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CJ
@cjh
hey @spenser, just caught up with your blog post & beta - congrats on an interesting experiment! I'm curious... when the liquidity from the losing token is used to “buy up” the winning token, does it go in some reserve for redemptions? is a specific rate of redemption guaranteed for each user? or does it become smaller every time a redemption is executed? and how do you preserve prediction markets’ quality as an info source with 2 adjacent bonding curves vs a complete set summing to 1 before market resolution?
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spenser🪳
@spenser
Thank you CJ! 1. We pull the ETH from the losing side's bonding curve so the losing token basically becomes uncollateralized and worthless. Buying the token can be thought of as the market contract being just another market participant that's pumping up the winning token's price. No redemption rates or anything. Just good old bonding curve selling for winners
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spenser🪳
@spenser
2. Quality of info will likely be a bit messier for markets initially. However, there should be a "true probability ratio" between the two options that the market should converge to. This needs more testing though
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CJ
@cjh
fine with the losing side becoming worthless, that's how binary options should work. but by misaligning the pricing of yes/no tokens beforehand you're opening up to lots of arbitrage opportunities, instability & degrading the accuracy of forecasts. I don't know why somebody would use a risk transferring derivative which in fact greatly increases their risk since after the market has been resolved it's effectively a race to the bottom as redemption rates diminish after every redemption. I don't know why a "greater fool" would buy the tokens after market resolution, but perhaps I'm being naive about the irrationality of the market. also, I have a feeling that by making the pricing exponential in the first place you are disincentivizing actors to report info to the market - similar to the philosophical argument against dynamic fees in times of volatility where prediction markets are concerned - but especially when you add in the diminishing redemption stuff.
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