PredIQt Protocol
The PredIQt protocol is powered, at its core, by $IQ. This token serves as the core currency that enables all sorts of user behaviors and earnings. On PredIQt, any user can create a market for any event, and then other users can purchase and trade shares in the outcomes. Users must pay an $IQ-denominated fee in order to create a market, and markets can either be denominated in $IQ or any other arbitrary token. For the purposes of this paper, we’ll assume markets to be denominated in $IQ.
When a user purchases shares in a market, the $IQ used to purchase the shares is stored in the market’s smart contract. Once the market’s event happens, the outcome is reported by an account specified by the market creator, and the $IQ stored in the smart contract is distributed to the winners. Users on the winning side can cash in their shares for a profit, paying a small fee that is distributed among the market creator, the market resolver, and the market’s referrers. Shares on the losing side of the market become worth zero, since they can’t be redeemed for anything.
The PredIQt Market features three primary classes of users:
Market creators
Market resolvers
Market participants
Market creators, as the name suggests, are the users who create the markets. Market creators must pay a market creation fee, denominated in $IQ. This fee serves as an anti-spam mechanism that prevents users from creating markets that are superfluous or unresolveable. When a market creator pays the market creation fee, that $IQ is burned. This decreases the amount of $IQ in circulation and benefits all $IQ holders, especially as PredIQt usage increases.
Although market creators must pay a fee to create a market, they also stand to earn money in the case that the market becomes successful; users pay a small fee upon cashing out, part of which is paid to the market creator. If a creator’s market attracts significant open interest, then their payout upon resolution can be high. This incentivizes market creators to create high-quality markets that attract many users. Because the cost of creating a market is non-trivial and non-refundable, it incentivizes users to create high-quality markets with clearly defined outcomes that will attract users. Creators who publish low-quality or unresolvable markets will be unlikely to earn back their market creation fee.
Market resolvers are those who report the outcomes of various markets. When a market creator first creates a market, they must specify an EOS account that will report on the outcome. This account can be any configuration on EOS, from an individual to a distributed group of token holders. Resolvers can specify either side of the market as a winner, or they can declare the market invalid. If a market is declared invalid, then all of the shares are refunded equally.
Due to the modular nature of PredIQt, market resolvers can be anything from individual-controlled accounts to multi-signature contracts to DACs and more. In PredIQt’s early days, the majority of markets were resolved by the PredIQt Multi-Sig, an account controlled by a number of EOS block producers and community members. PredIQt also offers $IQ holders the ability to earn further rewards by participating in a distributed, $IQ-voting-based resolution system (more info on that below).
Market participants are the main users of the prediction market— those who predict outcomes and buy and sell shares in those outcomes. Users can purchase outcome shares using $IQ. When a new set of shares is created, the $IQ used to purchase those shares is stored in the market’s smart contract. Once created, those shares become tradeable. When a market is resolved, the shares of users on the losing side go to zero. Users on the winning side earn the difference between the price paid for their shares and 1, since each share set adds up to 1. Users on the winning side are then able to trade in their shares for a pro-rata portion of the $IQ held in the smart contract, minus a small fee that is split between the market creator, the market resolver, and the referrers.
Market participants can also sell shares in existing markets, even prior to market resolution. This feature helps increase the accuracy and liquidity of existing markets. Increased ability to turn over shares creates more liquid markets whose odds can more accurately reflect crowd sentiment in real time.
While market creators and market resolvers are among the “advanced user” categories on PredIQt, market participants need not be. PredIQt is designed to allow even non-technical users who aren’t familiar with trading platforms to be able to participate in markets. On the back end, users have the ability to interact with the PredIQt protocol in as advanced a way as desired. On the front end, PredIQt allows users to choose between basic and advanced options in order to cater to a wider range of total users.
Market participants can also earn additional $IQ by promoting markets through the PredIQt referral system (details in a section below).