Anatomy of a Decision Market

In Decision Markets, every potential outcome has a price, helping a qORGs implement whichever option is seen as the most welfare-generating outcome. Thanks to this unique setup, you can turn your knowledge into a profit opportunity, all while helping steer the direction of the qORGs you participate in.

Decision Markets share some similarities with other Web3 products (like DEXes, DAOs, Prediction Markets, etc.), but their implementation leads to a different experience to all of these. In this introduction, we will walk through how a Decision Market works, how to participate in it, and why this system benefits both Quantum Organisations and the participants in these markets.

The First Step: Converting into conditional tokens

The first step to participate in a Decision Market is to deposit your Quantum Tokens. You can either enter the market with the Quantum Token of the Stablecoin the market is paired against. By depositing, your assets are converted into their superimposed state, giving you a version of your deposited tokens for every outcome.

For example, if you deposit 25,000 UMIA Into a Decision Market with 3 choices (A,B,C), you will receive 25,000 UMIA for A, B and C as well as the 'No-Op' choice. Thanks to this superposition, you can hedge each conditional outcome equally without need to split your trade across choices. Now that you have your conditional tokens, you can begin participating in the market!

Reading a Decision Market

After the opening of a Decision Market, all conditional tokens begin at the same level as spot price. Over time, as people begin participating in each conditional token the prices of each will begin to diverge. Being able to read the Decision Market graph will allow you to not only trade each of the conditional tokens, but also understand the leading winning option as well as the relative sentiment of every choice:

• Spot: This is the price of the non-conditional Quantum Token in traditional markets. You can decide whether to either see the absolute price change in USD of all tokens or the price of all decisions relative to spot by selecting between the Price and Relative view.
• Conditional Token Price charts: These represent the traded price of the conditional outcomes. Every market will have a chart for each option, as well as a No-Op Decision, which assumes no action is taken when the market closes. The price of these charts depends on whether traders decide to buy or sell their conditional Quantum Token once deposited.
• TWAP: Time-weighted Average Pricing is the price of each of the outcomes averaged over time. To reduce volatility and manipulation, the final winning outcome will be calculated by the outcome with the highest TWAP at the time the market closes. You can toggle to view the TWAP in the graph.

By comparing the pricing differences of each proposal to each other, decision markets are able to unlock a quantifiable indicator of the estimated market impact of every proposal were it to be implemented. For instance, if at one time proposal A is 20% higher than spot while proposal B is 30% lower than spot, this can be interpreted as markets pricing the outcome of A happening being overall positive to the protocol, while B leading to a negative impact.

Trading Conditional Tokens

Once the tokens have been deposited, you are given the decision to either buy or sell your conditional tokens against each of the possible outcomes of the market. These orders are executed at the current price of all assets at the moment of the market.

The unique setup of Decision Markets provided by Umia allows for different considerations to be made. For example, early market participants can assess how they believe each of the outcomes is going to diverge compared to the original spot price. If a trader believes that a certain outcome is going to increase in price relative to spot, they can begin by entering the market in this moment, and afterwards selling it the token at a profit if the token happens to appreciate in price.

In addition to being able to trade along the market, the superposition of conditional tokens allow for trading across all conditional markets simultaneously, leveraging your full deposit across all options. This unique feature of Umia's markets unlocks the possibility of hedging, adjusting your position depending on which outcome will be implemented, and much more. As we will explore later, only the winning outcome's trades end up being materialised, and as such, you can expose yourself to all outcomes without fears of opportunity costs for trading in non-winning options.

Over time, as a decision market develops, different arbitrage opportunities may arise for traders. For example, as a market comes close to closing, the winning outcome and spot pricing are expected start converging closer and closer as it becomes more likely for that to be the winning outcome.

Early Asset Withdrawals

At any point during a Decision Market - even before its resolution - a user can decide to withdraw their conditional assets back to non-superimposed tokens. To do this, all they have to do is withdraw the same amount from every condition. For example, if they want to withdraw 100 USD, they would have to have at least 100 USD available in all of the options available and no op. This 1:1 equivalency between the spot tokens and their conditional versions remains present during the entire duration of the market.

The ability to enter and withdraw from the Decision Markets at any point allows for adjustment in strategies and amount deposited at any time prior to market closure. If profit is made across all outcomes, it is even possible to withdraw the profit to real tokens prior to the market resolution!

Market Resolution and Execution of Conditional Trades

If a trader decides to remain in the market into the end, the next way to withdraw assets comes from Market Resolution. Here, the winning option is chosen among all thanks to its highest Time-Weighted Average Price, or TWAP.

The reason TWAP is the measure taken to determine the winner is to minimise the risk of last minute volatility or manipulation of one option over others. In addition to the TWAP, qORGs will be able to set a threshold of how much an outcome will need to diverge from spot pricing to be able to be executed, to ensure that only significantly meaningful options are implemented as opposed to low-impact ones with unclear benefits.

Once the winning option passes, the assets are automatically withdrawn for this proposal, and the conditional options placed on this market are materialised. During the Decision Market creation, part of the treasury's liquidity is set aside for the market, and once the market closes, this liquidity is used to execute all the conditional trades that have been placed by the decision market participants.

As the other conditional tokens are not executed, neither their losses or profits materialise. This allows traders to have full coverage across all potential superimposed outcomes, as there is no fear of losses for having traded in the losing outcomes.

Exploring a New Financial Primitive

By leveraging the Decision Markets of Umia, Quantum Organisation unlock the possibility of pricing conditional decisions in a quantifiable way. What we have described so far is only the surface of how markets will function, but as more Quantum Organisations develop and create decisions this way, more complex strategies will develop.

Decisions are evolving. What was once a process that would be nebulous, arbitrary and hard to assess is now quantifiable, open to everyone and constantly repricing itself as participants trade their decisions.

Thanks to everything that we have discussed above, Umia introduces an accurate indicator of pricing for each proposal being traded on Decision Markets. This gives projects a clear signal of how markets will react to each implementation, removing the element of uncertainty that was present in previous systems, and instead introducing a framework that also is centered around aligning the success of both the project and the underlying token.

The future of projects is Onchain, and powered by Umia.

Disclaimer: The following article is meant for informative purposes only. When trading in any market, returns are not guaranteed and losses may happen.