https://github.com/udayj/prediction_market_analysis

Brief analysis of an AMM based prediction market
https://github.com/udayj/prediction_market_analysis

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Brief analysis of an AMM based prediction market

• Host: GitHub
• URL: https://github.com/udayj/prediction_market_analysis
• Owner: udayj
• Created: 2024-08-01T08:55:25.000Z (4 months ago)
• Default Branch: main
• Last Pushed: 2024-08-08T09:26:59.000Z (3 months ago)
• Last Synced: 2024-08-09T11:43:11.473Z (3 months ago)
• Homepage:
• Size: 186 KB
• Stars: 0
• Watchers: 1
• Forks: 0
• Open Issues: 0
• Metadata Files:
  • Readme: README.md

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README

        
This paper is a brief analysis of the trading and pricing dynamics for a binary prediction market. This market is based on a constant product market maker. An AMM here serves a similar purpose as it does in a decentralized exchange like Uniswap. Liquidity providers collect a share of fees proportional to their contribution in return for providing liquidity to the market. The AMM here has 2 tokens representing the 2 outcomes of the prediction market. Buying a particular token is a proxy for believing in the outcome represented by that particular token. The paper derives various intuitive facts about the expected behaviour of such a market with respect to probabilities for the outcomes, spot prices, effective prices & how the prices vary in different situations. Some unintutive facts also emerge, for instance, that the spot price of an opposing token does not change when buying a particular outcome token. The general design is based on prior work done by Gnosis.