Heads or Thales: Exploring the Potential of Positional Parimutuel Markets

Introduction

Though the ICO craze was littered with low-effort scams, its mania was rooted in the legitimate potential of blockchain’s application layer to revolutionize the tech industry. No project is more emblematic of this period than Augur. In Ethereum’s first ICO, Augur raised $5.5M to build the world’s first decentralized prediction market. Like the majority of ICOs that succeeded it, Augur has become a symbol of crypto’s transformative potential and unmet expectations.

As Vitalik notes in his blog post, “Prediction Markets: Tales from the Election,” prediction markets remain some of the lowest hanging fruit for crypto disruption. Decentralized prediction markets (DPMs) deliver valuable insights and financially incentivize the fight against information asymmetry. For an optimal prediction market, crypto’s central pillars of decentralization, credible neutrality, and censorship resistance are prerequisites rather than buzzwords.

Thales is leveraging the power of parimutuel markets to build easy-to-understand derivatives, prediction markets, and sports betting. This report will analyze what makes Thales unique from its predecessors and evaluate its potential as a killer app.

Brief Review of Synthetix Eco and Intro to Parimutuel Markets

Synthetix is a derivatives platform that enables users to mint and trade synthetic assets, or synths. SNX stakers make up the collateral pool and are permitted to mint sUSD, which can be exchanged for other synths. These synths are pegged 1:1 to their corresponding crypto, fiat, stocks, or commodities via Chainlink oracles. Due to the nature of synthetic assets, Synthetix is able to onboard a wide array of assets without dealing with slippage, liquidity bootstrapping, and other overhead costs that plague development of nascent protocols.

The Thales community was spun out from Synthetix as the scope of its binary options product grew to command a dedicated team. Thales maintains a close relationship with Synthetix, with widely overlapping communities, a republic-style DAO structure, and sUSD as its main collateral. If you’re interested in learning more about how Synthetix works and its burgeoning ecosystem, peep our recent deep dive.

Parimutuel markets place participants against one another rather than a centralized bookmaker. All bets are placed into a pool which is ultimately divided among the winning side. Odds are a function of the pool balance rather than the more traditional fixed odds structure. Bets are represented by positional tokens, which are priced by the Thales AMM according to the Black-Scholes Model. Winning positional tokens are redeemable for one dollar, while losing positional tokens expire worthless. Parimutuel markets offer an easy-to-understand alternative to derivatives such as standard options and perps.

Thales Product Suite

Positional Markets – Allows users to predict if a crypto asset’s price will be above or below the strike price on a specified date. These positions are expressed via UP or DOWN positional tokens.

Ranged Markets – Made up of multiple UP and DOWN positional tokens, allowing users to predict if an asset’s price will fall within a specified range at the maturity date. Positions are expressed as IN or OUT tokens.

Positional tokens and ranged tokens can be packaged together to resemble more complex options strategies in plain English. Ranged markets offer an easy alternative to buying and selling straddles. The odds pricing method and capped loss/upside provide a digestible, composable form of options trading. Positional markets have also been deployed on Arbitrum and Polygon.

Thales Royale – Thales Royale is a binary options tournament based on Fortnite and Squid Game mechanics. Thales Royale has been implemented as both a free-to-enter marketing tool and as a season format, with mint pass NFTs serving as the cost of admission.

Exotic Markets – Harness the flexibility of parimutuel markets to allow users to create markets for any query with a legitimate data source. Disputes are resolved by the community through a fair and trustworthy process. Political elections and COVID-19 statistics have proven to be fantastic use cases for exotic markets, and have played a key role in the rise of Polymarket.

Thales Royale and exotic markets have been shelved while the team focuses on fleshing out its newest product, Overtime.

Overtime Markets – Offers positional parimutuel markets for sports, and is quickly becoming Thales’ flagship product. Overtime allows users to participate in decentralized sports markets without registration or KYC. Overtime imports odds from Web2 sportsbooks such as Pinnacle and DraftKings through reliable Chainlink feeds. This allows Overtime to support a variety of sports, leagues and bet types. For the time being, Overtime is only available on Optimism.

The World Cup brought a deluge of demand to online sports betting platforms everywhere, an