To determine the winner of a blockchain-based prediction market (PM), oracles are required to supply the network with information from the outside world. The development of such oracles is not an easy process. In Amoveo, this problem is solved in an elegant way, described in-depth here.
There are two types of oracles in Amoveo: the Question Oracle and the Governance Oracle. The purpose of the former is to deliver information about past and present facts, thus ensuring the operation of PMs and other smart contracts. The purpose of the latter is to manage the development of the Amoveo network via futarchy.
The Question Oracle is used for the PM. Here’s an example.
Suppose that two PM participants, (we’ll call them players) are arguing: “Will the market cap of BP be above or below 150B pounds by year end?”. Both bet 1 VEO each on it. At the end of the year, the winner should get 1 additional VEO and the loser will have 1 VEO less.
When the time comes to close down the contract, the Question oracle asks the network participants: “Does the current BP market cap exceed 150B pounds?”. Those willing to answer (we’ll call them reporters) go on financial sites to find the correct information and answer the question by placing bets. The option on which they bet the most amount of money is considered the winning one. The winner among the players is determined on those bases. The reporters that voted for any other answer lose their stakes, which are then re-distributed among the supporters of the winning option.
In a sense, we have two nested contests here. The first one begins between the PM participants when BP’s end of year market cap is unknown. The second one goes on between the reporters, when the end of year market cap is already known, and the winner of the PM needs to be determined. However, strictly speaking, there is only one contest happening here: between the PM participants. When it comes to the reporters, if the oracle is operating normally, their only function is simply to report BP’s end of year market cap to the network.