Frequently Asked Questions

What is Unihedge?

Unihedge is a decentralized market prediction platform with a novel approach to prediction markets. Using Harberger Tax economic policies a new type of prediction market was created.

What is Harberger Tax economic policy?

Harberger tax economic policy is a taxation system where:

  • the owner of an asset self-assess asset's value and set acquisition price
  • the owner pays tax rate on acquisition price
  • the owner must sell its asset to anyone at acquisition price

For example if Alice owns a house she first has to set an acquisition price. Alice decides to set the price at 100,000$. At a tax rate 1% per year she has to pay 1000$ of tax every year. If Bob want's to buy Alice's house he has to pay 100,000$ to Alice. After the purchase, Bob has to set a new acquisition price and start to pay his tax rate.

Do prediction markets have assets?

Unihedge creates an asset called lot, that can be owned, traded in a prediction market and taxed. A lot is a part of a so-called virtual land, that is a two-dimensional space where one dimension is time and other one is the exchange rate between two cryptoassets. Both time and rate dimensions are further divided into equal parts forming a mesh. Each cell of the mesh represents an asset called the lot on which Harberger tax economic policies are applied. A lot is bounded by four parameters: bottom rate, top rate, frame start time and frame end time (for example bottom rate: 1000 USD/ETH, top rate: 1100 USD/ETH, start time: 1.1.2021 00:00:00, end time: 1.2.2021 00:00:00).

How does a user purchase a lot?

A user can purchase the desired lot from the current owner at specified acquisition price or get it for free if the lot is not owned by anybody. After the purchase, the user has to set a new acquisition price which represents a base for the tax calculation.

How much tax will a user have to pay?

The amount of tax is determined by a tax rate, a lot's acquisition price and the duration of the lot's ownership. Tax rate is predefined by the market operator of a prediction market and is expressed in ratio per frame (example 1% of acquisition price per day). The acquisition price is a price that was set by the owner of the lot at which lot can be purchased. The duration of ownership is defined by the time from when the lot was purchased and the time when the lot was sold or reached it's end time - whichever comes first.

The amount of collected tax is calculated as shown in equation:

For example: Alice participates in the prediction market of USD/ETH that clears every day (24 hours) with the tax rate of 1%/day. Today is monday and Alice buys a lot with the frame time that will end on saturday and sets its acquisition price at 100 USD.

If Bob purchase Alice's lot on wednesday Alice will be taxed at:

If nobody purchases Alice's lot, Alice will be taxed at:

Where does the tax go?

Lots that share the same start and end time are bundled together in a frame. The tax collected from the lots that belong to a specific frame are pooled together and form a reward fund.

Why should a user purchase a lot?

Users are incentivized for the purchase of a lot in two ways:

  • to win a reward pool
  • to resell a lot with profit

The reward is awarded to the owner of the lot that matches the current rate at the frame end time to which a lot belongs.

How hedging with Unihedge works?

A hedger protects his assets by betting against unfavorable price movements with the purchase of a lot. These lots have a lower probability of matching the actual outcome of the predicted market, which translates to lower demand and lower prices. A hedger can calculate the exact value of the loos he will suffer if the price of an asset moves into this unfavorable ranges and sets acquisition price for the lots accordingly. If the unfavorable ranges are never reached the hedger losses only the tax that was collected. On the other hand, the hedger can be bought out by other users or collect the reward because he correctly predicted the outcome.

Why not use futures?

Futures are a hedging tool that demands two parties to agree on contract. This represents a problem in low liquidity markets where matching parties are hard to find.

Does it pay off to reveal your position in advance?

In pari-mutual markets it is better to wait for the last moment to place the wagers because the probability of a specific outcome rises with the approach of the prediction market end time. In Harberger Tax (HTAX) prediction market, users that have a specific information of future price movements of an asset, will want to bet on that information as soon as possible, so they can purchase the lots at a cheaper aquisition price.