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Tokenized Positional Markets
When you use Thales to participate in a Parimutuel Market that can only result in two possible outcomes around a single Strike Price of some asset, this is referred to as a “Positional Market”.
Thales Positional Markets are defined by the following variables:
- Asset - Choice of asset (price feed) around which the Positional Market is revolving around
- Strike Price - Goal price of chosen asset around which market participants choose UP or DOWN
- Maturity Date - Time and date at which it's determined if the asset price is above or below the Strike Price variable
Each Positional Market's UP and DOWN positions are represented by ERC20 tokens:
- UP tokens ensure your payout if an outcome resolves positively
- DOWN tokens ensure your payout if an outcome resolves negatively
Positional Markets on Thales are each a dedicated market Smart Contract and are 100% collateralized by sUSD. Once this collateral is locked into the market’s smart contract, Positional Tokens are minted and made available for interested traders via the AMM. Every 1 sUSD locked into a Market Smart Contract mints 1 of each Positional Tokens (e.g. 1 sUSD -> 1 UP token + 1 DOWN token).
Each sUSD collateralizes one UP token and one DOWN token. The winning side of the market will have the ability to redeem their Positional Tokens in a 1:1 ratio for the sUSD collateral added to the pool, while the Positional Tokens of the losing side will become worthless and cannot be redeemed.
Some losing tokens still in my wallet, mocking me
For the sake of demonstrating a profitable trade using Thales Positional Markets, let's take the following Positional Market:
- Asset: ETH
- Strike Price: $1,500
- Time until Maturity: 11 weeks
- Current ETH Price: $1,172.58
With these variables, the Thales AMM prices the IN and OUT tokens of this market at:
UP = 0.383 sUSD
DOWN = 0.682 sUSD
The sum cost of UP and DOWN tokens is not exactly 1 sUSD because of the presence of a Skew Impact mechanism that keeps a slight premium on the Positional Tokens depending on the amount of current underlying risk to the Thales AMM.
Let's say a trader has 1000 sUSD and wants to acquire a position on that the price of ETH will be above $1,500 in 11 weeks from now.
Said traders uses the 1000 sUSD to purchase exactly 2604 UP tokens from the Positional Markets AMM, since the AMM algorithm offers the UP tokens to buyers at 0.383 sUSD per token.
If in 11 weeks (at the Maturity Date) the price of ETH is indeed above $1,500, our trader will be able to exercise (redeem) his UP tokens he acquired for 0.383 sUSD per token, for 1 sUSD per UP token. Which means his 2604 UP tokens will be worth exactly 2604 sUSD, raking him a profit of 1604 sUSD on his 1000 sUSD investment.
If the ETH price is below $1,500 11 weeks from now, the DOWN tokens (that were priced at 0.682 sUSD) of this Ranged Markets will be the ones worth 1 sUSD each, and the UP tokens would be worth 0.