2

What type of smart contracts are executed for winner and loser payouts?

ie. Will it rain

80% Yes 20% No

What will execute payments from the 20% to the 80%

3

Positions are created via a complete set, which means one of every possible outcome. A complete set costs some fixed amount, like 1 ETH. This ETH is put into escrow in the Augur contracts.

When the market is finalized (meaning all reporting is done and the final outcome determines that it did rain) anyone holding a Yes share token can redeem it with the market for the same complete set cost that was used to purchase one of each outcome originally. In the above example, this means 1 ETH (note, this answer doesn't consider fees for simplicity).

Of course, buying a complete set and then redeeming the one winning outcome isn't particularly useful. So what you can do is buy a complete set and then sell the outcomes you don't want to someone else. In this example, you may buy a complete set and then sell the "No" share token to someone else for 0.20 ETH. This will result in you having effectively paid 0.80 ETH for the Yes share token. If the market resolves in your favor, you can redeem that for 1 ETH resulting in a 0.20 ETH profit.

To simplify things, the system makes it so you can find a counterparty first by creating an order with 0.80 ETH in escrow (so you don't need to front the 1 ETH) and then when someone matches your order with 0.20 ETH the system will buy a complete set for 1 ETH, then give you the Yes token and them the No token. All of this is handled for you by the UI and contracts, but in order to understand how the escrow system works and how we ensure that all shares are fully backed it needs to be described in this answer.

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