Creating Effective Prediction Markets
Prediction markets are a powerful forecasting tool, allowing groups to leverage collective wisdom to predict future outcomes. However, setting up an effective prediction market requires thoughtful configuration to ensure unambiguous questions, comprehensive outcomes, and sufficient liquidity.
The xParametric platform guides market creators through this process by prompting them to define key parameters:
The Question
A clear, specific question is crucial so all participants interpret the market consistently. For example, “Will there be an increase in named storms globally in 2023 compared to 2022?” rather than just “Will there be an increase in named storms globally?”.
Outcomes
Markets must include 2–32 mutually exclusive and collectively exhaustive outcomes covering all possibilities. Traders buy shares in outcomes, with prices starting at 0 and totalling 1 across all outcomes.
Expiration Date
A defined closing date stops trading before the event occurs to avoid skewed outcome prices. Markets close, then a governing body determines the correct outcome.
Description
Additional details ensure common understanding of the criteria for resolving the market. For instance, defining how close races or contested results are handled.
Resolution Source
Citing a trusted source where the definitive result will be published, like the National Centers for Environmental Information in the US.
Category
Enables discovery by end users interested in certain topics.
Token
The ERC-20 token used for trading on the market. Native blockchain tokens are wrapped.
Liquidity
Sufficient liquidity enables orderly price discovery as trades occur. Creators seed initial liquidity, and any user can add/remove it later.
Fees
Creators set optional bounties to reward liquidity providers and themselves. Default is 2% and 1% of trades respectively.
By guiding creators through configuring these key parameters, xParametric facilitates efficient and meaningful prediction markets to tap into the wisdom of crowds. The right structure and incentives set up markets for accurate forecasting.
About xParametric
xParametric is a decentralized climate prediction market that revolutionizes the way we speculate on, transfer, and invest in climate risks. With a transparent and secure platform, xParametric not only offers a unique opportunity to hedge against or capitalize on shifting climate trends but also serves as a hub for raising climate awareness and collecting valuable data reflecting public sentiment around climate trends.
