SX Network
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SX Network

Introducing Governance Markets

Earn rewards by betting on SX governance proposals

We’re excited to announce the first ever SX governance market today!

Governance markets are betting markets that decide governance decisions. The price of the governance market determines whether to execute policies.

There is predictive power in the native SX prediction market protocol. SX Network can use this to harness the wisdom of the markets. This will enable SX Network to become the world’s first intelligent blockchain network.

We’ll explain how this process works in the following paragraphs.

❌ Token Voting Governance Isn’t Optimal

Blockchain networks don’t exist in a vacuum. They need governance to be viable, sustainable, and to continue innovating. Governance is necessary to ensure the trust of the network. It can be a tool for good.

Most current blockchain governance systems use token voting. Token holders vote on governance proposals, with the amount of tokens they hold equal to their voting power. It is very similar to how traditional corporations make major decisions, with tokens fulfilling the same role that shares do in a typical shareholder meeting.

However, blockchain organizations are vastly different than traditional companies. They are decentralized, permissionless, and open. For example, contributors and voters are often pseudo-anonymous. This renders traditional fiduciary duties and legal liabilities potentially inapplicable.

Token voting systems are sub-optimal in many ways: they are rife with special interests, they have widespread voter apathy, and they encourage value destroying vote bribing.

The blockchain space needs an alternative governance process that can achieve good results without sacrificing the core principles of decentralization, permissionless, and openness.

🧠 Introducing Governance Markets

Markets transform individual acts of selfishness into desirable outcomes. Efficient markets deploy resources in the most economically efficient way.

Governance markets build off these principles to turn governance into a free market itself. Rather than voting on proposals, market participants are driven by incentives to bet on them.

Governance markets turn governance proposals into a tradable market. From there, participants bet on which proposals they think will achieve certain outcomes. They’re rewarded when they’re correct, and importantly, punished when they’re wrong. Rather than relying on the self-interests of token voters, we let traditional market incentives drive decision-making.

Governance markets are a decentralized governance system that harnesses the wisdom of the markets to make decisions.

📖 How Governance Markets Work

Letting the market decide whether to trade James Harden for Ben Simmons

The Brooklyn Nets are currently trying to figure out whether to trade superstar James Harden for Ben Simmons. The Nets have been playing horribly recently with 9 straight losses. It is championship or bust for the Nets; anything less than winning the NBA championship this year would be a huge disappointment for them.

To decide whether to trade James for Ben, the Nets set-up an internal governance betting market. The goal is simple: figure out whether their odds of winning the championship are higher with James Harden or with Ben Simmons. If their odds of winning the championship are higher with Ben Simmons, then they will make the trade.

The rules for participating in this market are equally simple, bettors are either betting on YES (i.e. Nets will win championship if they make the trade) or NO (i.e. Nets won’t win championship if they make the trade). The betting market will last a certain period; in this example we use one week.

The current odds for the Nets to win the Championship with James Harden are 28.6% (+250/3.50). This is the bar by which to compare the Ben Simmons trade to. The betting market opens (Feb. 3rd) for betting and market participants place bets on YES or NO. At the end of the betting market (Feb 9th), all the bets are tallied and counted. A volume-weighted average price (VWAP) is then calculated based on all the bets that took place.

If the VWAP of all YES bets is higher than 28.6%, it indicates that market participants believe that the probability of the Nets winning the championship this year are higher with Ben Simmons than with James Harden. If that’s the case, the Nets would then make the trade and bettors would be locked into their bets until the end of the season. If the Nets win the championship, then YES bettors would win their bets and win the stake of NO bettors. If the Nets failed to win the championship, then the NO bettors would win their bets and the stake of YES bettors.

If the VWAP of all YES bets is lower than 28.6%, it indicates that market participants believe that the probability of the Nets winning the championship this year is lower with Ben Simmons than it currently is with James Harden. If that’s the case, the Nets would not make the trade. Bettors would then be refunded their bets.

Obviously, the Nets aren’t 100% optimized towards winning the championship this year. There are other long-term implications of any trade that must be taken into account as well. However, those can also be factored in through the creation of a separate longer-term governance market. The secondary market could focus on the Nets odds of winning the following year’s NBA championship, or even look further out.

🗳️ SX Governance Proposal

Now that readers have a decent understanding of governance markets and roughly how they operate, we’ll turn our attention to SX’s first governance market. Instead of proposing a trade though, the SX proposal will focus on whether to fund a special one-time incentive program for Sushiswap swappers of the SX token:

Objective: Increase SX token swapping activity. This will promote awareness of the SX Network ecosystem. It will improve liquidity for SX token by increasing swapping fees for Sushiswap LPs. This will in-turn enable SX token to become part of the Chainlink price feed, increase token exchange interest, and help grow the SX community.

Proposal: Fund 25,000 staked SX ($10k) for a 7-day swapping volume promotion. This promotion would be for the Polygon Sushiswap SX/WETH pair. It will reward wallet addresses pro-rata on their swapping volume on the Polygon Sushiswap SX/WETH pair between February 16–22nd, 2022.

Target KPI: Achieve a 7-day total swapping volume of $3.50m (equal to a daily average of $500,000) on the SX/WETH Sushiswap pool during the period of the promotion. For context, the pair is currently averaging roughly ~$50,000/day in swapping volume per day

The betting activity of the governance market determines whether the proposal passes or not

📈 Governance Market

A governance market will decide whether to pass this policy. It will listed on the SportX platform. There, it will be live for betting in order get the market’s perspective on the KPI’s probability of success. You can find this betting market live on SportX here.

The market has the following terms:

⚙️ Market Settlement

The are three possible governance market outcomes: VOID, OVER, and UNDER. The betting activity of the betting market itself will dictate how and when the market settles, as explained below:

  • VOID Market Outcome: Governance market will settle as void if on February 15th the VWAP of all OVER bets on the market is below an implied probability of 50.0% (+100 / 2.00). In this case, the governance proposal would fail and all bettors refunded their stake. The market would also settle as void if the total amount of betting volume is less than $5,000.
  • OVER Outcome: If the VWAP of all OVER bets on the market is above an implied probability of 50.0% (+100 / 2.00), then the governance proposal is implemented. From there, OVER bettors win the bet if the Target KPI is hit i.e. the average daily volume of the SX/WETH pair on Sushiswap between February 16–22nd is above $500k.
  • UNDER Outcome: If the VWAP of all OVER bets on the market is above an implied probability of 50.0% (+100 / 2.00), then the governance proposal is implemented. From there, UNDER bettors win the bet if the Target KPI is missed i.e. the average daily volume of the SX/WETH pair on Sushiswap between February 16–22nd is below $500k.

💰 PLUS: $5,000 in Betting Rewards

Governance is a public service for SX Network. An intelligent governance system is a massive competitive advantage for SX Network. Governance markets are experimental but hold a lot of promise.

But, governance markets only have informative power if they have liquidity and betting volume. Thus, to stimulate liquidity and activity, we will be distributing $5,000 in Bet Credits pro-rata to everyone that bets on this market!

💰 $5,000 in Bet Credits distributed to Governance Market bettors💰

Simply bet on the SX Governance market in USDC to be eligible for a share of the rewards. For example, if there is $10,000 of betting volume on this market, and you had made a $1,000 bet, then you would be eligible for $500 in bet credits!

There is a learning curve to betting this market. We thus suspect betting volume will be relatively low. But, that increases the amount of bet credit bonuses available! We will be monitoring for wash betting activity and banning those respective users from access to the prize pool.

About SX Network

SX Network will be the first public blockchain to combine a smart contract platform with an on-chain community treasury and a native prediction market protocol. SX Network is a stand-alone smart contract blockchain built on the Polygon SDK. It is designed from the ground up for blockchain application developers with EVM-compatibility, low-cost transactions, and a PoS-based consensus model.

Website | Twitter | Reddit | Discord | Whitepaper | SportX

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SX Network scales Polygon for betting, DeFi, and NFT applications.

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