Step 1. Initiation
Mint "o" and "io" token associated with event.
An "o" token is minted at the time of prediction launch for any event.
The "o" token is rewarded the prediction pot if the event turns out positively.
The "io" token is rewarded the prediction pot if the event turns out negatively. Examples
Event A: The Packers win the 9/13 game.
Event B: Tesla stock has positive close on August 15. Event C: Bitcoin price exceeds $20,000 in 2020.
The "o" tokens win if the events turn out positive, i.e. for event A, Packers win the game.
The "io" tokens win if the events turn out negatively, i.e. for event A, Packers lose the game. Initiation Process
For each event, three smart contracts are launched. One contract acts as the escrow for the funds, one for the minter of "o" tokens, and one as the minter of "io" tokens.
The escrow contract distributes rewards to either "o" or "io" tokens, depending on which side wins. Further, the odds are decided based on how many tokens are minted of each side. Market Creation
A minimum of $50,000 has to be escrowed in total, in order for a smart contract on an event to launch. No prediction can exceed 10% of the outstanding pot. This means initial predictions cannot exceed $5,000, but if the pot grows, then the maximum prediction can also grow.
If the pot reaches $500,000, for example, then the maximum prediction can be raised to $50,000. Moreover, more than 90% of the market cannot make prediction on one side of the event.
Whenever an "o" or "io" token is minted, the odds are displayed in the UI. This ensures that the market is able to see when the odds are reasonable based on their prediction. Example:
Tesla stock price exceeds $3,000 in 2020.
- At event launch, $0 has been escrowed.
- User 1 believes the event will be positive ($TSLA exceeds $3,000 in 2020), and so he predicts $5,000 on "o" tokens. At this point, the event cannot launch.
- Users 2, 3, 4, 5, 6, 7, 8, and 9 are all bullish on Tesla and hence also predict $5,000 on "o" tokens. At this point, the event has $45,000 long on "o" tokens.
- As 90% of the event participants are predicting one side of the event, user 10 must mint an "io" token or else the event does not launch.
- If user 10 were to predict against Tesla price of $3,000 with a speculation of $45,000, thereby making total pool worth $90,000 and the predictions of "o" vs "io" 50/50 odds, more users can come and predict in favor of Tesla price being $3,000 in 2020.
Each full "o" or "io" token is denominated as $100 at event launch. These tokens are fractional so 0.01 token will be $1.
Each event contract, which acts as the escrow, has a participation limit date. The event must reach a pot of $50,000 or more to start.
Take an event predicting whether or not Tesla stock exceeds $3,000 in 2020.
It starts with a $30,000 prediction towards "o" tokens, which aim for a positive conclusion to the event, and $20,000 prediction towards "io" tokens, which aim for a negative conclusion to the event. This event has a $50,000 minimum pot and so can initiate.
- At event launch, each "o" and "io" token is equal to $100.
- 300 "o" tokens equal $30,000 and 200 "io" tokens equal $20,000.
- If, a few weeks after the launch, people become bearish on Tesla stock price, the value of "o" tokens may halve.
- If "o" tokens become worth $50 on the live market, due to bearish sentiment, then the 300 minted "o" tokens are now collectively worth $15,000.
- Meanwhile, the "io" tokens should now be worth $175 each, as only 200 of them were minted as few people were bearish on Tesla at launch.
- Collectively the 200 "io" tokens are worth $35,000 and the 300 "o" tokens are worth $15,000.
In a typical prediction market, the predictors have to wait till event conclusion to redeem their money. At that point, "o" tokens split all the money from "io" tokens if Tesla indeed crosses $3,000 in 2020.
Alternatively, "io" tokens split all the money from "o" tokens if Tesla fails to cross $3,000 in 2020.
OpenPredict changes the dynamic by giving predictions a liquid value, tradeable on any decentralized marketplace. Beyond prediction gains, this opens room for minting revenue.