Trading
When you trade on Predictum, you are buying or selling shares of one of two possible outcomes in a market. The price of each outcome is always between 0 and 1 unit of the settlement token, and the sum of both outcome prices is always 1.
If your chosen outcome is correct when the market resolves, each share is worth 1 unit of the settlement token. If it is incorrect, the shares are worth 0.
How Prices Are Determined
Predictum uses an Automated Market Maker (AMM) similar to those found in decentralized exchanges. Prices are set algorithmically based on the balance of shares in the market’s liquidity pools.
For a binary market, the liquidity pool holds shares for both outcomes. The relationship between them follows a constant product formula:
LiquidityShares² = SharesOutcomeA × SharesOutcomeBThis ensures that whenever shares are bought or sold for one outcome, the price of both outcomes adjusts automatically.
Initial Prices
When a market is created, the creator provides liquidity in the settlement token. This initial liquidity is split evenly between both outcomes, so prices start at 0.5 each.
Example: If the market is funded with 1,000 USDC:
Shares in Outcome A = 1,000
Shares in Outcome B = 1,000
Initial price for each = 0.5
Price Changes During a Trade
When someone buys shares of an outcome, the liquidity pool for that outcome decreases while the other outcome’s pool increases proportionally. The AMM then recalculates prices using the formula:
Price of Outcome A = SharesOutcomeB / (SharesOutcomeA + SharesOutcomeB)
Price of Outcome B = SharesOutcomeA / (SharesOutcomeA + SharesOutcomeB)This means buying Outcome A will raise its price and lower the price of Outcome B, reflecting the market’s updated sentiment.
Example Trade
A market starts with both outcomes priced at 0.5 and 1,000 shares each.
A trader buys $300 of Outcome A (minus fees).
After the purchase, the formula updates the pools and recalculates prices.
Outcome A might move to 0.63, and Outcome B to 0.37, showing increased confidence in Outcome A.
Why This Matters
This system ensures:
Continuous liquidity — traders can enter and exit positions at any time before the market closes.
Fair odds — prices reflect supply, demand, and market sentiment.
Decentralized control — no single party sets prices manually.
Last updated