Perpetual Prediction Markets

Prophex introduces binary perpetual contracts. Each market has two possible outcomes — Outcome A and Outcome B — with prices that always sum to 1. While some events may be framed as “Yes/No,” the system is flexible enough to support any two-sided outcome (e.g., BTC above $60k vs. below $60k, Candidate X vs. Candidate Y).

Unlike traditional markets that require deep liquidity pools or order books, Prophex uses a virtual AMM (vAMM) design. Prices are determined by the balance of Open Interest (OI) on each side, anchored by a fixed amount of Virtual OI set at the time of market creation. This ensures continuous liquidity and prevents thin markets from being manipulated by small trades.

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vAMM Pricing Formula

price_A = OI_A / (OI_A + OI_B)
price_B = 1 - price_A

Legend

• price_A, price_B → current implied probabilities for Outcome A / Outcome B (range: 0–1).

• OI_A, OI_B → total Open Interest on each side.

  • Includes V (Virtual OI, seeded by the protocol at market start).

  • Plus the sum of trader notional (margin × leverage).

• V → Virtual OI (anchors each side equally at launch).

• notional → exposure size of a position (margin × leverage).

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Price Dynamics

• At market start

  OI_A = V
  OI_B = V
  => price_A = 0.5, price_B = 0.5

• When a trader opens a position

  • Long A with notional N → OI_A = OI_A + N

  • Long B with notional N → OI_B = OI_B + N

• When a trader closes a position

  • Reduce that side’s OI by the position’s notional.

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Example

• Virtual OI (V) = 5,000 per side → starting odds: 50% / 50%.

Step 1: Alice opens Outcome A with a notional value of 1,500.

OI_A = 5,000 + 1,500 = 6,500
OI_B = 5,000
price_A = 6,500 / (6,500 + 5,000) = 0.565  (56.5%)

Step 2: Bob opens Outcome B with a notional of $600.

OI_A = 6,500
OI_B = 5,000 + 600 = 5,600
price_A = 6,500 / (6,500 + 5,600) ≈ 0.537  (53.7%)

• Alice’s trade pushed odds in favour of A.

• Bob’s position rebalanced the market closer to even.

• Both traders can close early or hold until resolution.

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Resolution

When the event is decided:

• Winning side resolves at 1.0, losing side at 0.0.

• Profits = the difference between the entry price and the resolution × notional.

• Margin from liquidated losers + Insurance Fund guarantees payouts.

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Why This Model Works

• Continuous liquidity — trades can be opened/closed anytime.

• Capital efficiency — leverage expands exposure without deep pools.

• Transparent pricing — odds move proportionally with open interest.

• Manipulation-resistant — Virtual OI anchors start at a fixed price and dampen swings.