Core Concepts

An introduction to the fundamental ideas powering the KalshChain prediction market.

1. Prediction Markets

A prediction market is a trading platform where users buy and sell shares corresponding to the outcome of a future event. Shares are priced between 0.00 and 1.00 SOL.

  • If you buy a 'YES' share at 0.40 SOL, you are predicting the event has a 40% chance of occurring.
  • If the event occurs (YES), the share settles at 1.00 SOL, giving you a 0.60 SOL profit.
  • If the event does not occur (NO), the share settles at 0.00 SOL, and you lose your 0.40 SOL investment.

2. Automated Market Maker (AMM)

KalshChain uses an AMM model, specifically the **Constant Product Market Maker (CPMM)** formula, to determine the price of shares. This eliminates the need for counterparties and order books.

The Formula: x * y = k

Where:

  • x is the reserve of YES shares.
  • y is the reserve of NO shares.
  • k is a constant (liquidity measure).

When a user buys YES shares, x decreases and y increases, which raises the price of the remaining YES shares.

3. Liquidity Pools

Each prediction market has its own liquidity pool containing YES and NO shares. Users who deposit funds (USDC or equivalent) into the pool become **Liquidity Providers (LPs)**.

  • LPs earn a small fee (e.g., 2%) on every trade executed in the market.
  • LPs are exposed to impermanent loss, as they take the opposing side of every trade.

4. Market Resolution & Settlement

Markets are settled after the expiration date using a **decentralized oracle** to determine the final outcome (YES or NO).

Settlement Payouts

Holders of the winning outcome receive 1.00 SOL per share, drawn from the liquidity pool. Holders of the losing outcome receive 0.00 SOL.

Next Steps