2. Working mechanism of X Predict Market

2.1 Creation of the prediction market

Anyone can create a prediction proposal in the initial proposal area through X Predict Market. During the creation, the prediction type, title, options, settlement currency, transaction fee ratio, prediction cycle, and actual result generation time are required to be set up. And any number of settlement tokens are needed as initial liquidity, as well as some text describing the proposal. For example, descriptions about the interesting parts of the proposal, the source of information, how the results were obtained and can be accurately known, etc., to win the support and participation of other users.

2.2 Initial proposal area vote

In the initial proposal area, after the user creates a prediction proposal. Any user can vote for the prediction proposals that draws his interest while browsing in this area. During the vote, you need to verify the connected wallet address and have a certain amount of governance tokens. The number of votes is distributed according to the number of governance tokens held, but there is a certain upper limit, which can prevent the monopoly of whales. In addition, the voting address must have participated in the prediction at least once. Of course, the early proposals will not have this restriction. The address that created the proposal cannot vote for its own proposal. If the number of support votes is exceeds a certain basic value, and the support rate surpass 50%, the proposal is passed. If the proposal is finally passed, the users who voted in favor will share the governance currency rewards for the initial proposal vote; If it does not pass, the users who vote against will get rewards. The initial proposal is valid for one week. If it is not passed after one week, it will automatically expire.

Reward amount of the user = The amount of correct vote of the user/ The amount of correct vote of all users * The total amount of governance tokens rewards of each initial proposal vote

2.3 Prediction stage

Proposals that have passed voting in the initial proposal area will be displayed in the formal prediction area. Users can arbitrarily choose an ongoing prediction topic for prediction. The creator sets the transaction settlement currency, such as DOT where each topic is created. Theoretically speaking, any currency can be used, because of the cross-chain feature of this platform, but some commonly used cryptocurrencies will be selected for settlement in the early stage, and the community will vote to add new cryptocurrencies or delete the original ones later.

Users can choose to make predictions or add liquidity to the prediction topic.

If the user makes a prediction, a certain amount of settlement cryptocurrencies are required in the wallet, and then the settlement cryptocurrency is used for transactions to obtain the prediction tokens. During the prediction period, users are free to sell prediction tokens to make profits or stop losses in a timely manner. When the prediction result is officially announced, the tokens that are correctly predicted will be exchanged for settlement tokens at a ratio of 1:1, otherwise the tokens that fail the prediction will lose value.

As for the specific process? For example:

User JACK created a prediction market X1, 100DOT of basic liquidity are deposited, and the probability is set to 50:50;

The market automatically converts 100 DOT into 100 X1-Yes tokens and 100 X1-No tokens; JACK received 10 liquidity certificates X1-LP exclusively for the prediction market;

Another user Tom purchases 25 DOT worth of X1-YES tokens from the market.

First of all, assuming the transaction fee is 2%, Tom needs to pay a total of 25.5DOT.

Then, 0.5 DOT is deposited as transaction fee, and the other 25 DOT will be converted into 25 X1-YES tokens and 25 X1-NO tokens.

Then, because the user chose YES, 25 X1-YES tokens will be given to Tom, and another 25 X1-NO tokens will flow into the market. There will be 125 X1-NO tokens in the market. In the absence of new or reduced liquidity, the sum of product of the number of tokens of X1-YES and X1-NO remains a fixed value because of the automatic market-making mechanism of FPMM.

Therefore, the amount of X1-YES tokens in the market will change to 100*100/125=80, which is 20 less than the original, and these 20 will also be given to Tom. Therefore, the total number of X1-YES tokens obtained by Tom is: 25+20=45.

When JACK retrieves liquidity using LP, he will retrieve 80 DOT and 45 X1-NO. When the final prediction result is NO, 45 X1-NO can be exchanged for 45 DOT, and JACK will harvest 125 DOT; Otherwise, JACK will only have 80 DOT left. 90% of the transaction fee will go to the liquidity provider, and 10% to the topic creator. Since JACK is both the topic creator and the only liquidity provider, he will get the full transaction fee of 0.5 DOT. When there are multiple liquidity providers, they are divided proportionally according to the amount of LPs they hold. Part of the fee is allocated to the topic creators to encourage users to discover interesting prediction proposals and introduce them to other users. The larger the pie, the more the liquidity provider will gain, so this is a total win-win mechanism.

Assuming that the final prediction result is YES, prediction of TOM is successful. When he converts X1-YES to DOT, the platform will charge a 0.5% withdrawal fee: 45*0.5%=0.225DOT, of which 50% will be allocated to the correct prediction Node, 50% is used as the technology development cost of the platform.

Compared with AMM, this can tokenize the two predicted options and control the sum of their prices to 1 unit of the settlement currency. The more people who buy one of the options, the higher the price, but the price will never exceed 1. The traditional AMM is only suitable for direct transactions between 1 token and another token, and the price can theoretically increase indefinitely.

2.4 End of prediction

When the prediction period set by the creator of the topic ends, it will wait for the result. Prediction will no longer be proceeded in this process, but liquidity can be removed.

2.5 Results uploading, publicity and reporting mechanism

When the result generation time of the prediction topic creation setting is reached, the prediction result is uploaded by the governance node through the oracle, and accept the trial of all users during the result publicity period. In the future, we will develop a graphical operation interface for non-technical personnel to use the oracle to upload results. The result publicity period is initially set for 3 days, and it can be revised by the community voting in the future.

Users can report wrong nodes that upload results that are inconsistent with actual events. When reporting, it is necessary to stake more than twice the staked amount of governance tokens of the reported node. If the reporter cannot raise that much tokens by himself, He can also initiate a report call, and other users can stake to support the reporter. After the staking succeeded, the report is formally initiated, which will be voted and determined by users of the entire network within 3 days.

When more than 50% of the votes support the reporter, the report succeeds, otherwise the report fails. When the report succeeds, half of the staked tokens of the reported node will be given to the reporter, and the other half will be distributed to the reporter's supporters according to the voting ratio. When the re5port fails, half of the tokens that the reporter has staked will be given to the reported node, and the other half to the node's supporters in proportion to the voting.

After a successful report, it will enter a new round of publicity period. During which people are also allowed to report, but the tokens that need to be staked for the report will be multiplied by 2 times. Until no one ever files for a report in a certain round of publicity period. Then the result of this round will be the final result.

The result has already been produced when the ruling is made, under normal circumstances, users will vote for the correct result. If there the whales cooperate to act evil, then they first need to hold the vast majority of governance token, which means a lot of costs, then if they jointly tamper with the results and cause errors, it also means that the project has been kidnapped and lost justice. Therefore, the governance currency of such a project will lose value, which will eventually cause them to lose money and lose a long-term cash cow. This is not worth the gain. On the other hand, after a successful report, the staked governance token will be lost, which is also a loss. Therefore, from the perspective of direct and long-term interests, nodes will be biased towards submitting correct results, which ensures that the project can maintain the birth of a fair result.

2.6 Market settlement

After the official birth of the result, the price of the wrong prediction token will be zero, and the correct token will be cashed in the settlement currency at 1:1. When the correct prediction is withdrawn, a 0.5% withdrawal fee will be charged, 50% of which will be allocated to the node that submits the correct result, and the other 50% will be used as platform revenue for technology development costs and repurchase. The transaction fee ratio is set by the prediction topic creator at the beginning of creation. The default is 2%, 90% of the transaction fee will be rewarded to the liquidity provider, and 10% will be rewarded to the topic creator.

2.7 Workflow summary