New Market Maker Template
Harnessing the Wisdom of Crowds requires asking the right question, and ensuring an answer measured by time. We’ve been passively recruiting Market Makers, looking for a standard market approach, discussing expectations amongst ourselves in the Pharo community, and we’ve realized a template would be helpful.
Market Makers are looking to start their unique coverage market, earn $PHRO and collect their share of premiums. Markets based on templates can be quickly approved by the DAO and implemented, but most importantly they can help get people off their “fence” and realize the potential of their market knowledge.
Market Makers must be confident they, 1) know what consequential event or action people need protection against, and 2) if that event or action is predictable or occurs regularly. Often what we are looking to predict can be summarized as the reoccurrence of some event that bears significance.
For example take the ever popular memecoin $SHIB, which has prominent media coverage and a significant market cap. Suppose a Market Maker notices that $SHIB drops roughly 10% — 20% every week or so, a number we eyeballed on hotbit, and they want to start a cover market. The Market Maker can ask this question several different ways, all of which will affect how the answer is crowdsourced, here are a few examples:
- When will $SHIB drop by 15%?
- How long until $SHIB drops by 10% or more?
- When will $SHIB drop and stay below 20% for more than a day?
- How long until $SHIB experiences a flash crash of 15% or more?
How the question is phrased may change both how the crowds engage and how coverage is considered, but one thing is consistent: The answer is in days, hours, weeks … it’s a number, and that number directly feeds into the Wisdom of Crowds algorithm. Let’s consider a few additional examples of significant questions around other popular events which may have fiscal implications:
- Monthly Florida hurricane cover: How many hurricanes will strike your zip code this year?
- Weekly token volatility cover: How many weeks until token $XYZ drops by 5/10/20% or more?
We can generalize these questions and ask:
- How often does ABC happen to XYZ?
- When will ABC happen to XYZ?
- How long until ABC happens to XYZ?
A-B-C, easy as X-Y-Z!! 🎤🎵 This basic formula can be applied to any market. Market Makers can ask a templated question about any event with a fiscal impact, generate interest, and make money. In time, Pharo will build a self-service interface with template questions so it’s easy for Market Makers to think through this and propose markets to the DAO for approval. Behold the power of Pharo!