Pari-Mutuel Online Transaction Platform Eliminates Counterparty Risk
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Solution Overview
Problem
Traditional digital options rely on a counterparty, introducing counterparty risk, and market sentiment is not accurately reflected due to knowledge of party positions, leading to disproportionate participation in options.
Innovation Solution
A system that allows users to predict the outcome of an asset's price change with a floating strike point option, using a processor to manage position acquisition and payout multipliers in a pool-based pari-mutuel system, eliminating counterparty risk and reflecting natural market sentiment through anonymous position aggregation.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If traditional digital options use a counterparty model, then the option structure is simple and easy to understand, but counterparty risk is introduced and market sentiment is not accurately reflected
Solution Approach 1:
The patent extracts and removes the counterparty element from the traditional options structure. Instead of having a counterparty (option writer) who assumes risk, the system uses a pool-based pari-mutuel structure where all participants contribute to a pooled fund that pays out based on aggregate outcomes. This eliminates counterparty risk while maintaining the essential options functionality.
Solution Approach 2:
The patent introduces a pool-based pari-mutuel mechanism as an intermediary between buyers and sellers of digital options. This intermediary structure aggregates positions from multiple participants and uses the pooled funds to pay out winners, rather than requiring direct counterparty relationships. This mediator eliminates the need for counterparties while preserving the option payoff structure.
2Loss of information
If the system discloses aggregate positions for each outcome, then transparency is improved, but market sentiment is influenced and natural participation is distorted
Solution Approach 1:
The patent implements a position acquisition period during which participants can submit their positions before the event outcome is determined. During this period, the system accepts positions without disclosing the aggregate positions for each outcome. This preliminary action allows participants to express their true market sentiment without being influenced by others' positions, ensuring accurate sentiment reflection.
Solution Approach 2:
The patent segments the information disclosure process into different phases: during the position acquisition period, aggregate positions are not disclosed to prevent influence; after the position acquisition period ends, the aggregate positions are revealed before payouts are made. This segmentation allows the system to maintain both transparency and accurate market sentiment reflection at different stages.
Data Source
AI summary
An apparatus and method and computer readable storage to conduct transactions that allow users to establish positions on underlying events. The method disclosed herein can allow user to establish positions using money, credits or points, and if the position is successfully, the user can receive a payout on the position, which may include, money credits, points, or prizes. The transactions can relate to financial instruments and financial transaction and can also be used for games and gaming.