🐣Origins of Overtime
Last updated
Last updated
The underlying foundation that makes Overtime Markets the worlds first permissionless Sports Markets AMM is the elegant and novel core design of the Thales Protocol, on top of which Overtime is built.
In this page we dive into the details of the Thales Protocol architecture and how Overtime Markets came to be!
The Thales Protocol was born in 2021 as a permissionless, order book based peer 2 peer Positional Markets platform deployed on Ethereum Mainnet and powered by Chainlink price feeds. The goal of Thales was the ability to support tokenized "all-or-nothing" markets around specific Strike Prices of popular crypto assets on specific Maturity Dates.
These markets were (and still are) all dedicated smart contracts that supported minting of UP and DOWN ERC-20 tokens with USD as collateral. Only one of these two types of tokens are able to be redeemed for the entire amount of USD collateral from the market contract on market expiry, depending on if the Chainlink reported price of this market's Asset is UP or DOWN from the Strike Price on the Maturity Date. This mechanism is the core foundation of the Thales Protocol. Anyone could use USD to mint equal amounts of UP and DOWN ERC-20 tokens. The idea was to allow traders to use the integrated 0x orderbooks to Market Make with their UP and DOWN tokens, but Defi users were not used to orderbook market making and the exorbitant L1 Ethereum gas fees made most actions not economically feasible.
To significantly improve the user experience of trading on Thales markets and to solve the on-demand liquidity problem, in late 2021 Thales deployed it's marketplace on Optimism L2 network and with it a novel and elegant liquidity solution, the Thales AMM contract. This special AMM contract took over as a main market maker on Thales marketplace, initially seeded by collateral from the Thales treasury, offering on-demand liquidity of UP and DOWN tokens for traders and algorithmically pricing those respective tokens using a modification of the Black Scholes algorithm.
Example:
If the AMM contract calculates a 30% probability of a certain market finishing UP on Market Maturity, it will offer those specific UP tokens to traders for $0.30 per token (+ Skew Impact premium). If the market indeed finishes UP, these specific UP tokens will be redeemable for 1 USD per token from the market contract while the DOWN tokens of the same market will be deemed worthless.
This represents the core principle of trading with the Thales AMM.
With this mechanism being thoroughly battle tested and proven in production, it has become evident:
After integrating with Chainlink to provide sports results and pre-game odds on-chain, the same previously mentioned AMM mechanism could to be used to provide the worlds first liquid permissionless Sports Markets AMM solution: The Overtime Markets V1!
Overtime V1 had all games as individual smart contracts where all individual positions of each game were tokenised. This means if you bought a moneyline position for HOME WIN, you would receive HOME WIN ERC20 tokens in your wallet equal to the amount of potential win of your bet. If your position wins, you exercise your ERC20 tokens for USD in 1:1 ratio from the game smart contract.
Although this architecture was a breakthrough in composability and decentralization of sports markets, it was not scalable. Gas cost for placing bets was too high for retail users, parlay system was impossible to design and horizontal scaling was not feasible due to impossible number of smart contracts needed to be deployed daily.
To allow for exponential offering scalability, user experience on-par with centralized Web2 products and feasible development of live betting, Overtime architecture upgraded to V2. The V2 version pivoted to use a merkle-tree based design onchain for market creation, odds updates and scalability. The move away from tokenized markets allowed Overtime to reach its full potential in amazing user experience and offering, while preserving the decentralization, openness and permissionless nature. You can read more details on how Overtime V2 works in Sports Markets V2 page.
