The Hxro Parimutuel Protocol is an on-chain primitive providing the infrastructure for any peer to peer, floating strike option with a pool-based, parimutuel payoff. The protocol is currently capable of running a dual-outcome parimutuel market in any discrete time frame using any available on-chain data oracle. It can be used for financial transactions, gaming and sports wagering among other things.
The protocol composes with SAMM - a Hxro native Smart Automated Market Maker protocol that uses independent probability nodes that allow liquidity pools to automatically participate in each parimutuel events liquidity. SAMM is designed to help solve a liquidity consistency problem often faced by parimutuels that run on a continuous market while still being efficient enough to keep fees to parimutuel participants low.
Parimutuel describes a payoff system in which all positions (or wagers) are placed together in a common pool. Consider an N outcome event, in this case the total pool will be the sum of all individual outcome pools. The fee is then deducted, and payoff odds are calculated by sharing the total pool (net of fees) amongst all winning entries on a pro rata basis.
Historically, parimutuel-style wagering is most commonly identified in horse racing. However, this system has powerful applications across other arenas including trading, gaming, prediction markets and sports wagering. In these contexts, parimutuel markets are generally dual-outcome. An entrant takes a position on an event's outcome and if correct at expiration of the event, he will be distributed this pro rata share of the payoff from the money lost by the entrants who took a position on the losing side (plus his initial position).
In the trading or financial context, a parimutuel market can remove many of the complexities associated with execution and position management that come in a traditional double-auction trading market. Additionally, because of the pooled nature of parimutuel markets, an imbalance in the distribution of assets to each outcome creates implied payoff odds. This creates the potential for asymmetric payoffs in cases where the imbalance becomes significant.
The protocol is designed to solve for the liquidity consistency problem typically faced in nascent markets and will support applications specializing in market segments including trading, prediction markets, and sports wagering.