Numerai’s breakthrough is proving that staked data is better than un-staked data. Users who stake more behind their submissions are more likely to be right than users who stake less. This helps the fund decide how to allocate its capital based on anonymous predictions. Numerai has paid millions of dollars to thousands of users with this system, proving people all over the world are not only willing to produce and sell valuable information in exchange for crypto, but also to put real value at risk behind their claims.

Staking proved to be a brilliant quality filter for information. But Numerai was a centralized service focused only on financial data. And if this idea worked for the stock market, it could probably work for any kind of information. So they decided to turn this mechanism into an open protocol, and that’s how Erasure was born.

The Protocol

Erasure consists of three primitives: payment, recourse, and track record. The first primitive facilitates the exchange of information. A user looking to buy some information can stake behind their request to prove they are serious about their request, and anyone can sell them the data provided they also stake some NMR behind it (according to the buyer’s stake requirements). The amount staked tells consumers how confident the producer is in the quality of their information, and the data can be encrypted such that only its buyers can read it. Everything is automatically recorded on the Ethereum blockchain, so the history of the transaction cannot be removed.

Crypto makes payments easy; because the exchange is managed by smart contracts, each party can trust the information will be paid for and delivered as posted. It’s also possible to stake and post data to Erasure without encryption and for zero payment, solely for the purpose of staking a permanent claim on the blockchain.

Recourse is what allows the parties in a transaction to threaten the other’s stake after the exchange. The first kind of recourse available on Erasure is called punishment. Users can set a “punish ratio” for their stake. For example, if a producer sets it at 1:9, it means the consumer can destroy 9 NMR of the producer’s stake for every 1 NMR they destroy of their own. A consumer may grief a producer for bad information, like a wrong price, fake news, spam, etc. But it costs money to burn money, so people are discouraged from abusing the feature. The mere threat of grieving is enough to keep most people honest (though it’s possible to be both honest and incorrect), but in general, a high griefing ratio means the producer is very confident because more of their stake is at risk.

Finally, there’s the track record, which is composed of every user’s history. It’s Erasure’s equivalent of eBay or Amazon reviews, except you can trust it because it’s made entirely out of blockchain data with economic guarantees. The meta-data generated by an Erasure transaction provides a lot of information for producers and consumers to decide if they can trust each other. Anyone can see the record of transactions for every user, including whether they’ve been burned or not. In particular, a user’s “punishment history” provides a useful measure of quality without revealing the contents of the information being exchanged. A user with a large amount of NMR staked and a long history of not being punished is a lot more appealing than a user with the opposite qualities, and so on.

With these elements, any Web3 developer can make a stake-based information market for their application. Each primitive is extensible and composable, meaning app developers can customize anything from data formats to payment methods, invent new recourse mechanics, and design their own reputation formulas based on track record. For example, you could extend the payment primitive such that staking happens with NMR but payment with another token (like ETH, Dai, or your own), or you could create a recourse template where stakes are burned based on what happens in other smart contracts, such as the outcome of an Aragon DAO’s vote or the output of an oracle.

Erasure Today

Numerai moved itself to Erasure when it launched on Mainnet, and released a new app Erasure Quant to leverage some of the new functionality. All of Numerai’s activity now runs on the new protocol, and we can see activity growing by looking at how much NMR is staked in Erasure contracts over time. According to Defi Pulse, there’s ~70,000 NMR “at risk” staked behind predictions, worth about $1.2 million at current market prices (~$16/NMR):