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Using Zeitgeist Markets

Assets and Markets on Zeitgeist

The ZTG Token

The primary asset on Zeitgeist is the ZTG token. On the Battery Station test network, this token is known as ZBS, but in SDK and CLI commands, and on this page, both ZTG and ZBS are called ZTG.

We use ZTG on Zeitgeist as currency for placing bets in prediction markets (like USD in the examples of the previous chapters). Outcome asset tokens will not redeem to 1$ when a market is resolved, but to 1 ZTG instead, and trading fees will be paid in ZTG.

Other uses of ZTG include governance, staking for dispute resolution and collator selection, and bonding for various on-chain actions, most importantly market creation. Details follow below. You may also be interested in the detailed Tokenomics of ZTG.

Outcome Asset Tokens

Recall that outcome asset tokens (or outcome tokens for short) represent the possible outcomes of a future event. For example the prediction market "James Webb Space Telescope (JWST) launches on December 18" might have two outcome tokens, "The JWST does launch on Dec. 18" and "The JWST does not launch on Dec. 18", which are represented by on-chain tokens using ticker symbols like JWSTYES and JWSTNO. (Two outcomes from the same market may not have the same ticker symbol, but outcomes from separate markets may.)

Trading on Zeitgeist

Trading on a prediction market on Zeitgeist is facilitated by the market's liquidity pool. The pool contains balances of ZTG and of all outcome tokens of the market. Users can trade their tokens with tokens stored in the pool: They can buy outcome tokens from the pool with ZTG which is then added to the pool, or sell outcome tokens to the pool for some of the pool's ZTG.

For example, if the pool contains 100 ZTG and 100 JWSTYES and Alice buys 3 JWSTYES at 0.5 ZTG, then Alice transfers 1.5 ZTG into the pool and receives 3 JWSTYES from the pool, leaving the pool with 101.5 ZTG and 97 JWSTYES (ignoring transaction cost, trading fees and slippage).

Let's pretend that the automated market maker has now adjusted the price of JWSTYES to 0.6 ZTG and Bob wants to sell 5 JWSTYES. He would receive 3 ZTG from the pool and add 5 JWSTYES, leaving the pool at 98.5 ZTG and 102 JWSTYES (ignoring transaction cost, trading fees and slippage).

Note that this means that trading can only happen when the liquidity pool is sufficiently deep. If the pool is too shallow, some trades may be impossible (Alice cannot buy 150 JWSTYES from the pool above) or may suffer from excessive slippage (buying 50 JWSTYES from the pool above will most certainly cost more than 25 ZTG).

Recall that the buy/sell prices of the assets are determined by an automated market maker. Zeitgeist uses a novel AMM, the Rikiddo scoring rule. Rikiddo guarantees that the price of each individual asset cannot exceed 1 ZTG. (Note that buying an outcome asset for 1 ZTG or more is fairly unattractive, as each unit of the asset could never be redeemed for more than the market price.) However, there is no guarantee that the prices of all outcome assets sum to 1 ZTG. Usually, the prices will sum to approximately 1 ZTG, but in markets with shallow liquidity pools or in volatile markets, this is not to be expected. See Arbitrage on Zeitgeist for more details.

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The Zeitgeist Beta uses a constant product market maker instead of the Rikiddo scoring rule.

The Prize Pool

On every market, outcome tokens may be minted (or bought) in full sets by users while the market is open (exactly one of each outcome token from the market) at the exact price of 1 ZTG plus transaction fee (so that every outcome token is backed 1:(nโˆ’1)1:(n-1) by tokens for the (nโˆ’1)(n-1) other outcomes). The minted outcome tokens are transferred to the user's wallet. The ZTG paid for the mint, on the other hand, is placed in the market's prize pool. All outcome tokens are created by minting them in this fashion.

Minting full sets has an inverse process: If a user holds a full set of outcome tokens, they may burn (or sell) the full set and receive 1 ZTG from the prize pool.

When a market is created, the prize pool is empty, and the balance of the prize pool cannot be changed except by minting and burning full sets. These rules guarantee the prize pool contains exactly 1 ZTG for every full set of outcome tokens in circulation. The purpose of these mechanics is to ensure that when the market resolves, all tokens can be redeemed for ZTG from the prize pool (for details, see Resolving Markets and Redeeming Tokens), and that the prize pool is empty after all tokens are redeemed.

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The prize pool is separate from the market's liquidity pool, which will be discussed further below.

For example, Alice has 3.7 ZTG in her wallet. She mints 3.5 full sets for the James Webb Space Telescope market, pays 3.5 ZTG (which goes into the prize pool of the JWST market) plus transaction fees, and receives 3.5 JWSTYES and 3.5 JWSTNO.

Bob, on the other hand, has 2.1 JWSTYES and 3.4 JWSTNO tokens. He decides to destroy 2.1 full sets (leaving him with only 1.3 JWSTNO) and receive 2.1 ZTG back from the prize pool. Note that Bob could not have destroyed any more full sets, as he owns no more JWSTYES.

Liquidity Pools and Shares

We already mentioned in Trading on Zeitgeist that trading in a prediction markets on Zeitgeist is facilitated by the market's liquidity pool, and that the pool contains balances of ZTG and of all outcome tokens of the market.

But by default, a new market has no liquidity pool. Instead, the pool must either be deployed by the market creator, or by some external liquidity provider. After the pool is created, others may join the liquidity pool by providing additional liquidity. When deploying liquidity into a pool, a liquidity provider will usually provide the same amount of full sets of outcome tokens as ZTG (xx of each outcome token and xx ZTG). The current minimum for xx is 100, making a total value of 200 ZTG.

Once they have transferred the assets into the pool, the liquidity providers no longer control those assets, but will receive fees when others swap them with their own assets (usually ZTG) to compensate for the risk of being left holding the losing outcome tokens (see Resolving Markets and Redeeming Tokens).

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In the Zeitgeist Beta, liquidity providers do not receive fees.

When joining a liquidity pool, they also receive liquidity shares (also known as liquidity pool shares), the third and final asset on Zeitgeist, which represent their share of the assets stored in the liquidity pool. Since the market is liquid, the amount of shares a liquidity provider will receive cannot be exactly determined before the transaction is made. However, they can specify bounds on the amount, either as a minimum of shares to receive for specified assets, or as the maximum assets they will provide for a specified amount of shares.

Liquidity providers may, at any time, destroy their liquidity shares to withdraw their share of the pool.

For example, lets say the JWST market has no liquidity pool yet and Alice wishes to deploy a pool. First she mints 100 full sets of outcome tokens, so she pays 100 ZTG into the prize pool of the market and receives 100 JWSTYES and 100 JWSTNO. Then she transfers these outcome tokens plus 100 ZTG into the pool. The whole endeavor costs her 200 ZTG plus transaction costs and earns her 100 liquidity shares.

Suppose now that the market ends and the balances of the pool are the following: 63 JWSTYES, 89 JWSTNO, and 120 ZTG. The balance of ZTG has increased from trading fees. After market close, Alice withdraws her funds: The outcome tokens and 120 ZTG. If the JWST did not launch on December 18, then she can redeem the 89 JWSTNO for 89 ZTG from the prize pool. This means that she's made a gain of 9 ZTG for supplying liquidity to the pool. If, on the other hand, the JWST does launch December 18, Alice is left holding 120 ZTG and 63 JWSTYES (redeemable for 63 ZTG), and, thus, Alice got rekt to the tune of 17 ZTG (but many traders will have made some profit).

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As liquidity provider for a prediction market, you are essentially betting against the informants' ability to predict future outcomes.

The Life Cycle of a Zeitgeist Prediction Market

Creating a Market

The market must be supplied with the following info:

  • A unique name
  • A question regarding a future event
  • A list of outcome tokens including ticker symbols
  • A Zeitgeist address that will serve as oracle (see below)
  • An end date (at which the market will close), specified as date or by its end block
  • A detailed description, including info on what information the oracle will base its report and what each outcome tokens represents
  • Optional: The liquidity pool to deploy for the market
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Every possible outcome must be represented by an outcome token. Often, it is a good idea to include a catch-all token for catching unexpected outcomes. See also Markets with More than Two Outcomes.

The market creator specifies a Zeitgeist address which is responsible for reporting the outcome. This address is called the oracle. The market creator must vouch for the oracle by staking a fixed amount of ZTG. If the oracle does not submit the report on time, the stake is slashed.

A common choice of oracle is any address controlled by the market creator.

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The market creator can specify any address as oracle, but also provides the stake for the oracle. If the market creator specifies an unwitting oracle (by mistake or with malicious intent), the market creator will lose their stake and the oracle will go unpunished.

As mentioned earlier markets have no liquidity pool by default. The market creator can choose to deploy the liquidity pool during market creation or create the market without a liquidity pool, hoping that someone else will deploy a pool for the market.

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The market creator will sign three transactions when deploying a liquidity pool during market creation: Creating the market and bonding the stake for the oracle, minting the outcome tokens, and joining the liquidity pool.

During Market Hours

The market opens immediately after it is created. If no liquidity pool was deployed, trading as described in Trading on Zeitgeist is impossible, but users may still mint/burn full sets of tokens.

The market remains open until the end date is reached. The market will then become inactive and trading will no longer be possible.

After Hours: Reporting an Outcome

The oracle of the market is expected to submit which outcome actually occurred within a fixed frame of time. If the oracle fails to submit the report in time, the market creators stake will be slashed, and all addresses will be able to submit their report.

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In the Zeitgeist Beta, the oracle has 24 hours to report the outcome.

Once the report is submitted, the status of the market changes from inactive to reported.

Disputes

Every time a report is submitted (by the oracle or a stand-in), the market is not resolved for another 24 hours. During this period of time, other users can submit a dispute if they believe that the report is incorrect.

To do so, they stake some ZTG and report the outcome they believe to be correct. The 24 hour window for disputes is then reset, and other users (including the oracle) can dispute the new report.

If the dispute cannot be resolved, it is escalated to the Decentralized Court.

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During the Beta campaign, only simple disputes are enabled. This means that the outcome of a market can be disputed a maximum of six times (with a 24h window, except the last one), each time with a higher stake. The report of the sixth dispute will be used to resolve the market. There is no decentralized court in the beta.

For example, suppose that the oracle of the JSWT market reports JWSTYES at 8:00AM, December 19. If no disputes are opened until 8:00AM, December 20, the market is resolved to JWSTYES. If Alice is convinced that this is incorrect, she may stake ZTG to dispute the outcome and report JWSTNO. If she does this at, say, 16:00 PM, December 19, then a new window for disputes opens, and other users could dispute the new report until 16:00 PM, December 20. If no other disputes are opened, the market will resolve to JWSTNO at 16:00 PM, December 20.

Resolving Markets and Redeeming Tokens

Once the window for disputes is closed, the market is resolved to the last reported outcome. All outcome tokens except for the winning outcome token are immediately burned. Traders who hold winning tokens can now redeem them for 1 ZTG apiece by signing a transaction. There is no time limit for redeeming winning outcome tokens.

For example, Alice holds 3 JWSTYES and Bob holds 5 JWSTNO. If the market resolves to JWSTNO, then Alice's 3 JWSTYES are burned and she is left with nothing, while Bob can redeem his 5 JWSTNO for 5 ZTG from the prize pool.

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Redeeming tokens is different from selling tokens. Tokens cannot be traded after market close, but they can be redeemed for 1 ZTG each once the market is resolved.

Furthermore, as soon as the market is resolved, those who staked ZTG in a dispute for the token which the market eventually resolved to receive their stakes tokens back, while the stake of those who staked for other tokens are slashed.

Advanced Topics

Arbitrage on Zeitgeist

Zeitgeist's AMM, the Rikiddo scoring rule, does not guarantee that for any market the sum of the prices of all outcome assets is approximately equal to 1 ZTG, or that the price of any outcome tokens remains below 1 ZTG. High prices are indicators of low liquidity or a volatile market.

This creates opportunities for users to add or remove liquidity to profit from arbitrage:

  • If the sum of a market's prices is greater than 1 ZTG, then a user can mint a full set for 1 ZTG and sell it to the liquidity pool at a price above 1 ZTG (ignoring slippage and trading fees). This move will add liquidity to the market.
  • If the sum of a market's prices is less than 1 ZTG, then a user can buy one of each outcome token from the market for less than 1 ZTG and then burn the full set to receive 1 ZTG from the prize pool. This move will remove liquidity from the market.

Liquidity Pools for Multiple Markets

It is possible for a liquidity provider to deploy their own pool, involving any kind of assets and not referenced by a specific market. The reason not to do this is that they would then be taking the risk of providing liquidity, without optimally minimizing that risk, as the total liquidity would be fragmented between different pools. When a pool has less liquidity, it is less liquid which tends to a lose-lose outcome for all involved. It is recommended, instead, only to use the market's canonical pool, which will be referenced by the market itself in its on-chain marketData.

Changing the Ratio between Outcome Tokens in a Liquidity Pool

It is possible to add either varying weights of standard assets (the market's outcome assets and ZTG) or other individual assets to any existing pool.

Further reading