Playable Alpha: USD/BTC binary options market

[rpietila]

CLOSED FOR WAGERS

One test round was organized between March 2.-8. The playable Alpha is now CLOSED.

This thread discusses the development of the automated system that we hope will come online in some form in April.

Hi, I am developing the following service: binary options for USD/BTC exchange rate.

This is basically betting whether the rate in some future point of time is above or below the target. You either win 1 BTC/contract, or you lose. When you make the bet, you must pay some fraction of BTC as the wager.

Binary options complement the options that are currently traded in other exchanges. If the possible outcomes have reasonable granularity (I aim to have them at $1 intervals) and contract size is small enough (.001 BTC), binary options can simulate all other type of options contracts.

The options trading would feature:
- Native BTC business, no currencies allowed, accounting in BTC
- Betting by sending BTC to a particular address, winnings paid to same address, no identification of customer
- Simple website for easy betting, comprehensive trading centre for tailoring your own contract
- Contract expiration and payout every Friday
- All betting against the house, good liquidity and fixed spreads for all contracts
- No secondary market for contracts, but you can buy an offsetting bet at a cheaper price if you want to close position

I have background in gold and silver trade since 2006 and have been involved in bitcoin since 2011. I have several multimillion euro companies in Finland and Estonia (AAA). I am active in Finnish bitcoin scene and have access to 1000s of bitcoins to back this up.


I developed a playable alpha of the options market. The link is: http://hopea.fi/bitcoin-options/

Current features:
- Expires next Friday
- 10 outcomes to choose from (or any combination thereof)
- Easy to use Excel contract generator
- 5 BTC maximum

Please play! I understand if my post count does not qualify for a trustable person, so I am willing to escrow up to the maximum payout (currently: 7 BTC) with somebody more trustable.

I will write OPEN FOR WAGERS in this thread whenever the casino is open. When somebody posts a contract, the casino closes until I manually update the rates and write OPEN FOR WAGERS. So there will (hopefully) be only short windows when you can make bets.

[Technomage]

I can vouch for him. He is a long time gold/silver trader and entrepreneur.

I already have a bet in, and right now I'm in the money.

[MXRider]

+1 rep for rpietila, he is a trustworthy guy.

This kind service will be a huge succes if one can make it 100% automated.

[Sukrim]

Well, it might be a bit complicated to bet here, also after the first few rounds of payouts it might be the case that people gain confidence in you.

If I understand it correctly, your "magic sauce" that makes sure you don't loose money in the longer run is the probability ("base wager") for each of the slots that you need to somehow estimate correctly. Then you add a 2% commission on these probabilities, so if you're 100% correct in your predictions, you earn 2% in the long run.

How will you make sure your predictions are correct and if you are, why don't you just use your own coins or dollars on other option markets?

[oakpacific]

Looks great, a lot of fun math in it. I have a silly question: I don't quite understand the format of the numbers you used in the formula for calculating the SumWager, is 1,35 supposed to mean 135 and 0,04 supposed to mean 4 for example? Also, it could be helpful if you edit the OP to include the open/close for wager notice, so that people could just click a link and see it.

[oakpacific]

Looks great, a lot of fun math in it. I have a silly question: I don't quite understand the format of the numbers you used in the formula for calculating the SumWager, is 1,35 supposed to mean 135 and 0,04 supposed to mean 4 for example? Also, it could be helpful if you edit the OP to include the open/close for wager notice, so that people could just click a link and see it.

Thanks for great feedback! In Finland we use decimal comma. OP edited.

What do you think, is it better that buying the option is a direct blockchain transaction that can be verified, or is it trustable enough if we build this on a similar easywallet urlpassword userinterface as eg. https://bitcoinvideocasino.com/?r=1813514798 ?

The latter would offer much better userfriendlyness but also require better security. The former has very few attack vectors and is almost DDOSproof.

I would say stick with the blockchain, at least when you are still small, most of the broken bitcoin startups actually went broke due to security problems, maintaining security would become an immense burden when you are yet to sort things out.

One more question: so the contract size I use determines the amount of payout I receive in the event of winning right?

[420]

is there LTC ones?

[rpietila]

is there LTC ones?

Well, currently there is not yet even BTC

When hosting such a service, it is important to be knowledgeable about the subject matter. In our team we have an expert on USD/BTC rate. We don't know squat about altcoins. Perhaps we can licence the code for you when it's ready!

[420]

is there LTC ones?

Well, currently there is not yet even BTC

When hosting such a service, it is important to be knowledgeable about the subject matter. In our team we have an expert on USD/BTC rate. We don't know squat about altcoins. Perhaps we can licence the code for you when it's ready!

ya im currently selling LTC options manually:
https://bitcointalk.org/index.php?topic=145492.0

[stshiOption]

How did you get on with your trial?

[rpietila]

How did you get on with your trial?

The manual trial showed that the basic concept is functioning. We lost about 10% (the average payout 110%), because of the bonus. Otherwise we would have shown profit. The trial is suspended and we are evaluating the existing platforms for some code we could use and/or partner with.

At present it seems that April is too early for us. The rise in bitcoin price is draining our resources because we have also other things to do...

[stshiOption]

Makes sense. It did look very interesting.

We're in the process of offering automatic binary options on major currency pairs over different time periods, and working on a way to offer BTC/XXX pairs too. Trying to avoid the user having to create an account in order to buy the option. In addition, we've tried BTC/USD fairly successfully but to offer a good real-time price, we are having to pull from multiple exchanges and they're pretty patchy at times in terms of connectivity. Right now we're working out a way to produce our own price that uses all the data from all of the exchanges... while still having integrity.

Any thoughts?

[rpietila]

Makes sense. It did look very interesting.

We're in the process of offering automatic binary options on major currency pairs over different time periods, and working on a way to offer BTC/XXX pairs too. Trying to avoid the user having to create an account in order to buy the option. In addition, we've tried BTC/USD fairly successfully but to offer a good real-time price, we are having to pull from multiple exchanges and they're pretty patchy at times in terms of connectivity. Right now we're working out a way to produce our own price that uses all the data from all of the exchanges... while still having integrity.

Any thoughts?

Our approach to handing this would be incorporating the Mt.Gox trading engine lag into our odds-calculating engine. If there is no connectivity, our engine would add an extra safety margin to all bets. The user would barely notice it if the lag is less than 1 minute. With a longer lag, all odds would get worse, enabling to continue betting but mitigating our risk. Nobody would be able to game the system, because the spread would get bigger in both ends. Once the peace is restored in the market, and the trading data feed looks normal again, the extra margins will be taken away.

[stshiOption]

Yup I follow. And makes good sense. For the binary options we're pricing based of the Black–Scholes Valuation model. Looking into the CBOE style options too. Should have a lot more up this weekend. Would be interested in your thoughts once we do. Thanks for getting back.

[rpietila]

I heard a cool idea from my network, I wonder if this would gain any traction:

Website has odds for 24 hour maturity USDBTC betting, simply in the following way

BULL = If price after 24 hours is at least $149
GOAT = If price after 24 hours is between $138 - $149
BEAR = If price after 24 hours is less than $138

Automatic operation pays out 2x if your prediction is right, nothing if it is wrong. Payout is always double. The rate brackets are constantly fluctuating according to a formula, also the maturity is 24 hours from the timestamp. Therefore two bets are never equal.

Technically this could be made rather elegant. Also, because nobody's coins are locked for more than 24 hours ever, the trust issues can be easily overcome. The operator can guarantee all outstanding bets with an automatic, or 3rd party, escrow deposit.