delphi.market/MATCHMAKING.md

Prediction Market Matchmaking

Idea: Build order book with matchmaking => anyone can provide liquidity at the prices they desire.

A market maker could still run by creating orders which others can fill to "kickstart the market".

Example order flow:

YES BUY 5 @ 80 <-> NO BUY 5 @ 20

YES: 5/80 | p=400/500=0.8
NO: 5/20 | p=100/500=0.2
total: 500 sats

YES SELL 1 @ 80 <-> NO SELL 1 @ 20

YES: 4/80 | p=320/400=0.8
NO: 4/20 | p= 80/400=0.2
total: 400 sats

YES SELL 1 @ 90 <-> NO SELL 1 @ 10

YES: 2/80 + 1/70 | p=230/300=0.7667
NO: 2/20 + 1/30 | p= 70/300=0.2334
total: 300 sats

YES BUY 10 @ 90 <-> NO BUY 10 @ 10

YES: 2/80 + 1/70 + 10/90 | p=1130/1300=0.8692
NO: 2/20 + 1/30 + 10/10 | p= 170/1300=0.1307
total: 1300

at any time, amount of YES shares in circulation must be equal to amount of NO shares in circulation.

For every YES share bought at a price X, there must either be

• a NO share bought at (100-X) or
• a YES share sold at X.

This makes sure that when one sides win, the other side has deposited enough sats to pay them.

Order book will look like this:

YES BUY-IN	SELLs	NO BUY-IN
YES BUY 5 @ 80	YES SELL 5 @ 80		(filled order)
YES BUY 5 @ 10		NO BUY 5 @ 90	(filled order)
YES BUY 1 @ 60			(open order)
	NO SELL 1 @ 20

Market stats:

• amount of shares in circulation (amount of YES shares = amount of NO shares)
• Prediction for YES and NO (%)
• Expiry: 100 or 0 sats