Lets say a user (group) is interested in rumors/forecasts of a specific topic. The idea is now that similar to start a new blog on it with wordpress a user can start a new prediction market (skin) on it with Gnosis. Despite some customization of the appearance everything else will come ready to use by Gnosis software.
There are only 3 exceptions that needs to be taken care of:
Event descriptions
Oracles
market makers
should be done by the user. They care about the topic, they know what is interesting. 2) Oracles can also be done by the user or they will even be self resolving. Both methods are a little bit unsecure but totally fine if you have a backup mechanism in the case of a conflict like the ultimate oracle.
The tricky part is 3). In principal this is how money can be made because if you can calculate decent odds and offer them as a market maker you can make a lot of money. However - to get a topic/skin started another mechanism needs to be found. In general automated market makers are a solution to this problem - however, they will only in rear cases fund them selfs. So a possibility is to create new tokens and fund the market makers with those new tokens. Lets say you want to do a skin on tv shows (Will Frank and Clair get divorced in the next season of House of Cards) - you could create 50 events with this newly issued coins. To trade on this events people had to buy those coins - basically they can exchange them for Ether. 1 Ether = 1 TV-Show token. If they buy the tokens they create new one and the 1ETH is stored in a contract. Now people can trade on the markets and win more TV-Show tokens. In the end they can exchange their TV-show tokens back to ether but they get only the fraction of Ether they hold back.
An example: One market funded will 100 Tokens. One trader buys 300 tokens. A the beginning of the trading there are 400 tokens in total and 300 Ether that will back this 400 tokens. Since the trader is the only one he will get all 100 tokens from the market maker. In the end he had 400 tokens (all) and with those he can request all 300 Ether. With 200 tokens he could request 150ETH. Its gets interesting if another user also buys 300 Tokens. Now in the end there will be 700 tokens that are covered by 600 Ether. If they are both do equally well trading against the market maker they will both end up with 350 tokens they can both exchange against the 300Ether they spend. If one of the both does better than the other he will as an result get in the end some of the 300 Ether of the other trader.
So the general idea is: you can buy into the game, play it like all others and if you do better than the average user you will end up earning money, otherwise you lose. Although this is true for every interaction on a prediction market the token method is very appealing to collectively fund the market makers by all participants and they don’t have to know or understand that they are funding the market maker.
I wonder if there’s a reasonable constant percentage of a funding pool we could use to fund market makers. We could do a buy-in round that cuts off at a particular time, issue tokens for each currency unit contributed, then inflate the token supply by a fixed factor to fund the market maker.
Setting the initial odds could be problematic. Starting at 50/50 works, but then early traders get mispriced shares from the collectively funded market maker. I can’t think of another mechanism to set the initial odds that isn’t a prediction market itself.
Yes - the inflation should somehow be limited.
A) token (event) creation is only done once in the beginning and you buy into a known set of events (disadvantage - always new tokens - too many tokens around)
B) there is a voting mechanism on new events (disadvantage: additional effort for the user the average user does not care about - or maybe they do and this is fun?!)
C) (my favorit because the easiest) A admin (or admin group) can create new events and therefor new tokens but they can never inflate the tokens below X.
The simplest would be: allow (orderbook like) orders before the market marker starts and let the market maker start at a well defined date. Another similar would be: after a new market is created orders are collected as a batch for 12 hours (e.g) and than executed at once. Beyond this point regular trading can be done.
What we really should avoid that being the first (the first transaction in a block after the transaction of the event creation) gives you an unreasonable large benefit.
No, if more people buy in this will deflate the tokens and admins can create more events. But you are right - the rules should avoid deadlocks.
This is not really feasible. Buying into a market after trading has started would not make too much sense because most of the value is given away in the early trades. Also from a usability perspective on token per skin seems way better to me.
True if there is enough traction on the new markets, the tokens will deflate. But why should the value of user tokens of market x be influenced by markets y, z?
I see, so we could just make an orderbook available and match orders to generate new shares, then the market maker starts with its initial odds set in the middle of the spread? That sounds pretty good.
It sounds like we have two potential token models: one token per skin and one token per market.
Per-skin tokens are managed by admins. Traders buy in at a one-to-one conversion rate and admins create new tokens to fund market makers. New traders can buy in at any time, and new buy ins give the admins more flexibility to issue new tokens to fund markets. Markets will have varying amounts of subsidy based on the ratio of initial funding to total shares issued, so traders seeking to maximize their gains will trade in markets they expect to have an above average number of shares issued. If the market maker’s funding isn’t sufficient for the market, admins will be able to add liquidity to markets as needed.
Per-market tokens are managed by contracts. Traders buy in at a one-to-one conversion rate, then a contract adds to the token supply at a fixed rate to fund the market maker. New traders can buy in at any time, which adds to the market maker’s liquidity at the same rate. Each market has a fixed amount of subsidy that always goes to holders of the winning outcome of that particular market. If the market maker’s funding isn’t sufficient for the market, the token funding rate can be increased via either direct democracy or a representative appointed by the token holders or the oracle.
I think per-market tokens are what we want. Per-skin tokens skew the incentives without much benefit.
What we also can do is: per skin tokens but you can always buy in at a rate without loss (or maybe just a x% fee). So that would mean you can buy in safely at any time. You will only be hit by inflation if a market is created after you bought in. If we make it in such a way that an admin has to announce a new market for 24h than people could decide if they just withdrawal there tokens or implicitly agree to the new market and implicitly contribute funding it by still holding the token.
We need to figure out some details here - it should not be possible to sell just before the new market starts and than buy back in at a better rate and still participate in the market - maybe a fee is already enough to prevent this - but if we find answers to those details I can see this as a very useful approach (for community centered skins).