Central limit order book
Overview
The most straightforward way to bet on outcomes in a completely decentralized way is pooled (tote) betting. Bettors interact with smart contracts directly and stake select amount in favor of an outcome. While users can see indicative odds at the time of placing a bet, final odds depend on the ratio of bets staked in favor of that outcome at the time of market close. These types of bets are popular with certain types of events, like horse racing, because they allow for variety of combination bets. However, pooled betting has a few limitations, notably:
- Odds are not fixed at the time betting
- No way to completely close a position, reducing exposure requires staking collateral
To allow more flexible trading Gameday offers central limit order book markets.
A central limit order book (CLOB) is a trading method used by most exchanges globally using the order book and a matching engine to execute limit orders. It is a transparent system that matches customer orders (e.g. bids and offers) on a 'price time priority' basis.
Customers can routinely cross the bid/ask spread to effect immediate execution. They also can see market depth or the "stack" in which customers can view bid orders for various sizes and prices on one side vs. viewing offer orders at various sizes and prices on the other side. The CLOB is by definition fully transparent, real-time, anonymous and low cost in execution1.
So CLOB allows users to submit bet offers at their own desired price. Naturally, there's no guarantee order will be executed, it depends on how competitive is the offered price. Overall, it offers participants advantages over alternatives:
- Fair pricing - Prices emerge directly from participant activity. Open bids and asks create a visible market-driven probability for each outcome instead of relying on opaque bookmaker pricing.
- High transparency - Real time feed of market depth is publicly visible, which helps eliminate information asymmetry and allows traders to make informed decisions.
- Precise Execution - Traders can place limit orders at exact prices, control entry and exit conditions, and manage exposure with greater granularity.
- Tighter Spreads & Reduced Slippage - By centralizing liquidity, CLOBs encourage competition among market makers, which lowers bid-ask spreads and minimizes price slippage for large trades.
Binary Contracts
With CLOB there is an opportunity to buy and sell event outcomes. These traded outcomes can be considered as binary contracts - a type of financial derivative to which many of options concepts apply. Effectively, contract offers "all-or-nothing" bet on a simple yes/no proposition: whether the price of an asset will rise or fall by a set expiration time, whether Team A will win a match against Team B, etc. For example,
- In NBA match between Team A and Team B, will Team A win?
If you believe Team A will win, you buy "YES" contracts, and if you believe Team A will not win, you buy "NO" contracts (which is the same as selling "YES" contracts).
Contracts are effectively priced from $0 to $1, for example:
- If you buy
1 YESat a price of $0.65 (which implies there's approx. 65% chance this outcome will occur), and Team A wins, you receive a total of $1:- Your initial stake of $0.65
- and $0.35 reward
- On the other hand, if selected outcome does not occur, and in this case Team B wins the match, you receive nothing.
You can trade these contracts just like you would stocks or other assets. For example, you can sell contracts you already own to lock in profits or cut losses before the event concludes. If you bought a "YES" contract for $0.65 and its price rises to $0.85, you can sell it to someone else and pocket the $0.20 profit per contract.
EIP-712 Order Signatures
Gameday CLOB requires order signatures - order data is signed using web3 wallet's private key. This way orders are immutable and ownership is verifiable. To prevent double-spending, order fill amounts are tracked on-chain. User's can also cancel orders in a permissionless way by interacting with a smart contract directly. Furthermore orders can have a set validity period which is verified by executing contracts.