LP-0049Finalpredictionoraclemarketsbinaryresolution

LP-049: Prediction Markets

Abstract

Lux Prediction Markets enable trading on the outcome of real-world events. Markets are binary (yes/no) or scalar (numeric range). Market creation is permissionless. Resolution uses an optimistic oracle: a proposer asserts the outcome, and it is accepted after a challenge period unless disputed. Disputed outcomes are resolved by K-chain oracle data (LP-038) or governance vote.

Specification

Market Types

Binary market: trades outcome tokens YES and NO, each redeemable for 1 USDC if the outcome matches.

Scalar market: trades LONG and SHORT tokens over a numeric range [low, high]. Payout is linear interpolation based on the resolved value.

Market Creation


struct MarketParams {
    string  question;        // human-readable question
    uint256 resolutionTime;  // Unix timestamp when market resolves
    address collateral;      // settlement token (USDC)
    uint8   marketType;      // 0=binary, 1=scalar
    uint256 scalarLow;       // scalar lower bound (0 for binary)
    uint256 scalarHigh;      // scalar upper bound (0 for binary)
    bytes32 oracleFeed;      // K-chain feed for auto-resolution (optional)
}

Creator deposits 100 USDC as a market creation bond (returned after resolution).

Trading

Outcome tokens are minted/burned via a CPMM (constant product):

Mint: deposit 1 USDC, receive 1 YES + 1 NO
Burn: return 1 YES + 1 NO, receive 1 USDC
Trade: swap YES for NO (or vice versa) on the AMM, price reflects probability

Resolution

Auto-resolution: if oracleFeed is set, the market auto-resolves using K-chain price at resolutionTime.

Optimistic resolution:

1. After resolutionTime, anyone can propose an outcome with a 500 USDC bond

2. 48-hour challenge period

3. If unchallenged, outcome is finalized; proposer bond returned

4. If challenged, dispute goes to governance vote (LP-058)

Redemption

After resolution:

Binary: winning token redeems 1:1 for USDC; losing token is worthless
Scalar: LONG redeems (resolvedValue - low) / (high - low) USDC per token; SHORT redeems the remainder

Fee Structure

| Fee | Rate | Recipient |

|---|---|---|

| Trading fee | 0.20% of trade value | LPs |

| Creation bond | 100 USDC (refundable) | Creator |

| Resolution bond | 500 USDC (refundable) | Proposer |

Security Considerations

1. Oracle manipulation: auto-resolution uses K-chain TWAP over 1 hour before resolutionTime to resist manipulation.

2. Ambiguous questions: poorly worded questions can lead to disputes. Market creators are incentivized to write clear questions to recover their bond.

3. Low-liquidity manipulation: thin AMMs can be manipulated to show misleading probabilities. UI should display liquidity depth alongside prices.

Reference

| Resource | Location |

|---|---|

| Prediction contracts | github.com/luxfi/standard/contracts/prediction/ |

| Market factory | PredictionFactory.sol |

| Optimistic oracle | OptimisticOracle.sol |

Copyright

Licensed under the MIT License.