# Why Parimutuel

## **We chose Parimutuel (Dynamic) odds because it removes adverse selection bias.**

Traditional betting markets have been unable to scale liquidity because there is a subset of users who bet only when news is not yet factored into the odds. If you know LeBron isn't playing before anyone else, you can bet against the Lakers and lock in a highly +EV position when that news reaches the market.

This creates a negative feedback loop where MMs/LPs are unable to offer large limits because they also have to limit losses from these -EV news-related bets. This problem is magnified on-chain where users are unable to be banned and limited.

**Paradox is built to allow liquidity providers to passively and profitably provide liquidity.**

1. Everyone who makes a bet is providing liquidity because the pool grows with each bet. Traditionally, LPs have to be matched to have a bet.
2. Nobody is able to take advantage of news changes. Odds are only assigned when the game starts and betting is closed. This means even if you bet against the Lakers before LeBron is ruled out, you should get odds that are based on LeBron being out (assuming an efficient market).&#x20;
3. There are no limits to the amount you can bet and the pool will always be incentivized to rebalance near Vegas odds. If you bet 1,000,000 units on heads when there is 10 units on tails, people are incentivized to bet tails. With adequate time, market participants and awareness you should still expect to get fair odds.
4. The earlier you bet, the more edge you have because you are earning commission for every single bet that comes after you. This is the first betting protocol that incentivizes you to bet as early as possible.

## Example: Betting on a Coin Flip with Parimutuel Odds

It is helpful to think of Parimutuel betting as a seesaw. Let's say we are betting on a coin flip. Someone bets 1000 units on heads and 1000 units on tails ([this would be profitable in our system, due to fees](https://paradox-3.gitbook.io/paradox/fee-distribution)). Someone new comes in and bets 500 units on heads. Now there are 1.5k units in the pool on heads and 1k units in the pool on tails. This means if the pool ended now, tails would be getting +150 odds. Users are incentivized to come in and bet on tails. Someone sees this opportunity and puts 400 units on tails. This means now 1.4k units are bet on tails and 1.5k units are bet on heads.&#x20;

Our belief is the economics of this system can be used to guarantee a user the fairest price. The prices stay consistent relative to the true, or market, odds. There are some edge cases where a pool may not be rebalanced, but generally, **all parties should expect to be getting better odds than could be found anywhere else as there is no bid/ask spread and no commission is going to the house.**

Once the pool closes and the event starts, your payout can be understood as a function of what % of the money you contributed to the pool you bet in. For a more detailed explanations and examples of the odds, see  [](https://paradox-3.gitbook.io/paradox/parimutuel-wagering "mention") and [team-tokens](https://paradox-3.gitbook.io/paradox/team-tokens "mention").
