Prediction markets on Cardano

[GENERAL] Summarize your solution to the problem.

We propose to build CONVEX - the first operational prediction market on Cardano. CONVEX is truly decentralised: anyone can participate. No central infrastructure. You don't need anyone's permission.

[GENERAL] Summarize your relevant experience.

First ever Plutus developer. Built the initial Plutus use cases long before the Alonzo H/F. Wrote matchmaker for Muesli DEX from scratch. Currently contributing to property-based testing of the Djed stablecoin. Many years of commercial Haskell / full stack experience.

[IMPACT] Please describe your proposed solution.

A prediction market is a question about a data point that can be observed in the future. A good example is "Will the oil price be higher than 65$ on November 10, 2022?". There are two possible answers to this question (Yes and No). Each answer is a share in this particular market. Users can buy and sell shares until the market closes on November 10. At that point, the question will be answered definitively, and whoever owns a share with the correct answer receives 1 Ada. The person or entity that creates and closes a market is called the market maker. It is the responsibility of the market maker to formulate the question as precisely as possible. In our example, one would have to specify which particular oil price the market refers to, and how exactly the value is observed on November 10. A mediation mechanism exists that allows users to submit complaints and resolve disputes about outcomes.

User Stories

As a user of the CONVEX decentralised prediction market, you will be able to browse existing markets and purchase shares in them. Your shares are tokens that live in your wallet and you can trade them on exchanges. When a market is closed you can redeem your winning shares for Ada. If you suspect dishonest behaviour you can launch an arbitration procedure to try and reclaim your funds.

As a market maker you can use your $CONVEX tokens to create new markets and arbitrate (close) the markets you have created. Earn reputation and profit from user fees.

Technical Documentation

The CONVEX decentralised prediction market is powered by several Plutus scripts that cover the operation of the individual markets as well as governance and liquidity aspects. CONVEX will use the properties of the Cardano blockchain to the fullest extent, allowing for cheap and smooth operations and interoperability with existing dapps.

The extended UTXO model that Plutus smart contracts are based on allows for some interesting features such as short-selling without borrowing (obviating the need to post collateral).

The shares in each market can be traded like any other native token.

Governance

The CONVEX project has been designed with sustainability and transparency as primary goals. This is achieved through $CONVEX token and the economics and governance procedures that it enables.

Users receive $CONVEX tokens as a reward for prodiving liquidity. $CONVEX tokens have a number of use cases.

• $CONVEX tokens are required to open and operate a new prediction market (they are NOT required if one simply wants to participate in the market)
• $CONVEX tokens are eligible to vote in arbitration procedures
• $CONVEX tokens allow holders to participate in governance and decide on the future direction of the project
• $CONVEX tokens, by virtue of being Cardano native tokens, can be traded at any exchange that lists them.

Transparency The development of CONVEX will happen out in the open, with the on-chain code and the match maker backend being fully open source. The $CONVEX token is created solely by providing liquidity through the staking time-lock. There is no pre-allocated amount of tokens for developers, early investors or for burning (however, the amount of $CONVEX tokens gained from staking decreases over time, providing an incentive to early investors).

Sustainability The Catalyst funding will be used to finance the development of the project. The goal of the project is to establish a completely decentralsied, open-source prediction market on Cardano. Therefore it will not be necessary to operate any servers or infrastructure afterwards. The project will stay alive as long as it attracts users.

Smart Contracts

The following Plutus smart contracts will be built:

1. Prediction market The actual prediction market script. It will be based on the work of Clark et al. [1], with some CONVEX-specific additions

2. $CONVEX token The monetary policy of our utility token. In a novel take on the ISPO, we ask our users to provide liquidity by locking Ada in a Plutus script over a period of 90 days. As a reward, users receive $CONVEX tokens immediately upon locking their Ada. At the end of this period, the entire Ada amount will be returned. The staking rewards however will go towards the treasury of the project.

Risk Management

CONVEX will be built to the highest standards of software quality assurance to attain functional correctness and to minimise the risk of loss of funds through bugs.

This includes a formal specification of the on-chain components, as well as rigorous testing in many forms (unit tests, property tests, integration tests, manual tests).

We aim for greatest transparency by developing the project out in the open and inviting external contributors to scrutinise the source code at every step.

We will also take measures to mitigate against other types of risk. For example, we will ensure that users of the prediction markets will always be able to retrieve their funds, even in the presence of a malicious market maker.

[1] http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.434.4262

[IMPACT] Please describe how your proposed solution will address the Challenge that you have submitted it in.

CONVEX contributes a new type of DeFi app to the Cardano ecosystem: A decentralised prediction market. Such a market currently does not exist and CONVEX closes this feature gap.

CONVEX will also make several secondary contributions. By being fully open sourced, it will provide a complete example of a non-trivial Cardano app. This can lower the hurdle for new developers and encourage them to enter the ecosystem. Finally, CONVEX is designed from scratch for the Cardano blockchain (as opposed to being a port of an existing system), making full use of the capabilities of the EUTXO model, incl. the improvements of the Vasil hardfork. It is therefore also a contribution to the design of Cardano dapps.

[IMPACT] What are the main risks that could prevent you from delivering the project successfully and please explain how you will mitigate each risk?

• Delays. The main risk to successful delivery arises from delays due to understimating the complexity of the implementation work. These delays will not prevent the project from delivering, but they may result in disgruntled stakeholders, and allow competitors to release their product first.
• To mitigate the risk we will create a detailed project plan that captures the uncertainty involved in the estimation
• We will also clearly define the scope of the project to achieve consensus on what it means to be done
• Low bus factor. If the main developer cannot continue to work on the project for whatever reason (accident/illness) then the project will likely be severely delayed or never be completed at all.
• To mitigate this risk we will carry out the software development in the open, allowing interested third parties to carry on with the project
• Regulation. Prediction markets may be classified as gambling providers in some jurisdictions.
• To avoid regulatory issues impeding the project, the scope of this work is only the development of the software and does not include any on-going services such as marketing, operating servers, etc.

[FEASIBILITY] Please provide a detailed plan, including timeline and key milestones for delivering your proposal.

The following chart shows the expected time (in working days) for the tasks involved in building the prediction market. The numbers are cumulative days since the beginning of the project, within a 5-95 percent confidence interval.

Deliverables

Weekly development updates will be released during the development of the project. These will include videos demonstrating any new features that have been added, as well as pointers to the source code and documentation.

The final deliverable at the end of the project consists of:

* Source code on Github

* Documentation on Github

* A downloadable artifact that allows users of CONVEX to participate in the decentralised prediction market. This is likely going to be a docker image, but we will explore other avenues of delivery (ideally fully browser-based) during the "Release" part of the project.

* A demo video showing the product in action on mainnet

[FEASIBILITY] Please provide a detailed budget breakdown.

The budget for the development work is based on the above timeline and my normal day rate.

• Development: 59d a 1100USD = 64.900 USD
• Specification: 6.5d
• On-chain code: 6.5d
• Off-chain code, queries: 9d
• Off-chain code, buildint transactions: 6d
• Web UI: 20d
• Testnets / release work: 11d
• Infrastructure for testing
• 3000 USD
• Community manager
• 30h at 50 USD per hour = 1500 USD

Total: 69,400 USD

[FEASIBILITY] Please provide details of the people who will work on the project.

• Lead developer Jann has been writing Plutus contracts since before the Alonzo hardfork. Having built the initial use cases that informed many of the important decisions behind the extended UTXO model [2, 3, 4] he can be considered Plutus Developer #1. He wrote a matchmaker for the Muesli DEX from scratch [5] and operated it for several months. Most recently he has worked on Quality Assurance (property-based testing) of IOG's Djed stablecoin. He has been programming with Haskell professionally for almost ten years and is familiar with all aspects of the software life cycle, from design to deployment.
• Community manager Our community manager is a great communicator with a proven track record of mediating between stakeholders to achieve successful outcomes. She has been the financial lead of IT projects with budgets of several million GBP for large financial institutions.

[FEASIBILITY] If you are funded, will you return to Catalyst in a later round for further funding? Please explain why / why not.

The goal of the project is to become self-sustaining (based on user fees) from the start. The only circumstance in which another round of Catalyst funding might be appropriate is if investment is needed to build an entirely new product. However, if this is the case, and the original project has achieved its goals, then there should be other avenues of funding available. It is therefore relatively unlikely that CONVEX will seek another round of funding.

[FEASIBILITY] Are you or any member of your team working on any other proposals in this Fund9?

[FEASIBILITY] Are you or your team working on any other proposals from previous Funds?

[AUDITABILITY] Please describe what you will measure to track your project's progress, and how will you measure these?

• Development is open-source on github. Development progress can be measured against the project plan
• The product will be available to the public from the first milestone. At that point we can start to measure engagement (users, community members, etc)
• With the release on mainnet we will also be able to measure financial success meaningfully -- revenue generated for $CONVEX holders, TVL, etc.

[AUDITABILITY] What does success for this project look like?

CONVEX exists as a working, decentralised prediction market on Cardano mainnet

[AUDITABILITY] Please provide information on whether this proposal is a continuation of a previously funded project in Catalyst or an entirely new one.

CONVEX is an entirely new project.