Example 1. Predicting the future values of specific assets
First, let us look at an example of how prediction markets can be used to place direct bets on future events.
Let’s assume that one market participant believes that Bitcoin will trade over $8,000 by year end and another one is sure that it will trade under that value by year end. Both place some VEO on bets. The one who wins will get the whole amount. The network registers a smart contact to that effect. When the time comes, an oracle looks up the market price of Bitcoin and determines the winner.
Example 2. Investing in stocks without brokers: creating contracts for difference
For many users, investing is made difficult by legal obstacles and often high minimum deposit limits with brokers. A common solution to these issues is the contract for difference (CFD), the prices of which are the same as the corresponding share prices, but the trade is made bypassing exchanges. CFD clients in many countries are very poorly protected by applicable law, and suffer from fraud and scams. In some countries (for example the USA), CFDs are even prohibited. Financial regulators worldwide have not yet found a legislative solution that would fully protect the clients of CFD brokers. Prediction markets are called upon to solve this problem through the use of blockchain. The accuracy of the data and the fairness of payments is controlled by the blockchain, and not by the brokers. Amoveo allows any network participant to create and trade CFDs. Competition amongst them ensures low commissions while keeping the contacts highly reliable.
For instance, when trading CFDs, one market participant (buyer) pays another (seller) the current price of Intel shares plus some commission. The seller assumes an obligation to repurchase the shares at any time on demand at the prevailing market price. A smart contract reflecting the same transaction is a crypto CFD. When the buyer decides to close the contract, our oracles obtain the market price of Intel shares and determine the amount to be paid.
Example 3. Using stable coins
Crypto markets are considered to be risky and it is prudent to hold some of the assets in fiat money. Stable coins provide another alternative, though it is a nascent option. The best known of them is Tether (USDT), which is tied to USD. It was involved in a scandal a while back due to non-transparent reserves (allegedly in actual dollars). Amoveo allows the creation of stable coins with digital reserves in VEO, yet tethered to any other asset, from gold to cryptocurrencies.
The mechanism of using stable coins with Amoveo is akin to that of CFDs. The only difference is that the contract value (not security price) is tethered to the price of any asset quoted in VEOs, such as currency (euro, dollar), commodity (oil, gold), etc.