Greetings, dear community members. We’ve been silent for a while, finalizing the PROS token model. Today, we will touch $PROS token usage and share more details on one of our core features — insurance system.
How Prosper works
Prosper is a smart-contract based prediction market and wager. Currently it pools bullish and bearish bets in ETH on price movements in the ETH/USDT, ETH/BTC, and ETH/BNB trading pairs within the next 1 hour, 4 hours, or 24 hours. Each pool has a pre-set reference price based on the moving average and technical analysis of the spot asset price. The bullish/bearish event is detected relative to this reference via the independent price oracles. At the end of the settlement period and after identification of the winners, the bets on the losing side of the pool are redistributed to the winners in proportion to their initial bet.
As a simple example, Alice is a confident bullish trader wishing to leverage her expected profit in the ETH/USDT pair. She makes a 0.5 ETH bullish bet into the 24-hour pool with the ETH reference price at USDT 395. After the 24 hours, the ETH spot price, reported by the oracle, is USDT 400, which is a 1.3% increase. At the time, the pool has collected 9 ETH, with 4 ETH on the bears and 5 ETH on the bulls. As a winner, Alice gets a 0.5/5 = 1/10 share of the 4 ETH from the losing side, i.e. 0.4 ETH. Her total revenue from the pool is 0.9 ETH, and her profit is 80%.
Hedging with Prosper
As any derivative instrument, Prosper works equally well on the hedging side.
In another scenario, Bob is a hedger wishing to safeguard his holdings of 10 BTC. The ETH/BTC pool reference price for the next 24 hours is 35.3 ETH per BTC. Bob makes a 0.5 ETH bearish bet with Prosper. Suppose the BTC price is 35 ETH at the pool settlement in 24 hours, which is a 0.85% decline, so Bob’s BTC holdings depreciate by 3 ETH. At the time, the pool had 14 ETH, with 2 ETH on the bears and 12 ETH on the bulls. With his 0.5 ETH bet, Bob is eligible for 25% share of the prize and thus wins 3 ETH, offsetting the exchange rate losses completely.
In the above scenario, a 0.85% increase in the BTC price would result in 3 ETH appreciation of Bob’s BTC holdings. At the same time, his 0.5 ETH bet would be lost, lowering the total profits by 16.6%.
Enter the Prosper Insurance program.
With Prosper Insurance in place, 15% of the total losing bets are redistributed back to the eligible losing participants. In the above example, the insurance pool is equal to 0.33 ETH. Had Bob been the only participant eligible for insurance, he could have redeemed more than a half of his bet, obtaining an even more attractive hedging scenario.
Prosper Insurance: eligibility and rules
Prosper Insurance is the first utility option envisaged for Prosper token holders. Each pool has its own insurance fund calculated and distributed immediately at the pool settlement. It is assigned 15% of the total bets on the losing side. The insurance fund is then distributed to the losing pool participants in proportion to their Prosper token holdings, thus making the Prosper Insurance participation a competitive effort.
With Prosper Insurance in place, the total distribution of the settled pool is the following:
To give another example and explain the rules in more detail, let Alice and Bob participate in a single ETH/BNB pool on a bearish side to hedge their BNB holdings. Alice holds 700 Prosper tokens, while Bob holds 300. Assume Claire participates in the same pool on the bullish side and holds 1000 tokens, Dan bets on bears with Alice and Bob but holds no tokens, while Eric holds 3000 tokens but does not participate in this pool.
Only the losing participants of the pool who hold Prosper tokens are eligible for insurance, and their holdings are the only ones that count when sharing the insurance fund. In case BNB appreciates, A., B. and D. lose. Alice receives 70% of the insurance fund, or 10.5% of the losing side bets, while Bob gets 30% of the fund, or 4.5% of the losing bets. D. is not eligible as he holds no Prosper tokens; neither C. nor E. are eligible regardless of their holdings as they did not participate on the losing side.
To be eligible with the full volume of their token holdings, participants are required to make the proportionate bets into the pool. This proportion will be identified using the independent oracle for Prosper spot token price. 10% of each participant’s bet will be recalculated, using the Prosper token price, into the eligible volume of tokens. Suppose the Prosper token price is 0.001 ETH in the above example. Alice’s token stock is worth 0.7 ETH, while Bob’s is 0.3 ETH. For the full holdings to count when sharing the fund, Alice would be required to bet 7 ETH, while Bob should have bet 3 ETH. However, had they chosen instead to make, respectively, 0.7 ETH and 0.3 ETH bets, their shares of the insurance fund would not change, although the eligible token volumes would be lower, 70 for Alice and 30 for Bob.
The insurance fund shares are calculated at the end of the pool settlement period. For this reason, the Prosper token accounts may be additionally funded for insurance before the settlement, up to the maximum eligible amount of tokens.
Finally, the tokens used to claim the insurance fund remain locked for a short period of time. During this period, they can not be reused in other pools. However, they stay in the participants’ ownership and are not charged for insurance in any way.
A utility case for Prosper token
With the above layout in place, the demand for the Prosper token is expected to be tied to the demand for Prosper Insurance, which is in turn associated with market uncertainty and price volatility. The Prosper token may therefore become a risk management instrument in itself, potentially capable of volatility reduction in a crypto assets portfolio.
Accordingly, Prosper participants will be able to acquire Prosper tokens in calm times by taking part in reward programs. Stay tuned for the detailed description of the ‘risk mining’ program and more details on Prosper economy.
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