Aggregate Price
of polar tokens
Every time a new pair of polar tokens and a new Prediction Pool are launched, at the very beginning the price of polar tokens is the same and has its own aggregate price. For example:
WHITE Price (BUSD): 0.5
BLACK Price (BUSD): 0.5
WHITE&BLACK Aggregate Price (BUSD): 1
In the process of further events and cyclical changes in prices in the Prediction Pool, the aggregate price of polar tokens can change both up and down. Theoretically, the limits of volatility are unlimited, but practically vary within 30% in both directions.
Whether the aggregate price will increase or decrease depends on several factors:
The aggregate price of polar tokens increases If the team with the higher token value wins: WinnetTokenPrice > LoserTokenPrice.
The aggregate price of polar tokens decreases If the team with the lower token value wins: WinnetTokenPrice < LoserTokenPrice..
We can see this in the example of the calculations from the previous article:
#Before event start
Start WHITE Price (BUSD): 0.55
Start BLACK Price (BUSD): 0.46
Start WHITE&BLACK Aggregate Price (BUSD): 1.01
#After event end
New WHITE Price (BUSD): 0.5225
New BLACK Price (BUSD): 0.4858
New WHITE&BLACK Aggregate Price (BUSD): 1.0083
We see that the aggregate price has decreased by 0.1683%. This happened precisely because the team won, whose token is cheaper than the token of the opposite team:
Let's pretend that WHITE Team is the winner, not BLACK Team, and look at the result:
#Before event start
Start WHITE Price (BUSD): 0.55
Start BLACK Price (BUSD): 0.46
Start WHITE&BLACK Aggregate Price (BUSD): 1.01
#After event end
New WHITE Price (BUSD): 0.5745
New BLACK Price (BUSD): 0.4370
New WHITE&BLACK Aggregate Price (BUSD): 1.0115
We see that the aggregate price has increased by 0.1485%. This happened precisely because the team won, whose token is more expensive than the token of the opposite team:
This pattern can be broken if the Popularity Coef of White Team is even smaller. Then the WHITE price in this case will grow less, and the aggregate price may remain the same or decrease, even taking into account that the WHITE price > BLACK price.
Since liquidity providers add WHITE and BLACK tokens to the Trade Pool for the same amount, they in fact add tokens at their aggregate price. Thus, liquidity providers can receive both temporary impermanent loss and temporary impermanent gain as a consequence of the volatility of the aggregate price of polar tokens.
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