At the core of Pharo, a fully Automated Cover Market Maker (ACM), is an on-chain risk management protocol built on top of the Ethereum blockchain (Polygon, Cardano, Binance Smart Chain to follow), backed by smart contracts to guarantee safety thereby removing the need for any middlemen. Pharo’s ACM protocol operates as a proxy between the Liquidity Providers (LPs) and the Cover Buyers (CBs), offering service fees to LPs, and cover to CBs.
PHARO Protocol Actors:
- Market Managers: Create new Pharos and recognize an event or events around which a market can be brought on-chain and created with a Pharo.
- Liquidity Providers: Deposit assets to Pharo Risk Pools to provide liquidity for the cover buyers while earning interest and $PHRO tokens.
- Cover Buyers: Buy cover from a Pharo and provide the service fees to the market managers, the liquidity providers and reserve pool. Cover buyers also earn $PHRO tokens.
- Stakers: Deposit $PHRO into a Stake Pool earning $PHRO and voting power in the Pharo DAO.
Pharo’s secret weapon and scaling champion is the Market Manager so let’s focus on that actor first . The Market Manager plays the most important role, and that is the role of creating the Pharos based on events they are familiar with. This means not only does the Market Manager have knowledge of their market, they also have a network of people that can act as either LPs or CBs that they can market to. With that being said, the Market Manager stands to earn the most profit by being first to establish the market.
Choosing a Market
The Market Manager is someone who has a good understanding of the market they are creating the event for and familiar with its triggers. It is in their benefit to set initial odds that are closest to the reality they understand.Creating a new Pharo is an important job done by the Market Manager who deposits $PHRO, defines the event, and sets parameters like how long the Pharo is active, LPs profit percentage, and the trigger. With a Pharo in hand the Market Manager is ready to advertise to LPs and CBs and bring the Pharo out of the mummy state.
In sum the Market Manager will be creating many events, experimenting with which specific conditions, which thresholds, which rewards, which timelines, will maximize their revenue and total payouts.
Pharo LLC Heavy Lifting
Each adapter/job is requested by the Market Manager with a simple online form at no cost.
The new event defined by the Pharo can and will be brought on-chain with the Pharo team’s support when the event trigger is not readily available or built. Pharo creates an adapter/job to monitor the outcome of each event.
Market Managers earn $PHRO token rewards for every event they create. After the event is triggered, the Pharo (Pharo in Anubis state) pays out the rewards to all actors. The Market Managers rewards are calculated based on total capitalization of the Pharo, so it is wise to know your market for maximum returns, meaning the more LPs enter your Pharo the more rewards you will earn.
LPs and CBs also earn rewards, LPs earn based on odds convergence and amount staked, CBs will earn rewards based on how close to the converged odds they come, where they are in first-in-first-out index, and for the amount of their cover they bought.
Fees and Profit
Initially 80 percent of all Service Fee Payments will go to the Market Manager (the Market Manager will decide the LPs percentage on event creation as well as the fee for the Agent/Referrer if needed), with the remaining 20 percent being the Pharo Fee and sent to the reserve pool (See example Fee diagram). *The Pharo Fee will be modifiable by a PIP or Pharo Improvement Policy in the future and managed by the Pharo DAO. More to come on the DAO.