AMM vs Odds

Smart-contract algorithm.

What is AMM?

An Automated Market Maker (AMM) is a type of smart contract algorithm that automates the process of market making on a decentralized platform by setting the prices of assets based on supply and demand, which can be seen in the application of DEXes like Uniswap, PancakeSwap,... Unlike traditional order book-based trading, which uses a central order book to match buyers and sellers, AMMs use a mathematical formula to determine the prices of assets.

How AMM is used in Goal3?

AMM (Automated Market Maker) refers to the smart contract algorithm that is used to manage the pool of funds or assets used to pay out the winning bets in order to prevent insolvency.

In traditional fixed-odds betting, the bookmaker sets the odds for each bet and is responsible for paying out the winning bets. In decentralized fixed-odds betting (Goal3), the role of the bookmaker is replaced by a smart contract, which uses an AMM algorithm to manage a pool of funds or assets that are used to pay out the winning bets.

How AMM affects Goal3 Odds?

Different from traditional fixed-odds betting, Goal3 odds are determined by the existing funds in liquidity pool and the number of bettors that are staking on each outcome. The AMM algorithm uses this information to set the odds, which can change over time as more people join the pool and stake on a specific outcome.

The odds for each user may be determined based on the current status of the liquidity pool at the time the bet is placed, in addition to other factors such as stake size or the time of the bet.

For example, if the liquidity pool has a high level of funds, the platform could offer better odds to users, as the platform has more funds available to pay out winning bets. However, if the liquidity pool has a low level of funds, the platform could offer worse odds to users, as the platform has less funds available to pay out winning bets.

This approach would work by setting a price impact, which would be used to adjust the odds for each user based on the current status of the liquidity pool. Check out the Price Impact Section for more information.

What are the advantages of AMM?

The use of AMM brings several advantages over traditional betting platforms, such as:

• trustlessness, as it eliminates the need for centralized intermediary

• transparency, as all the data and algorithm used by AMM are open-sourced and verifiable on blockchain

• liquidity solvency, as it ensures that there are sufficient funds in the pool to pay out any winning bets

• fairer odds, as it reflects the real-time market sentiment and demand.