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.

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).

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.

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.

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.

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.

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