🌊Parimutuel Wagering

Odds depend on the ratio of money bet on each pool at the start of the event, NOT at the time of the bet.

Parimutuel, or pool-based Wagering, sets odds for a bet depending on the ratio of money bet into each pool at the start of an event. Because your odds depend on how much money is bet on each team when the game begins, the odds you see before an event starts represents the current state of the pool. They will change after each new bet up until the pool is locked.

Everyone who bets on the same team will receive the same odds regardless of when they bet. Each bet grows the pool size, thus expanding liquidity. This is ideal for liquidity providers because they don't have to worry about adverse selection bias and the pool is always incentivized to rebalance to a fair price.

Parimutuel betting can be understood with the following formula:

In an event with a set of n possible single-winner outcomes, with wagers $W_1, W_2, ..., W_n$ the total pool of money on the event $(W_t)$is:

$W_T = \sum_{i = 1}^{n} W_i$

After the wagering company deducts a commission rate of r from the pool, the amount remaining to be distributed between the successful bettors $(W_R)$ is:

$W_R = W_t(1 -r)$

Those who bet on the successful outcome m (i.e. $i = m$) will receive a payout of $\frac{W_r}{W_m}$ for every unit they bet on it.

More info: https://en.wikipedia.org/wiki/Parimutuel_betting.

Paradox does not charge a fee. Instead, the fee is distributed to bettors that bet before the current bet. See Fee Distribution.

Parimutuel Payouts in Practice: Example without fees

At game start, 1000 units bet on Team A, 2000 units bet on Team B, and 3000 units bet on Team C.

Odds per unit: A +500, B +200, C +100.

If Team A wins, each unit bet wins a total of 6 units. 1 A token is redeemable from the pool for 6 units (the original 1 + 5 other units).

If Team B wins, each unit bet wins a total of 3 units. 1 B token is redeemable from the pool for 3 units (the original 1 + 2 other units).

If Team A wins, each unit bet wins a total of 2 units. 1 A token is redeemable from the pool for 2 units (the original 1 + 1 other unit).