Price Dynamics
The betBTC platform operates on the principles of bonding curves to manage the price of shares in prediction markets. One key feature of betBTC is that users can sell their shares at the price they bought them without incurring any fees, which encourages active market participation and enhances trust.
Key Features
Fair Selling Without Fees: Users are guaranteed to sell their shares at the price they bought without any fees deducted, ensuring a fair and transparent trading environment.
Market Liquidity: The absence of selling fees encourages active market participation and maintains liquidity, as users can freely adjust their positions without penalty.
Bonding Curve-Based Price Adjustments: Prices are determined by bonding curves that adjust in response to market supply and demand, ensuring real-time reflections of market sentiment.
Single Outcome Markets
In single-outcome markets, users bet on one of two possible outcomes (e.g., "Yes" or "No"). Here's how prices are managed using bonding curves:
Role of the Bonding Curve
Purpose: The bonding curve dynamically adjusts the price of shares based on the supply and demand for each outcome.
Price Adjustments: As more shares of a particular outcome are purchased, the price for those shares gradually increases. Conversely, the price for the opposite outcome decreases, reflecting a lower probability for that outcome.
Market Stability: The bonding curve prevents sharp price swings, ensuring a more stable and predictable market for users.
Trading Mechanics
Buying Shares:
Initial Share Pricing: When a market opens, both outcomes are usually priced equally, often starting at $0.50 for each (50% implied probability).
Action and Reaction: As users purchase shares of one outcome, the bonding curve raises the price of that outcome, while slightly lowering the price of the opposite outcome.
Selling Shares:
Users can sell their shares at the exact price they bought them, regardless of how the market fluctuates. No fees are applied when selling, ensuring a fair exit strategy for all participants.
Example Scenario: Betting on a Sports Game
Suppose a prediction market where users bet on whether Team X will win their next game.
Initial Pricing: Both "Yes" and "No" shares are priced at $0.50, reflecting equal 50% probabilities.
User Action: Suppose User A believes Team X will win and buys $100 worth of "Yes" shares.
Price Adjustment: After the purchase, the bonding curve adjusts the price of "Yes" shares to $0.60, implying a 60% chance of Team X winning, while the price of "No" shares drops to $0.40, reflecting a 40% chance of Team X losing.
Selling Mechanism: If User A decides to sell their shares, they can do so at the original price of $0.50, with no fees deducted.
Multiple-Outcome Markets
In multiple-outcome markets, there are several possible results for each event. The bonding curve is used to dynamically adjust prices for all outcomes.
Role of the Bonding Curve in Multiple Outcomes
In multiple-outcome markets, each possible outcome is treated independently, and the bonding curve ensures that the total probability of all outcomes always sums to 100%.
Price Adjustment: As users place more bets on one outcome, the price of that outcome rises, while the prices of the others drop.
Market Balancing: This creates dynamic pricing and allows for real-time adjustment of probabilities as more users participate in the market.
Trading Mechanics
Initial Pricing: At the start of a market, the probabilities for each outcome might be evenly distributed or based on an initial assessment of their likelihood. For instance, all outcomes could initially be set to 33.3% probability each if there are three options.
Subsequent Trades: As users place bets on specific outcomes, the bonding curve adjusts. When users bet on one outcome (e.g., Yes on Financial Incentives), its price rises, while the prices of the other outcomes drop. This ensures that the total probability still sums to 100%, reflecting the market's updated expectations.
Example: Global Market Question
Market Question: "How will Japan address its demographic decline by 2025?" This question offers three potential outcomes, and the bonding curve will ensure real-time pricing as bets are placed.
Outcome 1: Financial Incentives (33.3% probability)
Bet Yes: Users betting that Financial Incentives will be the chosen policy.
Bet No: Users betting against Financial Incentives.
The price will adjust based on how many users bet on "Yes" or "No." For example:
If many users bet Yes, Financial Incentives' probability could rise to 40%, adjusting the others downwards.
Outcome 2: Immigration Reform (33.3% probability)
Bet Yes: Users betting that Immigration Reform will be the policy.
Bet No: Users betting against Immigration Reform.
Similar to the first outcome, betting here will raise or lower its price and affect the probabilities of the other outcomes. For example:
If Immigration Reform receives fewer bets, its probability may drop to 30%, reflecting lower market confidence.
Outcome 3: No Significant Policy (33.3% probability)
Bet Yes: Users betting that Japan will not enact any significant policy.
Bet No: Users betting that Japan will take some action.
As with the other outcomes, market participation will affect its price. For example:
If users believe Japan will take no significant action, the price for this outcome could rise, lowering the others.
The total probabilities for all outcomes combined will always sum to 100%. As users place more bets, the market dynamically adjusts based on the sentiment reflected in those bets. For instance, as more bets are placed on Financial Incentives, its price rises, while the others adjust downwards.
Users are given a simple 50/50 choice for each outcome: Yes (the outcome will happen) or No (it won't happen). This keeps the user experience straightforward while allowing the more complex market mechanisms to work behind the scenes to adjust probabilities.
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