MindSwap is an automated market maker (AMM) build on top of PredIQt. MindSwap allows users to easily trade in prediction markets with constant liquidity and a simple, easy-to-use interface. MindSwap represents the next generation of blockchain-powered prediction markets and an important step towards mass adoption and extremely easy user experience.
The vast majority of existing prediction markets operate on an order book model. Order books are efficient systems, used by traditional exchanges, and work well for markets of highly traded assets. Novel markets, like blockchain-based prediction markets, for example, often don't have as much liquidity, making the order book model less efficient.
That's where AMMs come in. AMMs are a technology that powers the trading of assets based on a bonding curve, rather than an order book. AMMs like MindSwap use a simple bonding curve of x*y=k to price assets in a trading pair. This approach is not only dead simple, but it is designed to offer nearly infinite liquidity to market participants. You can read more about how AMMs work here.
Using MindSwap, users can wrap PredIQt share tokens in such a way that they become tradeable tokens on EOS.
These PredIQt tokens are then deposited into liquidity pools along with an equal amount of another asset like IQ. From there they’ll earn a 0.7% transaction fee anytime someone uses the pool to trade between IQ and the PredIQt tokens. This can all be done in a few minutes through the MindSwap user interface. Liquidity providers can withdraw their tokens from the pool at any time and convert their PredIQt tokens back into PredIQt shares.
Front-end users, on the other hand, simply gain the ability to easily purchase shares in a market by swapping them for another token in a quick transaction. These users aren't required to participate in any of the back-end pool infrastructure.
One issue that MindSwap solves better than existing AMMs is impermanent loss of divergent assets like prediction market shares. Typically, assets that tend toward 1 or 0 in price have high degrees of impermanent loss due to the natural movement of the share token against the trading token. MindSwap smoothes out this issue with a higher fee to liquidity providers. This is why the current 0.7% fee is used as compared to the standard .6%. As we implement more sophisticated bonding curves and AMM features, we will be able to tackle impermanent loss in a more efficient way and lower fees to encourage more traders.