Backlink to Welcome explanation for newcomers from Destinygg!
Introduction
Manifold Markets is designed to be as intuitive for new users as possible. We believe that we do a good job at achieving this from a trader’s pov. However, it is perhaps less intuitive for new market creators, particularly those who are trying to use our markets to achieve a unique use-case (in this case to make “permanent” stocks). It is important that these markets are set up correctly as they can dictate how the entire community interacts with the site.
It should be noted that markets made in the form of a normal prediction have worked great so far and have been very popular:
This write-up is looking specifically at the use-case of turning our prediction markets into stocks that reflect the community’s sentiment towards an orbiter. We were initially taking a very hands-off approach and just letting the Destiny community experiment with different types of markets and seeing how they decided to use them. But now that we are in the process of partnering with Destiny, let’s really dive deep into their flaws and find solutions.
FYI, an orbiter is a term used to describe a person of significance who interacts with the Destiny community.
Describing the use-case/goal
The aim of Orbiter Stocks is to mimic real stocks that have an absolute value tied to them (even if just play-money). However, instead of the value of a stock reflecting a real-life asset, it reflects the sentiment of the community towards an orbiter.
Therefore, for these markets to be successful the following should be true:
The markets incentivise traders to bet according to whatever their sentiment towards the orbiter is.
The market probability should be an accurate reflection of the entire community’s combined sentiment about an orbiter.
Share prices/expected profit should be tied to the current and expected sentiment towards an orbiter.
If the market probability was used in an actionable way (eg. one idea was to limit orbiter stream time based on their stock) the above points should remain tried and the market resilient to manipulation.
Summary of orbiter experiments
A few variations of orbiter markets that try to mimic stocks have already been experimented with. All of these have had problems. Our markets are simply not optimised to act as permanent stocks as they are tied to a probability. Because of this, there is a misalignment between trading on the sentiment of an orbiter vs trading for profit. This makes them less interesting to trade on and not at all actionable for any possible integrations with Destiny's stream.
Let’s quickly run through the different variations of orbiter stock markets that users have experimented with and created on our site thus far.
Short-term resolve to majority at close
The first iteration was by far the worst. The market closed at a set time and then would simply resolve to Yes if the probability was >50%. This meant it could be manipulated by one last minute big bet. In the above market you can see how the sentiment towards Dan was very positive but it was pushed down by manipulators during the final hours.
Short-term resolve to majority at random time
The next iteration attempts to circumvent manipulation by setting a random resolution time. Theoretically, this is should decrease market manipulation as it becomes extremely risky as traders will correct the probability to the true sentiment and manipulators could lose a lot of mana if they don’t time it correctly.
In practice, as seen in the graph above, a group of users (or whales) can just place huge limit orders that keep the probability where they want it even if the majority of traders are trying to push it down.
Permanent stocks - main type of orbiter stock currently being created
The final iteration - permanent stocks. If markets that resolve can be manipulated, then just never resolve them!! These markets are more robust to manipulation than the previous iterations and tend to do a slightly better job at reflecting the average sentiment towards an orbiter.
However, there are still some problems. If a market never resolves, then there is less incentive to make a trade based on what you think the community sentiment/your own sentiment is. At some point the market will probably fluctuate in a way that is profitable for you due to being constrained between 0-100%.
Additionally, your potential earnings are greatly limited due to share pricing being based off of betting odds and limited to the range of 0 to 100 unlike traditional stocks. There is almost no incentive to lock up your funds and trade if the probability of the market is already very high or low >90% or <10% unless we massively increase their liquidity.
It is much cheaper to move the probability towards 50%. This can lead to the market not being as efficient for truly reflecting the sentiment towards a guest. It makes it so the market is slightly weighted towards the “losing” side. With other markets on our site this isn’t an issue as the probability is tied to a tangible source of truth and will eventually resolve.
For now, these markets are still a lot of fun and still work great with the memes. Users can make profit by being smart traders and the markets will naturally calibrate over time to give a general sense of sentiment. I think the problems I discussed will only become an actual issue if Destiny tries to actually do something with the probabilities being output. They are more easily manipulated if there is an incentive to when not tied to something tangible.
Possible solutions for official orbiter stocks
Here is my proposal for official orbiter stocks. These would require help from Destiny (or at least his mods):
A new stock market is made for each orbiter on a monthly basis (markets can also be added mid-month for new orbiters, but would still end with the rest at the end of each month).
Destiny subscribers can then fill out a poll after the market closes where they rate each orbiter on a scale of 0-5. I believe Destiny already runs regular weighted-subscriber polls.
Optional: This could potentially be weighted so higher tier subs’ votes have a large influence.
Optional: Destiny himself could also give each orbiter a secret rating which would also have a large influence on the orbiter's final rating.
Optional: A more simple alternative is that there could be an ongoing strawpoll embedded in the market description that has its results hidden until the market resolves.
If an orbiter’s average rating is 2.5 or higher, then the market resolves to YES. If the rating is lower than 2.5 it resolves to NO.
Advantages this system has over other stock market attempts:
Users are now incentivised to trade even up to the extremities of the market if they strongly believe an orbiter will be rated highly/lowly as the market will resolve all the way to YES or NO.
The markets should be resilient to manipulation as there is an ultimate source of truth that the value of shares is tied to. Someone can still make a big bet and temporarily move the probability, but it will just be corrected and users will happily take the free odds.
Flaws present in this system:
When answering the poll, users may not answer truthfully depending on their position in the market (ie. if they own yes shares they should always just rate the orbiter a 5). I don’t think this is a big problem but could cause small issues.
Less fun to trade on what the results of a poll are compared to a stock.
Max upside is still capped. Can’t invest in an orbiter long-term with potential unlimited-upside.
Possible improvements for user-created stocks
Things Manifold Markets could implement:
Manifold Markets implements a new market type that isn’t tied to a probability and has unlimited upside. We were already working on something like this, will have to see how well it works when applied to orbiter stocks. I believe the core mechanism and backend are mostly coded but there is still quite a bit of work to be done. It also might be worth just designing something from scratch with orbiter stocks in mind. No promises here though.
Things market creators could do:
Prioritise creating markets that can be tied to and resolve to some verifiable source of truth (real stocks are at least somewhat tethered to company performance even if this is less true these days).
Idea 1: Embed a strawpoll (that has it’s results hidden) in the comments that asks users to choose whether they like or dislike the orbiter’s contributions to stream over the past period of time. After a few weeks market resolves to which side has more votes.
Idea 2: The stock could last 2 months, and resolve to YES if the orbiter is a guest on Destiny’s stream for at least x amount of time and hasn’t been told to leave by more than 2 other orbiters/Destiny himself.
A fun, high-octane gambling option - Run short-term stocks (could even be a stock on how likeable the orbiter was for that single stream that lasts for only 1 day). At market close, choose a random person in chat and bestow upon them the scared duty of being vibe judge (should preferably be someone who doesn’t own any shares).
Modify the current permanent stocks by making them resolve under extreme circumstances. By having a small chance of eventually resolving yes or no that is directly tied to sentiment, it will hopefully make the market slightly more efficient.
Yes: Resolves to yes if… (not sure what this should be)
No: Resolves to NO if they don’t come onto Destiny’s stream for over 6 months or get blacklisted.