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110 sats \ 6 replies \ @ek 22 Jun freebie \ on: Miners Mostly Lose — Bitcoin Prediction Market for Miner Insurance and ROI BitcoinPredictionMarket
Cool! I just bet on Foundry winning the next block and now I am constantly refreshing mempool.space, lol. I especially like how frictionless it was with no accounts. Simply pay an invoice and receive sats if you win via the lightning address!
Great to hear you like it! 🙏 We sought to create a platform that stackers can share with their friends and introduce them to the technicalities of the Bitcoin network in a fun way! Hopefully, it can be a vessel to introduce more people to Bitcoin and Lightning in a fun and engaging way! If you have any problems or feedback just let me know!
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I am actually planning to create my own prediction market on lightning so it's always cool1 to see others working on prediction markets, too.
I need to read the whitepaper linked on your site to understand how betting on blocks helps against miner centralization. My first thought was that this would just make existing centralization stickier. So not increase it, but also not decrease it. The following sentence from the whitepaper seems to also suggest that:
In this section we prove that as long as the market odds differ from the probabilities of the outcomes, there exist profitable betting opportunities. We show that any bet that rebalances the odds to match the probabilities of the outcomes has a positive expected value.
You also mention this which is saying the same afaict:
Bitcoin Prediction Market enables miners to bet on which pool mines the next block. They can bet against their own pool [...] By observing the hashrate distribution, and the market odds, clever investors can bet to balance the odds.
However, If a small miner bets against themselves, they would currently only lose money:
So can you elaborate on how that helps against miner centralization?
damn, ViaBTC mined the next block, now I am down 21 sats, oh well, haha
Footnotes
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but there is also always some FOMO included, haha ↩
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Cool, I'll take a look at your prediction market idea! I feel like this is the era for prediction markets, so any fun ways we can utilize Bitcoin, Lightning, and nostr to be the bedrock of that technology will be resources well spent!
With regards to the negative ROI, the market currently does not have enough liquidity to support miner hedging at scale. Once we're confident that everything's working smoothly, we're planning to increase the initial subsidy thus enabling more speculators to profitably bet, and enabling miners to hedge their hashrate.
An alternative to our current strategy that can enable positive ROI on each outcome is fixed odds betting. However, we don't want to provide fixed odds betting because it's easily financially attacked and also is suceptable to the same variance problems. The approach we take is we want to decentralize the liquidity in the markets, rather than us being the centralized bookmaker. Then anyone who is comfortable with the risk can place bets, and as long as they have a large enough bankroll, they can strategically bet over time to balance any miner hedging bets. That means we need more speculators betting more frequently to enable miners to hedge.
On your objection to betting markets decentralizing hashrate, I recently spoke with the founders of Demand Pool at btc prague and they were interested in offering hedging services through Bitcoin Prediction Market to their miners. Demand pool is creating a StratumV2 pool that is PPLNS (I believe, I definitely know it is not FPPS). The big problem with mining pool payout schemes is they don't enable smaller pools to grow. Miners don't like variance, and they don't want to deal with it. By betting on Bitcoin Prediction Market, a miner that mines for AntPool (because they get safe FPPS payouts) can switch to Demand Pool and safely deal with variance by betting against Demand pool (betting no). As long as the market has sufficent liquidity, they can profitably hedge their hashrate by betting No on Demand Pool. (Of course, sufficent liquidity implies that we need more speculators betting every block.)
If we want StratumV2 to get adopted, we need miners directing their hashrate to smaller pools. That means they need to feel comfortable doing so. That means they need to deal with variance in a way that is not FPPS (because FPPS is a broken centralizing mechanism). Bitcoin Prediction Market provides them with that path, and that means it can facilitate hashrate decentralization.
I think you might have misinterpreted the quoted section. It means if the market odds do not match the hashrate distribution, then any bet that incrementially moves the odds indicator closer to the actual hashrate distribution has positive expected value. It's just a theorem to show that speculators can indeed generate sustainable yields over time with Bitcoin Prediction Market (that we're not trying to scam you). We wanted to mathematically prove that it's possible to make positive expected value bets so long as the odds don't match the probabilities.
Thank you for your in depth comments! If you have any more I'll be around to answer anything else! 🙏🙏🙏
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Cool, I'll take a look at your prediction market idea! I feel like this is the era for prediction markets, so any fun ways we can utilize Bitcoin, Lightning, and nostr to be the bedrock of that technology will be resources well spent!
There currently is not much to look at since I took it down to rewrite everything with new ideas like using the social graph of nostr for "social bets" (bets within a social context) or m-of-n npubs as oracles. But I also think this is the era for prediction markets! That makes two of us, haha
On your objection to betting markets decentralizing hashrate [...]
I see. Let me try to put it into my own words: This basically opens up a new, potentially highly liquid market into which miners can tap into for hedging. This wasn't possible before so this can make switching to smaller pools safer? Did I get it?
If you have any more I'll be around to answer anything else! 🙏🙏🙏
What about open source? I see no Github link. Is it planned? 👀