Yes but this decreases traders’ alpha by 99.9%, right? At least for traders who are constrained by number of markets where they have an edge (maybe some traders are more constrained by risk or something).
Markets usually take some time to resolve, and money has a time value. Paying only $10 seems incredibly cheap for tying up a million dollars for even one day, and cheaper still when you consider any of the possible risks of putting $1M into a market that claims to resolve N/A with 99.9% chance.
I’m confused. What in your mind prevents a service that just takes a million clients (each with a $10k->$1m at 1/1000 market) and earns $10m by taking $10.01k from every one of them and returning on average $10k to every one of them?
Like, no one needs to tie up any money; you should be able to just pay someone $10.01k for them to pay $1m with 0.1% chance.
(Obviously randomization can be run on the exchange level in some very transparent way so that as a market participant you don’t have to unusually trust anyone.)
Hmm, why? If you’re a trading firm tracking millions of markets, it’s fine if only thousands of them actually resolve (as long as they have 1000x payouts) and doesn’t change your expected payouts.
Yes but this decreases traders’ alpha by 99.9%, right? At least for traders who are constrained by number of markets where they have an edge (maybe some traders are more constrained by risk or something).
Yep, but you can 1000x the liquidity subsidy (basically at no cost, see the footnote).
I don’t understand the footnote.
In 99.9% of cases, the market resolves N/A and no money changes hands. In 0.1% of cases, the normal thing happens.
What’s wrong with this reasoning? Who pays for the 1000x?
Thanks- I’ll update the footnote.
Imagine you want to spend $10k on subsidizing a market. (One way you can do that is to use Manifold-like AMM with a liquidity subsidy.)
For a trader, it doesn’t make sense to spend an hour of time for 0.1% of eating even all of $10k.
So you might want to provide $10m of subsidy that you get back if the market resolves to N/A.
Paying $10m with p=0.1% would naturally be a service costing $10.01k or something.
Markets usually take some time to resolve, and money has a time value. Paying only $10 seems incredibly cheap for tying up a million dollars for even one day, and cheaper still when you consider any of the possible risks of putting $1M into a market that claims to resolve N/A with 99.9% chance.
I’m confused. What in your mind prevents a service that just takes a million clients (each with a $10k->$1m at 1/1000 market) and earns $10m by taking $10.01k from every one of them and returning on average $10k to every one of them?
Like, no one needs to tie up any money; you should be able to just pay someone $10.01k for them to pay $1m with 0.1% chance.
(Obviously randomization can be run on the exchange level in some very transparent way so that as a market participant you don’t have to unusually trust anyone.)
A trader will probably want considerably more than 1000x payout if the probability goes down by 1000x, right?
Hmm, why? If you’re a trading firm tracking millions of markets, it’s fine if only thousands of them actually resolve (as long as they have 1000x payouts) and doesn’t change your expected payouts.
Oh, that sounds right. I confess I wasn’t thinking at that kind of scale.