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Managing Pharo Markets


TL;DR

As a Market Manager you need to:

  1. Know what risk Liquidity Providers in this market are willing to accept

  2. Know what service fees Cover Buyers are willing to pay

  3. Know what your marketing costs are for building a market of LP’s and CB’s



As a Pharo Market Manager you can capitalize on your knowledge of probabilities, market behavior and patterns as well as your network to generate income for yourself and those you engage with. If you want to be a Market Manager, step one is to identify a simple event that can be reduced to a boolean, automatically monitored, and brought on-chain. Step two, is selling Liquidity Providers on covering this new market, which means ensuring the risk of payout before breaking fits their palette for risk. This may sound like gambling, however in gambling you are betting for a gain — in this case you are protecting against a loss of value and trust. As a result you can engage with both those who are risk averse and those who have an appetite for risk.

Let’s say the Market Manager adjusts acceptable risk so the event is 10% likely to trigger a payout once a year, that means if service fees reach breakeven in the 9th month, then months ten through twelve are all profit. In other words, the Market Manager has chosen to ensure that 25% of the time LP’s are making a profit, and Pharo ensures the service fees will do just that.

Now that we Market Managers have sold LP’s on Pharo’s very likely returns, providing clear cover prices for buyers, what’s our cut? Pharo adds a minimum static fee to cover basic system costs like gas fees and infrastructure costs, but profit margin is entirely up to the Market Manager. Question is: What will the market bear? Market Manager profit margins are publicly available, so it will be interesting to see at what point the market decides they’re being indulgent, but these profit margins also have to cover making this market, which could involve flying to conventions, buying dinner for Liquidity Providers, hiring writers or social media managers.

Regardless of the justification, if it costs too much to pull together, maybe the market should revolve around a different event. This doesn’t mean this particular Pharo can never exist, perhaps the Market Manager just didn’t know the market as well as they thought, perhaps there are costs they didn’t account for, maybe they need to pull more data together to support decisions, maybe people need time to absorb what Pharo is offering them. Whatever the case, you’re not risking much to explore potential markets, and more importantly you stand to make a lot of money once you find the winning combination.

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