized lending/borrowing, LP, derivatives, synthetics, etc. So until we see additional applications which run on the social layer, I don't think the utility of Kleros will be made that apparent.

  2. Partially related to the above, the lack of social-based applications I think has to do with a combination of generally poor UX and high latency for Ethereum. We're seeing some exciting updates on this front with rollup solutions like Optimism and zkSync which can provide ~10x increases to start, but again, the ecosystem hasn't really caught up.

More broadly, I think that attention in crypto markets shifts often, and valuations are kind of all over the place. I think I believe that scalable protocols for dispute arbitration if done well can be worth several multiples of Kleros' market cap, but also it's unclear if Kleros is that specific protocol? I personally need to dive into this more.

answer by korin43 · 2021-07-21T15:29:48.156Z · LW(p) · GW(p)

I don't know the specifics in this case, but it's possible the valuation is "low" because it's really easy to compete with this company (just hire your own juries). So the company might provide a lot of value but not be able to extract very much of it for itself.

comment by ChristianKl · 2021-07-21T15:58:03.396Z · LW(p) · GW(p)

It's not easy to compete because there are network effects. If you hire your own jury than you are responsible for picking jurors which means that people have to trust your decisions about how to pick jurors.

The more active jurors you have the harder it is to manipulate juries in your favor.

answer by Dagon · 2021-07-21T20:46:56.992Z · LW(p) · GW(p)

Haven't looked, so maybe they solved this, but my primary concern with putting any of my money behind that kind of contract-validation is that I don't understand why we'd believe the predicted evaluation matches the actual evaluation of the contract.  Either the contract is objective and you don't want juries at all, or the contract is subjective but the distribution of test juries is likely very different from the actual jury.

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comment by Daniel Kokotajlo (daniel-kokotajlo) · 2021-07-21T14:49:55.888Z · LW(p) · GW(p)

I'm a crypto newbie. Can you give an example of a real-world application Kleros is already being successfully used for?

Replies from: ChristianKl
comment by ChristianKl · 2021-07-21T15:22:07.373Z · LW(p) · GW(p)

Omen is a prediction market that exists and that uses Kleros as final source of truth for resolving the prediction. Polkamarkets is a prediction markets that's currently being build and as far as I see they also want to use Kleros as source of truth.

Those usecases work at the current transaction costs.

At lower transaction costs more usecases are possible.

Facebook is at the moment in a situation were they hire a bunch of content moderators and get criticized from both sides of the political spectrum for making the wrong decisions as far as content moderation goes.

Kleros provides the ability to just write the rules for content and let Kleros do all the work to resolve disagreements about moderation decisions. At that point Facebook just becomes responsible for the rules and not anymore directly responsible for individual calls on individual posts. 

As a big company Facebook might not want to go that way but I would expect a new social network to arrise that decides against hiring a bunch of content moderators and just lets Kleros resolve the disputes about people violating norms like not insulting each other.

If you currently hire a freelancer over a platform like upwork you have to pay 20% transaction fees. That's a lot. One of the things that upwork does for the fees you pay it that it arbitrates when conflicts between market participants arrise. 

Kleros allows you to build something like upwork that can work with lower transaction fees for hiring freelancers but where conflicts get automatically arbitrated and where content rules that forbid people from hiring assassins or do other jobs that are unwanted can be enforced. 

In countries that currently don't have a trustworthy legal system that upholds contracts Kleros allows you a system that you can just deploy in a territory like Western Sahara where businesses currently don't have a legal system that manages to uphold contracts between them.