Prediction Market Architecture
NODO Shares Pricing Mechanism
The shares betting mechanism operates on a dynamic pricing model, where the cost of shares fluctuates based on the number of shares purchased.
Initial Setup
Each betting pool starts with shares valued at 0.5c, equally distributed between the YES and NO sides. This ensures an equal liquidity on both sides at the beginning.
Price Adjustment
As shares are purchased, the price on each side adjusts linearly. For instance, if more YES shares are bought, the price of YES shares might increase to 0.8c, while the NO shares decrease to 0.2c. This dynamic pricing model reflects the market sentiment towards the outcome.
Trading Advantage
The side that is currently losing (i.e., has fewer shares purchased) offers cheaper shares, making it easier and less costly to trade. This essentially reduces the cost for taking a position on the losing side, encouraging more balanced participation.
Example Calculation
For example, let’s consider a specific prediction market where users are predicting whether the price of Bitcoin will increase by 10% or more by 0:00 AM UTC tomorrow.
Let’s assume:
The total number of participants is 100.
Each participant buys 10 shares, so the total number of shares is 1000.
The initial price of each share is 0.5c.
The Shares Purchase Fee is 1% of the total purchase value
The Shares Selling Fee is 2% of the total selling value
The Withdrawal Fee is 1% of the total withdrawal value
Here’s how it might work:
1. Shares Purchase:
60 participants believe the price of Bitcoin will increase and buy “YES” shares. So, 600 YES shares were bought.
The remaining 40 participants buy “NO” shares, so 400 NO shares are bought.
The cost of YES shares increases to 0.6c and the cost of NO shares decreases to 0.4c.
The Shares Purchase Fee is dynamically adjusted based on the difference in votes. Since the difference is 200 shares, the fee is set at 1.5% (assuming a linear relationship between the difference in votes and the fee rate).
NODO earns a Shares Purchase Fee of
1.5%10000.5c=$7.5
2. Shares Selling:
Assume 10 participants from the YES side decide to sell their shares. They sell 100 shares at the current price of 0.6c/share.
The Shares Selling Fee is dynamically adjusted based on the difference in votes after selling. Now the difference is 300 shares, so the fee is set at 1.2%.
NODO earns a Shares Selling Fee of
1.2%1000.6c=$0.72
3. Outcome and Rewards:
Assume the Bitcoin price does increase by 10% or more by 0:00 AM UTC the next day. So, the YES side wins.
The winners’ share price increases by an amount calculated based on the liquidity from the loser deposit. Let’s say it increases to 0.8c/share.
The winners (those who held YES shares) get rewarded. If there are total 700 YES shares, the winners would earn back:
7000.8c=$560
4. Withdrawal:
When users want to cash out their earnings, they are required to pay a Withdrawal Fee. If all winners wants to withdraw $560, they would pay a fee of
1%$560=$5.6
→ NODO earns a Withdrawal Fee of $5.6 from the winner withdrawals.
So, in this example, NODO’s total revenue from the Shares Purchase Fee, Shares Selling Fee, and Withdrawal Fee would be:
$7.5+$0.72+$5.6=$13.82
This is a simplified example and actual market dynamics could be more complex. The prices of shares and the fees would fluctuate more dynamically based on supply and demand, and the difference in votes.
Major Pricing Formulas
The shares betting mechanism operates on a dynamic pricing model, where the cost of shares fluctuates based on the number of shares purchased.
Initial Setup
Each betting pool starts with shares valued at 0.5c, equally distributed between the YES and NO sides. This ensures an equal liquidity on both sides at the beginning.
Price Adjustment
As shares are purchased, the price on each side adjusts linearly. For instance, if more YES shares are bought, the price of YES shares might increase to 0.8c, while the NO shares decrease to 0.2c. This dynamic pricing model reflects the market sentiment towards the outcome.
Trading Advantage
The side that is currently losing (i.e., has fewer shares purchased) offers cheaper shares, making it easier and less costly to trade. This essentially reduces the cost for taking a position on the losing side, encouraging more balanced participation.
Example Calculation
For example, let’s consider a specific prediction market where users are predicting whether the price of Bitcoin will increase by 10% or more by 0:00 AM UTC tomorrow.
Let’s assume:
The total number of participants is 100.
Each participant buys 10 shares, so the total number of shares is 1000.
The initial price of each share is 0.5c.
The Shares Purchase Fee is 1% of the total purchase value
The Shares Selling Fee is 2% of the total selling value
The Withdrawal Fee is 1% of the total withdrawal value
Here’s how it might work:
1. Shares Purchase:
60 participants believe the price of Bitcoin will increase and buy “YES” shares. So, 600 YES shares were bought.
The remaining 40 participants buy “NO” shares, so 400 NO shares are bought.
The cost of YES shares increases to 0.6c and the cost of NO shares decreases to 0.4c.
The Shares Purchase Fee is dynamically adjusted based on the difference in votes. Since the difference is 200 shares, the fee is set at 1.5% (assuming a linear relationship between the difference in votes and the fee rate).
NODO earns a Shares Purchase Fee of
1.5%10000.5c=$7.5
2. Shares Selling:
Assume 10 participants from the YES side decide to sell their shares. They sell 100 shares at the current price of 0.6c/share.
The Shares Selling Fee is dynamically adjusted based on the difference in votes after selling. Now the difference is 300 shares, so the fee is set at 1.2%.
NODO earns a Shares Selling Fee of
1.2%1000.6c=$0.72
3. Outcome and Rewards:
Assume the Bitcoin price does increase by 10% or more by 0:00 AM UTC the next day. So, the YES side wins.
The winners’ share price increases by an amount calculated based on the liquidity from the loser deposit. Let’s say it increases to 0.8c/share.
The winners (those who held YES shares) get rewarded. If there are total 700 YES shares, the winners would earn back:
7000.8c=$560
4. Withdrawal:
When users want to cash out their earnings, they are required to pay a Withdrawal Fee. If all winners wants to withdraw $560, they would pay a fee of
1%$560=$5.6
→ NODO earns a Withdrawal Fee of $5.6 from the winner withdrawals.
So, in this example, NODO’s total revenue from the Shares Purchase Fee, Shares Selling Fee, and Withdrawal Fee would be:
$7.5+$0.72+$5.6=$13.82
This is a simplified example and actual market dynamics could be more complex. The prices of shares and the fees would fluctuate more dynamically based on supply and demand, and the difference in votes.
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