Risk Mitigation Strategy

Issue #58 | State: OPEN | Created: 2026-01-16T00:48:35Z

Assignees: linked0

Updated: 2026-01-21T01:46:31Z | Closed: N/A

Overview

To protect the platform's capital from the risks of acting as the initial liquidity provider, we must implement advanced trading logic.

Sub tasks

1. Spread Capture (Markup)

   • Initial orders provided by the admin should not be at fair value (0.50) but should include a spread (e.g., sell YES @ 0.55, NO @ 0.55) to build a profit buffer against adverse selection.

2. Dynamic AMM Pricing

   • Implement an inventory-balancing algorithm that automatically adjusts prices based on the platform's remaining token inventory.
   • If traders buy heavily into one outcome, the price for that outcome should rise to curb demand and capture premium.

3. Negative Risk (NegRisk) Implementation

   • For multi-outcome markets, allow "NO" orders on one outcome to serve as liquidity for "YES" orders on others.
   • This aggregates liquidity and reduces the capital required from the platform by letting traders bet against each other's conflicting positions.

Details

Dynamic Automated Market Maker (AMM) Pricing

• Concept: Since the platform acts as the initial liquidity provider (LP), it shouldn't just sell tokens at a fixed price. It needs to adjust prices based on demand to balance its book.
• Price Adjustment (Slippage): If traders start buying a lot of "YES" tokens, the platform's algorithm (or AMM) should automatically raise the price of YES and lower the price of NO.
• Result: As the platform sells off its "YES" inventory, it charges more and more for it. Ideally, the premium charged on the popular token covers the potential loss on the unpopular one.

Negative Risk (NegRisk)

• Concept: primarily a feature for users (allowing them to buy "NO" on 5 different outcomes without paying 5x collateral), it significantly helps the Platform/LP manage risk in multi-outcome markets.
• Capital Efficiency: Instead of locking 1.00.
• Liquidity Aggregation: When users place Limit Orders (bids) on "NO" for Option A, B, and C, NegRisk logic can effectively treat those combined "NO" bets as liquidity for a "YES" bet on Option D.
• Effect: This helps the platform (or any LP) fill orders on one side using the liquidity from the other side, rather than taking the opposing side itself with its own capital.
• Reducing Platform Exposure: By enabling traders to effectively bet against each other across different outcomes (e.g., Trader A bets YES on France, which acts as liquidity for Trader B betting YES on Argentina), the platform steps out of the middle. The platform becomes a matcher of risk between users rather than the sole counterparty absorbing the risk.