published: 2019-12-12
An interview with the founders of DigiOptions, originally published in German on BTC ECHO, https://www.btc-echo.de/wetten-auf-der-blockchain-fuer-jeden-und-auf-alles-ein-interview-mit-den-gruendern-von-digioptions/
Blockchain technology can be used for more than just trading Bitcoin. DigiOptions aims at offering decentralized new betting markets comprising much more than crypto currencies. Today, the Ethereum blockchain enables business models that were not possible some years ago due to technical and regulatory hurdles. In this interview the founders of DigiOptions, Holger and Ulf, explain how digital options work, how even weather could be traded and how market liquidity is provided.
How did you come up with the idea of starting DigiOptions?
Holger: We had the idea for DigiOptions over ten years ago. At that time we did market making with our first fintech as a service for a financial betting platform. This worked out very well: Our trading bot filled the order book for our client fully automatically – he was very happy because he had liquidity in his markets and thus the decisive competitive advantage. We founded DigiOptions at that time but stopped the project because of regulatory requirements. Now we live in the blockchain world and have received the go of German supervisory authority, BaFin. Now we can start.
How do the digital options work and how are they different from other financial derivatives?
Holger: A digital option is nothing more than a bet. For example, on DigiOptions.com you can find a bitcoin market. There you can bet if the Bitcoin is worth between $ 7,250 and $ 7,500 tonight. This costs, for example, 0.2 Ether. If you win the bet, you will automatically receive 1 Ether transferred to your wallet. As a trader you only need an Ether wallet. A bank account does not have to be opened. Everyone can bet on DigiOptions – on everything.
Why do you use the Ethereum Blockchain?
Ulf: Our platform is completely decentralized – from the order book to the matching of supply and demand and finally settlement. We can realize this using the ethereum blockchain and their smart contracts. We make use of smart contracts and build on the confidence in ethereum blockchain. It is guaranteed that every user gets paid his profit in the end. Because everyone offering a bet has to deposit the underlying amount on the blockchain in the first place. So we eliminated the default risk. Using the blockchain we want to be safer and even faster: A new market can be set up with just a few clicks. The users have the control: they open up the markets and also settle them.
Now you are not just talking about options on cryptocurrencies. Your digital options should also be able to handle various events, for example from the world of sports and politics?
Ulf: Our vision is a whole universe of decentralized betting markets. We'll start with markets on cryptocurrencies like Bitcoin, Ether or Ripple. Then markets will follow on politics ("Will Trump win the next presidential election?") and sports, weather and society. Finally, our users can also offer markets for local events ("Who wins the tournament of the local football club?"). We are very curious about which bets are created by our users.
What is the regulatory situation here? Not everyone can open a betting market.
Holger: Persons or companies that open up a betting market must comply with the legal requirements of their country. We also point this out in our disclaimer. We want to work with strategic partners who have the appropriate licenses.
How are you regulated yourself?
Holger: DigiOptions develops the software for the options markets and makes them available as free software. We do not run the stock exchange by ourselves, we do not open up markets and we do not settle them. We just perform online marketing to ensure that interested traders will find the betting markets. For this marketing service we are paid a success-dependent fee. So we are an online affiliate marketer. In October 2019 we received the OK from the German financial supervisory authority for our business model since we do not provide any financial services.
Are platforms like Augur or Gnosis competitors of yours as they also offer bets on various events?
Ulf: Augur and Gnosis are competitors and role models at the same time. They entered the market early and did important preliminary work for decentralized markets. They call it prediction markets as the market prices represent the probability of the event occurring. We hope having learned from our competitors in one respect: Offered market liquidity is really important; we saw this early when providing market making services.
And how do you ensure that there is enough liquidity in your betting markets?
Ulf: We have developed a trading bot that trades on the markets and thus fills the order book. So if someone wants to trade, he simply can accept one of the available offers. The bot performs strict risk management: If the risk in one event is too high it simply buys the opposite event. This allows us to ensure liquidity in many markets with limited resources.
What is your business model?
Holger: We are an affiliate marketing company. When someone opens up a market, he can specify in the smart Contract what proportion of their earned transaction costs they want to spend for online marketing. If this share is attractive to us and the market is reputable then we perform online advertising for his market. DigiOptions aims to become the central point of access for digital options markets on the blockchain.
What is the current status? What are the next steps for DigiOptions to launch?
Holger: Already for more than one year our prototype is running stably on ethereum testnet. Thus, the technical proof of concept has been provided and we were able to implement the wishes of our test users. After three years of preparation, we founded the company in August 2019 and in October 2019 we got approved by the supervisory authority. These were significant milestones. At the beginning of 2020 we will go live with DigiOptions.com on Ethereum main-chain. Our test users are impatiently looking forward to it.