Down the Rabbit Hole: Omen, a prediction market to bet on various market scenarios

Down the Rabbit Hole: Omen, a prediction market to bet on various market scenarios

An Information Market, also known as a prediction market and decision market, is a marketplace where tokens denoting possible event outcomes can be purchased and traded. When the event takes place, the actual outcome holders then receive the payouts from the market. Information markets support sentiment about the expected outcome of a future event.

There are various prediction markets available in the web3 space, and Omen is one of the most efficient among them all. Omen is mainly famous and preferable due to the facilitation of offering various crypto options for buying and trading conditional tokens.

What is Omen?

Omen is an information marketplace, as already mentioned above. Users can develop and engage in information markets on a variety of themes (crypto, sports, politics, and so on), risking their cryptocurrency in the process. The oracle provider then verifies the result, and customers who own shares in the correct outcome receive the cryptocurrency held as collateral. In the event of a disagreement, an arbitrator may be summoned to render a decision.

Here is the total value deposited in Omen so far:

Source: https://dune.xyz/testcal/omen-stats

How does everything works in Omen?

Here is the entire process of market creation and betting on any given market in Omen.

  1. A market creator “A” creates a Yes/No market with 10 DAI as the initial amount with the probability being set to 50:50.
  2. On receiving this fund, the market converts 10 DAI to 10 Yes and 10 No outcome tokens and they are then kept as liquidity in the market.
  3. A then receives pool tokens representing 10 DAI in return for the created market.
  4. The other person “B” then buys Yes tokens worth 2.5 DAI from the market.
  • For this, B needs to send 2.5 DAI along with a 2% fee, i.e. approximately 0.05 DAI as the fee to the market.
  • On receiving 2.5 DAI, the market converts them to 2.5 Yes and 2.5 No outcome tokens and deposits the fee.
  • So, now in total, there are 12.5 Yes and 12.5 No tokens.
  • As B has brought 2.5 Yes tokens, the market will add more 2.5 Yes tokens in return for 2.5 No tokens.
  • So the total amount of No tokens is 12.5, and to preserve the balance of initials (10 x 10 = 100), the market only returns 2 Yes tokens in return for 2.5 No tokens to B, thus leaving the same product of balances, i.e. 8 x 12.5 = 100**.**
  • Further, B is left with 4.5 Yes tokens and the market has 12.5 No tokens and 8 Yes tokens along with 0.05% of the fee.

5. Suppose A next withdraws her liquidity, she will get 8 DAI (8 Yes tokens + 8 No tokens) and 4.5 No tokens along with the 0.05 DAI fee that the market earned. If the market resolves to Yes, A’s No tokens will not have any worth, however, vice versa is true if the market resolves in Yes

This is how the entire process works in Omen.

Participating in Omen:

To perform transactions, you'll need Metamask or Wallet Connect, some ETH, and the market's collateral token in which you want to participate. You can trade tokens at Mesa.eth (a Gnosis based Decentralized Exchange) if you don't already have that token.

Source: https://mesa.eth.link/#/trade/USDC-DAI?sell=0&price=0&from=&expires=
Source: https://mesa.eth.link/#/trade/USDC-DAI?sell=0&price=0&from=&expires=

Here are the steps on how to participate in Omen:

  • Connect your wallet from the available option. You can choose either Metamask or Wallet Connect.
  • To participate in an existing market, choose a market, say the first one available here, about Russia and Vladimir Putin.
  • Now click on Buy to participate and then select the outcome option.
  • Enter the DAI amount and click on buy again to complete the transaction.

Cost to participate in Omen?

When you buy market shares, you have to pay a 2% trading charge ( along with the Ethereum gas fee for the transaction). These commissions are paid to the liquidity providers.

Omen's automatic market maker allows customers to sell and purchase shares at any moment.

What is AMM?

The automated market maker (AMM) is a smart contract implemented for each market to ensure that an outcome token has constant liquidity. Participants can purchase and sell outcome tokens for a prediction market for the time when AMM is financed, and the AMM will aggregate the trade details to provide estimates for an outcome's odds.

AMM in Omen

Omen uses a Fixed Product Market Maker, a form of AMM. The FPMM is a new market maker that works similarly to the Uniswap and Balancer pools. It was created for the more generic use case of trading tokens, but it has now been modified for the use case of prediction markets.

Outcome Tokens in Omen

When a market is created, the outcome tokens are created to represent the possible outcomes of the respective market.

Before an outcome is known, a liquidity provider withdraws liquidity. All tokens (except the winning one) lose their worth once the outcome is known.

Where to find my outcome tokens?

In the Omen user interface, you may check your outcome token balance. ERC-1155 tokens are your outcome tokens. ERC-1155 coins are presently not visible in Etherscan or most wallets. There will be a blockchain explorer and other wallets that will display these tokens in the near future.

Markets in Omen

A market in Omen can be about anything, including crypto, sports, politics, etc. You can also create a market, using the following steps:

  • Connect your wallet from the available option. You can choose either Metamask or Wallet Connect.
  • To create a market, select the option from the top right corner.
  • Now enter all the details as required for market creation.
  • Click on Continue. Enter the details to fund the market and click on the Create market button to complete.

Market Types

Here are the details regarding the types of markets that can be created on Omen:

  • Categorical: A categorical market has a set number of possible outcomes. It returns a result from a predefined list. For instance, who will be winning this time's cricket championship? Outcome A: India; Outcome B: USA; Outcome C: Australia; Outcome D: Other
  • Binary: The binary market is a categorical market where only two outcomes are possible. For example, will Ethereum's Beacon chain activate at 00:00 UTC on January 1, 2022? Outcome A: Yes, Outcome B: No

States of Markets

  • Open: A market that is currently traded is said to be open.
  • Closed: A closed market has passed the Earliest Resolution Date. It is not tradable and is now awaiting resolution.
  • Resolved: A market that has been resolved is one in which the oracle has determined the winning outcome(s).

How are Markets on Omen resolved?

After a market is closed, the market reporter Realitio, a tool for verifying real-world occurrences for smart contracts, determines the outcome. Following that, the majority of markets will be resolved.

In some situations, a market conclusion will be challenged, and consumers will have the option of paying for additional arbitration rounds until the issue is resolved or opting out of arbitration altogether.

Realitio determines the prediction market outcome when it reaches its resolution date. Realitio users post bonds for their desired outcomes, which can be challenged by anyone posting a new solution, double the bond. This may continue for multiple cycles until the posting ceases, at which point the last person to post their bond determines the solution. As a market reporter, if you disagree with Realitio's outcome, you can challenge it through realitio by contacting Kleros to mediate the issue.

Kleros uses game-theoretical incentivization to align the pseudonymous voters to consensus by sorting a randomized subset of jurors from a jury pool. Those who bet on the right outcomes win money from those who bet on the wrong ones.

Here are the market details by collateral and categories:

Source: https://dune.xyz/testcal/omen-stats

Liquidity Provision

Liquidity provision is dangerous and can result in a near-total loss. It is critical to remove liquidity before the event and be mindful that the market may change suddenly at any time.

The liquidity provider acquires a set of result tokens and makes them available for trading to others. Only one outcome token retains any value when a market settles. The liquidity provider suffers a loss when traders take a position by trading for the liquidity provider's tokens, and the trader is correct.

Recent update on Omen going xDAI native

Omen is now an xDai native. When using Metamask or Wallet Connect to view Omen's main page, users are suddenly magically zapped into the xDai network. There is no longer a multistep process for setting up xDai to use Omen.

If you prefer to use Omen on the mainnet, you can do so by choosing "mainnet" from a dropdown menu at the top of the page.

Users could now participate in xDai native Omen markets when they first land on the Omen dApp by following these simple steps:

  1. Metamask or Wallet Connect can be used to connect your wallet.
  2. DAI should be enabled, and the transaction should be confirmed in your wallet.
  3. DAI must be deposited, and the transaction must be approved in your wallet.
  4. Wait for your DAI deposit to be confirmed before beginning to predict!

There's no need to send an e-mail; just bring your wallet.

Here are the all-time total Omen bets’ data:

Source: https://dune.xyz/venky/omen-xdai