Cooperative Price DIscovery
no front running
Microtick's core technology creates a market microstructure in which cooperative (assert / insure) quotes combine to replace traditional competitive (bid / ask) market orders, resulting in a more stable price discovery process - one that is
less sensitive to price manipulation.
The Microtick project’s goal is to provide a globally agreed upon, real-time consensus price - without requiring direct financial coupling to any underlying asset. The project is built on decentralized blockchain technology and the game-theoretical foundation of Schelling points.
Microtick's cooperative price discovery uses short-term "assert / insure" premium quotes that work together to bring improved consensus price stability as market makers compete to offer the lowest premiums to buyers on future price movement. It works well alongside traditional competitive price discovery such as order books or AMMs - as a liquidity engine due to arbitrage opportunities that come up during times of high market volatility. But Microtick's price discovery is decentralized and decoupled from trading - anyone can make a price assertion or take a position.
Unlike today's so-called decentralized oracles that try to create incentives based on reputation, or slashing conditions based on time epochs and statistics, Microtick is a real-time free-running, fully-tradeable marketplace with rolling time windows and linear payouts - derived solely from price movement. In addition, it will be able to operate across multiple chains in its fully realized form.
Order book price discovery on left
Microtick price discovery on right (trading 5-minute, 15-minute and 1-hour price assertions)
The Microtick consensus price (shaded) is more stable over time than the competitive bid/ask/last price (OHLC bars). This is due to the averaging effect of multiple price assertions, simulated by multiple yellow horizontal lines on the right hand side. This consensus stability leads to arbitrage opportunity when volatility rises because the Microtick trade premiums pay out linearly as the consensus price adjusts.
(simulator source code available here)
Speculate and hedge with short-term leverage
Competitive price discovery, as featured on every order book, DEX or AMM currently in existence, features opposing trade interests. Short-term fluctuations in supply and demand on these price competitive markets leads to price instability (runups or selloffs).
The Microtick consensus, being based on an average of price assertions is only indirectly affected by supply and demand. Whether the average price is accurate depends on whether markets are trending or mean reverting. This results in a two-sided marketplace where traders can get the best real-time premiums for price insurance on a very short-term basis. Choose a trading timeframe that suits your needs: 5 minutes, 15 minutes, 1 hour, 4 hours, or 12 hours. Or, take the role of “Market Maker” and provide your own assertions about an asset’s price and volatility, and collect the premiums traders pay.
A price assertion is a public commitment to a price observation, backed by an amount of value and insured for a standardized time duration to be accurate within a chosen range called the premium. The market maker is free to choose the values for the observation and premium. The lower the premium, the greater the weight the assertion gets in the weighted consensus. If the premium is too low, the market maker risks losing backing as trades pay out with price movement over time.
Status-quo price discovery encourages centralization
This Cosmos-based platform aims to address the inherent centralization in the way price discovery is usually conducted. As popularized by the book "Flash Boys," centralization stems from the fact that price information is more accurate when a passive observer is closer geographically - or temporally - to where trade matching occurs. This type of centralization can also contribute to order execution problems such as front running where profit can be made by acting as a middleman in the order flow pipeline without incurring any risk or adding any liquidity to the market.
Beyond the order book
Because Microtick’s consensus price can be hedged in either direction, it has the ability to decouple price discovery from order book trade execution and bring the benefits of a global, real-time reference price to decentralized, private trades on the underlying asset - wherever in the world they may occur. We believe this approach has better long-term benefits for on-chain trading than building a decentralized order book or building oracles to import data into smart contracts using trusted data sources.