Virtual Funds

Virtual Funds are a mechanism for calculating the probability of outcomes for a Condition

In CoreBase-based smart contracts, the probability of each outcome within a Condition is stored in the form of Virtual Funds of outcomes. The greater the value of the Virtual Fund of the outcome relative to the Virtual Funds of other outcomes, the higher the perceived probability of that outcome, and consequently, the lower the odds for that particular outcome:

o_{i}=\frac{F_{0} + ... + F_{n}} {F_{i}},\text{where } F_i \text{ is a Virtual Fund of the outcome } i

When creating or modifying the odds of outcomes by the Data Provider, the total volume of Virtual Funds for all outcomes within the Condition is calculated using the following formula:

F=R-sum(bets)-max(payout)

\text{ where } \\R \text{ is the Reinfrocement of a Condition, } \\sum(bets) \text{ is the sum of bets on all outcomes of a Conidition, } \\max(payout) \text{ is the maximum potential payout to players for a Condition. }

The main distinctive feature of Virtual Funds is that, despite their size incorporating the Reinforcement size designated at the creation of the Condition, the Reinforcement is not locked on the LP balance fully. Until the Condition is completed, only the liquidity amount needed to cover the maximum possible payout for the Condition through user bets is locked on the LP balance. The locked liquidity value is recalculated each time a user places a bet or a Data Provider provides Condition results. Thanks to this, the sum of Reinforcement amounts for all current Conditions may exceed the liquidity amount on the LP balance. If the Reinforcement limit has not been reached yet, but there is insufficient unlocked liquidity on the pool to support a bet, then that bet simply will not be accepted. This mechanism efficiently utilizes liquidity and sustains a large number of Conditions in the game at any given moment.

The total volume of Virtual Funds does not always match the real fund of the Condition. When a player places a bet, the ratio of Virtual Funds changes. Before calculating the odds on which the bet will be accepted, the Virtual Fund of the outcome i on which the bet is placed increases by the size of the bet:

F_{i}=F_{i}-a,\text{where } a \text{ is a bet amount. }

After the bet on outcome i has been accepted, the Virtual Fund of other outcomes changes as follows:

F_{j \neq i}\mathrel{{-}{=}}\frac{(payout-a)*F_{j}}{sum(F)},\text{where } a \text{ is a bet amount. }

Thanks to the adjustment of Virtual Funds, in the absence of Data Provider control, an internal mechanism of an automatic market maker of the betting odds is performed: the greater the volume of bets on an outcome, the lower its odds, and the odds for other outcomes increase.

Also, due to this mechanism, the overall loss for the Condition in the worst-case scenario cannot exceed the size of the reinforcement allocated by the Data Provider when creating the Condition.

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