The Omen Protocol for Dummies (2)

  1. Understand the different types of users acting in Omen prediction markets: market creators, liquidity providers (LPs) and regular users.
  2. Understand clearly the risks and rewards each type of user assumes when participating to an Omen market.
  3. Be able to understand the math that can be used to predict the returns/losses/fees/etc. (This will be the subject of next articles).

Let’s start!

  1. The Uniswap AMM (“automated market maker”) mechanism, and
  2. Gnosis conditional tokens.

The ``Gentle Box Office’’ Model of the Omen Protocol

Analysis of the GBO model.

  1. Conditional tokens are, technically speaking, not ERC20 tokens. And Uniswap only supports ERC20.
  2. Beside the above issue, which could be solved, it’s not a great user experience to ask the user to move from one site to another. Furthermore people could set up scams with fake pools having similar names, etc. No, not great.

Omen Protocol = GBO + AMM

Market Creator
Kaiji the Gambler — great anime to watch :)
A typical LP enjoying his cigar and the generated fees :)

Analysis of the different profiles: Goals, Risks, etc…

  1. Markets with a low trading fee (which is initially set by the Market creator, who is therefore encouraged to keep this number low).
  2. Markets whose associated AMM pool has a lot of liquidity (i.e., contains a lot of E-YES and E-NO tokens). This is because, just as in Uniswap, user trading on low-liquidity pools might experience high slippage in prices, which is undesirable.
  3. Finally, since a user is betting on either the YES or NO event, they try to avoid markets where there is a possibility (even if remote) that the Oracle reports “invalid”. Typically this happens in markets where the original question is not well specified by the Market Creator. For example: “will the price of ETH be greater than 10k usd the 01 July 2021” might generate an invalid result, in certain situations since: it’s not clear at what time (and in which timezone!) and it’s not clear in which exchange.
  1. exchange fees as high as possible,
  2. a lot of (expected) transactions, which often means, a lot of users betting on the event.





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