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TLDR: Celeste answers questions by asking them to a random selection of users. The users do not know each other but must answer the same as the plurality. Anyone not answering the same as the plurality will lose money, anyone answering along with the plurality will make money. It is expected this will lead users to answer in accordance with established community values and norms. As an example use of this, within the 1Hive protocol and Gardens, Celeste will be used to decide whether or not a pending vote belongs within the organisation.
Celeste is a subjective oracle used to resolve disputes arising from optimistic actions. It does so in a predictable, inclusive, and democratic fashion.
Disputes may arise from an optimistic action when determining whether or not it adheres to the commitments made when interacting with a smart-contract that has been protected by a human-readable covenant.
Optimistic Actions are a class of mechanisms where we assume that the agent who creates the action will provide valid input. The agent must lock some collateral in order to submit the action, and there is a window in which each action may be challenged by other agents. In the event of a challenge, some authoritative process is used to resolve the dispute.
In some cases, optimistic games can be resolved in a purely deterministic standpoint at the expense of some overhead, as is the case with an optimistic rollup, and in those cases, the games provide a scalability benefit since in the vast majority of cases the dispute process is unnecessary since all agents have common knowledge that attempts to provide an invalid input, another agent will challenge them and they will lose their deposit and any additional collateral they may be required to deposit as part of the dispute resolution process.
However, a much broader set of optimistic games can be considered where the resolution cannot be resolved deterministically by a smart contract itself, but which a subjective oracle protocol like Celeste enables.
Covenants are human-readable documents that can be paired with smart contracts to create optimistic games which use Celeste as a subjective oracle for resolution.
A covenant can be thought of as an instruction manual for participants who have staked in Celeste to evaluate and resolve arbitrary disputes. While covenants are not legal agreements, they share similar properties in that the interpretation of an agreement is based on a common understanding among protocol participants and a precedence history that is established over time as disputes arise and are resolved.
A Covenant can be used to improve stakeholder governance by creating an optimistic game to moderate the proposal creation process.
Rather than limit who can create proposals, the covenant allows anyone to submit proposals but requires the submitter to put up a deposit attesting that the proposal is valid according to rules and guidelines expressed in the associated covenant. This approach ensures that the proposal process is inclusive and can't simply be captured by whales.
Covenants have been integrated into the Conviction Voting and Delegative Voting apps which will be used for governance of 1Hive's Honey Protocol, the Token Engineering Commons, Agave's Lending Protocol, and will be used as the governance mechanism included in Gardens an upcoming platform for users to participate in Token-based Governance.
A covenant can be used to define a canonical set of elements, which are a core primitive used in decentralized applications and protocols. This primitive can be used to categorize and accept tokens on decentralized exchanges and lending protocols, it can be used to moderate user-generated content in metaverse applications, or establish a curated collection of NFT artwork.
A covenant can be used to resolve prediction markets, decentralized insurance claims, and improve accountability in bounties, escrow, and milestone-based payout systems.
In these cases, there is often a common understanding of how things should be resolved, but no way to compute that resolution on-chain without input from an oracle. With a covenant, anyone can provide the resolution, and if someone disagrees they can invoke Celeste.