How Prediction Markets Work
Prediction markets allow people to bet on future outcomes. The collective bets create a probability estimate that often outperforms expert forecasts.
Basic Concept
Think of it like a stock market for events:
Each market poses a YES/NO question about a future outcome
Users buy YES or NO positions with SOL
Position prices reflect the crowd's probability estimate
Winners receive payouts after the market is settled
Unlike traditional betting where a bookmaker sets odds, prediction markets use crowd wisdom—the aggregate of all participants' beliefs and capital.
How Oracle Degen's AMM Works
Oracle Degen uses an Automated Market Maker (AMM) similar to Uniswap, but for predictions instead of token swaps.
Starting State
Every market begins with equal liquidity:
YES Pool: 1 SOL
NO Pool: 1 SOL
Implied Odds: 50% YES / 50% NO
The Constant Product Formula
The AMM maintains a constant product: k = YES_liquidity × NO_liquidity
When you bet, you're adding liquidity to one side, which shifts the ratio and changes the odds.
Example Market Flow
Market: "Will $TROLL reach $175M market cap before October 11, 2025?"
Initial State
YES liquidity: 1 SOL
NO liquidity: 1 SOL
YES odds: 50% | NO odds: 50%
Alice bets 0.02 SOL on YES
YES liquidity: 1.02 SOL
NO liquidity: ~0.98 SOL (calculated via AMM)
New odds: ~51% YES / 49% NO
Alice receives shares based on how much the NO pool decreased. These shares determine her payout if YES wins.
Bob bets 0.03 SOL on NO
YES liquidity: ~1.01 SOL
NO liquidity: 1.01 SOL
New odds: ~50% YES / 50% NO (back to equilibrium)
The market self-corrects as bets flow in both directions.
Odds Calculation
Oracle Degen calculates display odds using pool ratios:
YES odds % = (NO_liquidity / total_liquidity) × 100
NO odds % = (YES_liquidity / total_liquidity) × 100
Important: These are implied probabilities, not fixed multipliers. Your actual payout depends on:
Your share of the winning pool
The size of the losing pool
The 2% platform fee
Payout Mechanism
How Winnings Are Calculated
When a market settles, the losing pool is distributed proportionally to winners.
Formula:
Total losing pool = all SOL bet on the losing side
Platform fee = 2% of losing pool
Net pool = losing pool - fee
Your share = (your bet / total winning pool) × 100%
Your winnings = your bet + (net pool × your share)
Real Example
Market Result: YES wins
Pool State at Settlement:
Total YES bets: 2 SOL (you contributed 0.5 SOL = 25% of YES pool)
Total NO bets: 1 SOL
Your Payout:
Losing pool: 1 SOL
Platform fee: 1 × 2% = 0.02 SOL
Net losing pool: 0.98 SOL
Your share: 25% of YES pool
Your portion of losing pool: 0.98 × 0.25 = 0.245 SOL
Total payout: 0.5 (original) + 0.245 (winnings) = 0.745 SOL
Profit: 0.245 SOL (49% return)
If NO wins:
You lose your 0.5 SOL
NO holders split the YES pool proportionally
Key Differences from Traditional Betting
Fixed odds at bet time
Dynamic odds that shift with volume
House sets the line
Market participants set the odds
House takes opposite side
Platform never bets against you
~10% vig (juice)
2% fee on winnings only
Opaque pricing
Fully transparent, on-chain math
Why AMMs Are Better for Predictions
1. No Counterparty Risk
The platform doesn't bet against you. Your opponent is other users, and funds are locked in smart contracts.
2. Efficient Pricing
Markets quickly incorporate new information as users adjust their positions.
3. Always Liquid
You can always place a bet. There's no need to find a counterparty—the AMM provides instant liquidity.
4. Manipulation Resistant
With a 0.05 SOL max bet, whales can't easily manipulate odds. Even large bets only shift odds slightly due to the constant product formula.
Important Notes
Max Bet: 0.05 SOL per market (prevents manipulation)
Fee: 2% on winnings only (losers pay no fee—they already lost their stake)
No Refunds: Once a bet is placed, it's locked until settlement
Settlement is Final: Admin decisions are recorded on-chain and cannot be reversed
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