What is Gnosis? (GNO)
Summary of Gnosis
- GnosisDAO builds decentralized infrastructure for the Ethereum ecosystem.
- As a decentralized autonomous organization (DAO), Gnosis uses the products it creates to guide decisions on the development, support and governance of its ecosystem.
- GNO is the native token of the Gnosis ecosystem. It’s used for staking on the Gnosis Beacon Chain and acts as the governance token for the GnosisDAO.
Gnosis is a blockchain infrastructure provider that first launched in 2015 as a decentralized prediction market. Though the team initially planned to offer a blockchain platform with similarities to Augur, they soon realized there was a greater need for creating infrastructure tools to help expand the utility of the Ethereum ecosystem.
This realization pushed the core development team to build these required tools. Safe (multisig and programmable account), CoW Protocol (formerly CowSwap and Gnosis Protocol), Conditional Tokens (prediction markets), Gnosis Auction and Zodiac (standard and tooling for composable DAOs) are all products incubated by Gnosis.
In late 2020, Gnosis announced plans to transform into a Decentralized Autonomous Organization (DAO).
A year later, in 2021, the xDAI and GnosisDAO communities voted to combine their ecosystems to create the Gnosis Chain — a sidechain that aims to address many of the scaling challenges of the Ethereum blockchain. Gnosis Chain is the associated execution-layer EVM (Ethereum Virtual Machine) chain for stable transactions. It uses the xDAI token and includes a wide-ranging group of projects and users.
Who created Gnosis?
Gnosis was founded by Martin Köppelmann and Stefan George, with Köppelmann heading up the project as the CEO and George serving as the CTO. Gnosis, which was initially launched as a prediction market platform, is among the first projects supported by the Ethereum-focused incubator ConsenSys.
Before launching Gnosis, Köppelmann researched the economic incentive structures of different scalability solutions and consensus mechanisms, as well as the use of blockchain to enhance the concept of universal basic income. His work on the latter led to the creation of Circles, a crypto token built on Ethereum seeking to administer a basic income as a monetary policy. Prior to his work with Gnosis, George founded fairlay.com, a centralized bitcoin prediction market.
Gnosis raised 250,000 ETH (approx. $12.5 million USD, at the time) in a 2017 initial coin offering (ICO) for GNO cryptocurrency. The ICO released 4% of the coins’ 10 million max supply into circulation.
How does the Gnosis ecosystem work?
The Gnosis ecosystem has several components that help to improve the utility of Ethereum.
The CoW Protocol is a permissionless decentralized exchange (DEX) that allows users to swap any ERC-20 token – the fungible token standard developed by Ethereum – for another.
What makes the CoW Protocol unique is how it matches and settles trades on the platform.
Rather than using an automated market maker system where users provide liquidity for others to trade against, the CoW Protocol matches buyers and sellers using multi-token batch auctions and settles trades at the best available price.
Batch auctions work by grouping together buy and sell orders every five minutes. Other users can then compete to provide the best order settlement for the batch of trades. This is referred to as “solving” and anyone who does this on the protocol is dubbed a “solver.”
Solving protects traders against miner extractable value (MEV) — the maximum value a miner can receive as a result of producing a block over and above the usual block reward and gas fees.
Because each batch of orders will most likely contain a range of different tokens – such as DAI/USDC, LINK/WETH or GNO/USDT – a method called ring trading is used to settle them. This means that rather than clearing trades based on matching identical trading pairs, liquidity can be sourced from any order in the batch to complete the transactions.
Safe (formerly Gnosis Safe) is customizable multisignature wallet infrastructure suitable for companies and individuals. It is a smart contract wallet on Ethereum that requires a prespecified minimum number of approvals in order for the transaction to occur.
For instance, a business that has four main stakeholders can set up a wallet that requires a minimum of three stakeholders to approve a transaction before it is sent.
This gives users an increased level of security and means if one stakeholder’s private key to the wallet is lost or compromised, the funds are not at risk and can be retrieved by the remaining stakeholders.
Safe supports Ether (ETH), ERC-20 tokens and ERC-721 (NFTs) and it can interact with several DeFi platforms.
Gnosis Chain and Gnosis Beacon Chain
Gnosis Chain is the associated execution-layer Ethereum Virtual Machine (EVM) chain and uses the xDAI stablecoin to facilitate transactions and pay for fees. The network itself is secured by the consensus layer, called the Gnosis Beacon Chain (GBC). The GBC uses a Proof-of-Stake system – similar to Cardano and Solana – whereby users lock up an amount of GNO to participate in the transaction validation process and thereby receive additional GNO tokens as a reward for helping to secure the network.
GnosisDAO is the collective steward of the Gnosis ecosystem, formed in late 2020.
Over time, the GnosisDAO treasury has hundreds of thousands of ETH and millions of GNO tokens, with the GNO tokens vesting over an 8 year timeframe.
Why do GNO tokens have value?
GNO has two main functions in the Gnosis Ecosystem that make it valuable.
- Staking: In order to participate in the transaction validation process on the Gnosis Beacon Chain, users must deposit a minimum of 1 GNO token. Staking rewards vary depending on how many validators are active on the network.
- Governance: Users wishing to participate in guiding the products and development of the Gnosis ecosystem must first purchase and hold GNO tokens. A minimum of 1 GNO token is required to join. However, the process involves a weighted system whereby the more GNO tokens a user holds, the greater their voting power will be.
Together, these two functions encourage crypto investors to hold GNO tokens as opposed to selling them on the secondary market – helping to reduce market volatility and drive demand for the existing tokens in circulation.
Why buy GNO tokens?
Those looking to participate in a blockchain protocol aiming to solve many of the common scalability challenges facing the Ethereum ecosystem may be interested in purchasing GNO tokens.
Crypto users looking for an additional way to earn rewards on their tokens may be interested in purchasing GNO and earning staking rewards.
Those looking to have a direct say in the future development of the Gnosis project may be interested in purchasing GNO in order to take part in the governance of the project.