๐Ÿ”ขOdds in Positional Markets

Thales Positional Markets use odds data to price positional tokens. These odds can change as a market moves closer to maturity and this price movement affects these prices. As odds and therefore prices changes, so too does the potential payout for successful positions.

Positional Tokens are Priced According to Odds

Data for the odds used as the basis for positional token prices is transmitted to the blockchain via Chainlink. Thales then uses multiple factors such as the Black Scholes pricing model and price skew to arrive at a price for each position.

The Black Scholes pricing model is a formula that analyzes data like historical price action and volatility to arrive at a price for a position.

Traders participate in Positional Markets by purchasing tokenized positions. Each positional token is purchased for a fraction of a USD. Prices range from 0.08 to 0.95 based on the odds that that position will end up successful. Thales uses Normalized Implied Odds to display the chance a position will be successful. You can look at a token priced at 0.43 USD as a 43% chance of success (roughly).

Each market position is made available to traders as an individual token. A Positional Market will offer 1 token for UP and 1 for DOWN, each with different prices. If your position is successful when the market matures you can redeem each positional token (for which you paid a fraction of a USD) for 1 whole USD. Once a market matures a winning token, no matter the price paid, is worth 1 USD, while a losing token is worthless.

How Pricing Translates to Payout

Once youโ€™ve purchased a position, you can either hold on to your positional tokens until the market resolves, or you can sell your position back to the AMM if the market is still open. If you choose to hold, you either:

  • Win and redeem 1 USD per token you purchased. If you bought 1 UP token for 0.43 USD and UP wins you can swap it for 1 USD at a profit of 0.57 USD

  • Lose and your tokenized position is worthless

If you choose to sell your position back to the AMM before market maturity, you will most likely receive a different amount then you initially paid. This is because odds for different market outcomes are always changing, and this affects the value of positional tokens.

How Odds and Prices Change

Odds are not fixed for Positional Markets, but instead change with market activity. The Odds at the moment positioning ends determines the final price per position.

An asset's price movement changes the odds of reaching a certain strike price. A market's maturity date is always moving closer and this also affects the odds. The value of your position will change as these odds change. These changes will halt once the positioning phase is complete (24 hours before a market reaches maturity).

Projected winnings are displayed as if positioning was to end at that moment, but this will likely fluctuate until the positioning phase ends, so your actual potential winnings will change as odds change and as more positions are purchased by other users.

In addition to odds data changing with market conditions, prices for positions will also change based on trader activity. As more traders buy tokens from either side of a market, prices will move in response. Keep this in mind when participating in Positional Markets. Once positioning closes, risk/reward is locked in and wonโ€™t change anymore.

Example of Changing Odds and Prices

This screenshot was taken of an ETH market on May 22nd 2023. The strike price is $2,000 with a maturity date of June 2nd 2023:

The price for an UP token at the time of the screenshot was 0.0908 USD.

Returning to this market a few days later on May 28th 2023, you can see market conditions have changed and that has affected position pricing:

Thanks to some positive price movement from ETH ($1811.23 to $1913.94) the AMM has updated the price of an UP token for this market from 0.0908 to 0.1611. This is because the price of ETH is closer to the market's strike price, making an UP token more likely to succeed and therefore more expensive, and the date is much closer to the maturity date for this market (5/22 vs 5/28) meaning there is less time for significant price movement.

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