How to Create a Prediction Market using Privatized BitAssetsby Dan LarimerThis post is designed to document how prediction markets work with the 
existing BitShares 2.0 system and are ready for business today.  Before I
 get into the details of how you would set this up, I would like to 
highlight some of the primary differences:[[MORE]]When creating a 
new asset (symbol) you must set the *is_prediction_market* flag to true,
 otherwise you will create a normal bitasset.The precision of a 
prediction market asset (PMA) must equal the precision of the 
short_backing_asset  (the asset used as collateral).The value of
 a prediction market asset (PMA) is between 0 and the value of the 
short_backing asset (SBA).   So if BitUSD is the backing asset, then the
 most the PMA can be worth is 1 BitUSDNo price feeds are published for prediction market assetsThere is no forced settlement (until after the issuer performs a global settlement). In order to create a 1  PMA (Prediction Market Asset) you must post 1 USD as collateral.  After the outcome of the prediction market event is known, the issuer 
can publish a Global Settle Operation  (which is the equivalent of a 
manual black swan).  This operation will forever lock in the exchange 
rate between 1 PMA and USDAfter the Global Settlement operation 
has been issued, owners of PMA may use the Request Settlement operation 
(same as force settlement) to redeem the PMA for 0 to 1 USD depending 
upon the outcome of the event.’To gain decentralization and 
protection against manipulation, the issuer could be a multisig account 
or even the committee or witness account.All of this is possible today, but the GUI does not do the right thing in the user interface. So lets use an example.Suppose
 I create a prediction market that is denominated in USD and I call the 
asset REPUB2016 that is worth 1 BitUSD if the republicans win the 2016 
presidency and worth 0 if anyone else wins.If I suspect they 
have a 60% chance of winning, then I may bid $0.55 for 1 REPUB2016.
 Someone else who thinks the democrats will win, can post $1 as 
collateral and create 1 REPUB2016, then sell their 1REPUB for 0.55 which
 leaves them with 0.55 USD and short 1 REPUB2016 backed by 1 USD.    If 
the democrats win, the global force settlement will free their 
collateral and they will end up with $1.55.  If the republicans win, 
then their collateral will be seized and they will end up with $0.55.You
 can also use these prediction markets to predict any linear outcome.  
For example, you could use it to predict the spread between the 
republicans and democrats where greater than 20% in favor of the REP 
means it is worth 0, 20% or more in favor of the DEM means it is worth 
$1.00 and a “tie” is worth $0.50.  A simple linear interpretation can be
 applied for spreads between -20% and +20%.   The benefit of the linear 
interpretation model is that it gives higher resolution, greater 
volatility, and more balanced leverage tradeoffs.  The system 
isn’t “perfect” by any means, but it is functional enough that 
participants can make/lose money without any significant biases.Follow the DiscussionCreate a BitShares Account(Image: 

	Thomas Autumn)

How to Create a Prediction Market using Privatized BitAssets

by Dan Larimer

This post is designed to document how prediction markets work with the existing BitShares 2.0 system and are ready for business today.  Before I get into the details of how you would set this up, I would like to highlight some of the primary differences:

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