# Binary Options Markets

# Concept

Binary options markets don't have base asset as other markets do, and they are quoted in USDT (there is a possibility other quote assets will be added later). Tickers for binary options markets usually follow the scheme of UFC-KHABIB-TKO-09082022 or similar. Typically, binary options markets are used for betting on sport events, but can also be used for betting on any outcome. All markets have possible price bands between $0.00 and$1.00 with users able to put in orders from $0.01 to$0.99. ($0.00 and$1.00 respectively show an end condition that the outcome did not occur or did). The price submitted in the order is essentially an assumed probability of the given event (market) occurring.

For all binary options markets, fees are always paid in the quote asset, e.g., USDT.

There is no leverage in these type of markets, as users trade against each other in a zero-sum market. From this the other requirement is implied: if one side of a bet believes the event will occur (YES side), and current market probability for this exact event is P (which means the current market price is P), opposing side of the bet should be certain that the event will not happen with (1-P) probability. Thus, if the person on YES side buys Q number of contracts with the price P, he locks Q*P of his balance as his margin, while opposing NO side (seller side) should lock Q*(1-P) of his quote balance as margin.

Example:

Alice buys 1 contract at $0.20 (margined with$0.20) against Bob who sells 1 contract at $0.20 (margined with$0.80), creating positions for both of them.

• Alice wins $0.80 if the market settles at$1 and Bob wins $0.2 if the market settles at$0.

# Oracle

Binary options markets are tightly coupled to the Provider Oracle type, which allows a governance-registered provider to relay price feed data for arbitrary new price feeds under the provider's subtype without the need for extra governance for adding successively new price feeds. Each binary options market is comprised of the following oracle parameters:

• Oracle symbol (e.g. UFC-KHABIB-TKO-09082022)
• Oracle provider (e.g. frontrunner)
• Oracle type (required to be provider)
• Oracle scale factor (e.g. 6 if the quote denom is USDT)

The main goal of the oracle is to post the final outcome of the event. This final price settles the market at that exact price. This price is expected to be equal to be 0 or 1 most of the time, reflective of the binary outcome.

Moreover, the market could be settled at any price within the (0, 1) price band. In case the settlement_price posted by oracle is between 0 or 1, all positions will be closed at the settlement_price (e.g. 0.42). If the oracle price exceeds 1, the settlement price will be rounded down to 1.

Oracle can also post the final price of -1, which is the flag price than triggers refunding of all positions in the current market and demolishes the market. If there is no oracle update ever prior to settlement, then an oracle price of -1 will be used by default to trigger the refunds of all positions.

Further documentation on the oracle provider type can be found in the Oracle module documentation.

# Market Lifecycle

# Market Creation

A binary options market can be created through an instant launch (through a MsgInstantBinaryOptionsMarketLaunch) or through governance (through a BinaryOptionsMarketLaunchProposal).

The market may be optionally configured with a market admin which has the ability to trigger settlement, change the market status as well as modify the expiration and settlement timestamp of the given market. If the market does not specify an admin, then the market parameters can only be modified through governance and that the settlement procedure will be fully based on the associated oracle provider price feed.

# Market State Transitions

Binary options markets can take one of three statuses on Injective: Active, Expired or Demolished. After the market is created, the market has an Active status, which signifies that individuals can begin trading.

Pertinently, binary options markets also have a characteristic ExpirationTimestamp which specifies the deadline at which trading activity for the market ceases as well as a SettlementTimestamp which specifies the deadline at which settlement will occur by (which must be after expiration).

• Active = trading is open
• Expired = trading is closed, open orders are cancelled, no change to positions.
• Demolished = positions are settled / refunded (depending on the settlement), market is demolished