BetProtocol can facilitate gaming in a traditional book method, where the players wager against the house. This is most common in wagering on sporting events, for example. One of the key ingredients of wagering on these events is the way that odds are generated. Odds are used to determine the amount of profit a bettor can make if the event turns in his/her favor. In an example, an odd of 4:1 means that if the bettor places a $100 bet and wins, he/she will receive $500, taking in $400 in profit.
There are two ways that odds are generated in BetProtocol´s dApps: Static and Dynamic
When the house sets the odds on various outcomes of a future event before bets are placed with no odds adjustments in real time. In a traditional book, the house needs to determine two sets of odds: the true odds and the play odds. The true odds are the actual statistical chance that a certain event will really occur out of a set of events, defined by datasets and algorithms, or just by pure intuition. These true odds need to add up to 100%.
The play odds, or the ones published by the house and upon which players bet on, are the true odds plus what is known as an overround. The overround is a way for the bookmaker to make money off the game no matter what the result is. It is clear that there is effort involved in creating odds, taking bets, observing the event, and paying out to winners. This effort needs to be compensated, otherwise there would be no book to begin with. So the play odds will have an overround of some percentage points to ensure that the bookmaker makes a profit no matter what the outcome is. Here’s an example from Wikipedia:
Epic Football Match: True Odds
Home team Win: 1:1
Away team Win: 5:1
These odds can then be converted to percentages to see their probabilities of occuring. In this case, the probability of a Home team win is one-to-one, or a 50% chance of occuring. Likewise, a draw is a 33.(3)% and the Away team winning is 16.(6)%.
If you add up all these percentages together, you get 100%. Great, right? Actually it is, for everyone besides the bookmaker. The reason is that a 100% book will virtually guarantee that there is no profit for the bookmaker, since the payout that he will give is exactly the same as the money he receives from the wagers.
And that’s why he needs to reduce the odds in his favor to guarantee a profit for himself, regardless of the outcome. For example:
4–6 corresponds to a relative probability of 3⁄5 (60%)
6–4 corresponds to a relative probability of 2⁄5 (40%)
4–1 corresponds to a relative probability of 1⁄5 (20%)
By adding all these odds together, a book of 120% is achieved. This additional 20% is the “overround” and represents the bookmaker’s profit margin. This means the bookmaker can accept $120 in bets and only pay out $100. No matter what the outcome of the game, he will always make a profit of the overround.
This, of course, is a super simple example and in practice it is a lot more complicated than that. On BetProtocol, developers can choose to setup their betting dApps with static odds set the way that they want. They can use our machine learning and odds generation tools to not only find the true odds of an event, but to also set the reduced odds in order to guarantee for themselves a suitable amount of profit–to set the overround.
Of course, any developer can set whatever overround they want, and the free market will determine who is the most popular bookmaker with the fairest odds for players. Bookmakers that set too high of an overround will, all other things being equal, lose out to other bookmakers with lower ones. In any case, at BetProtocol, we let developers choose these types of parameters and let players decide whether or not to play.
The specific value-add here for new betting dApp entrants and incumbents is that our solution is vastly cheaper and easier to implement than anything else out there. Additionally, since it is blockchain and API based, developers can tap right into it through purchasing our turn-key solution, instead of spending tens of millions of dollars building their own low-latency servers for in-play betting.
Here’s when things get a little more interesting. Dynamic odds are odds that change while the event that’s being wagered on is occuring. Dynamic odds also allow bookmakers to take bets during the event, or what is known as “In-Play” betting. Several large legacy betting firms already offer in-play betting with dynamic and changing odds on the fly. Naturally, BetProtocol will offer this as well, with competitive latency and speed for entering bets. Through the use of a combination of microservices and high-throughput sidechains on Ethereum (like Loom), BetProtocol will be able to offer these types of Dynamic Odds.
Why would you want to have dynamic odds and in-play betting? Well what happens if the team that was favored to win suddenly loses its star quarterback due to injury in the 3rd quarter of an American football game? This would surely affect the odds of their team winning in a true sense, so the in-play odds need to adjust to reflect this. If the odds are not adjusted and players are allowed to put bets in-play, the house stands to lose a lot of money on odds determined before the injury. For example, those betting after the injury that the underdog would win would still enjoy the high odds-against (profit-potential) while being pretty sure that they would win the bet (with the quarterback injured). On BetProtocol, dApps can use machine learning techniques to adjust dynamic odds on the fly given real-time updates from oracles. This enables any relayer of any size spin up a betting dApp with in-play betting and dynamic odds adjustments on the fly–all without having to invest dozens of thousands of dollars first in infrastructure. Loom Network and other high-throughput transaction batchers will be key for these types of infrastructures that have real time needs.
And that is one of the key value propositions of our project: The ability to provide robust back-end services as turn-key solutions to new and incumbent remote gaming operators at a fraction of the current cost.
That’s it for this blog post! Stay tuned for more, and thank you for reading.
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