AthleteX Litepaper V2
As we approach our mainnet release (beginning of September), we decided to update our Litepaper. Hopefully, the information provided answers most, if not all, of your questions. Feel free to join our Discord community to chat with our team and other community members as well.
With that being said, let's get to the good stuff.
AthleteX Markets Litepaper V2
Last updated August 2021
At AthleteX, our mission is to provide a way for people to invest directly into the performance of their favorite athletes. AthleteX Markets is a decentralized exchange and issuance protocol for Athlete Performance Tokens. The protocol supports mints, burns, and swaps for Athlete Performance Tokens (APTs). APTs are redeemed at expiry at a price made up of in-game statistical data. Staking the AthleteX native token ($AX) as collateral enables the issuance of APTs. $AX stakers provide liquidity for Athlete Token swaps on our DEX and receive rewards in the form of a Liquidity Provider Fee. $AX token holders also retain voting rights on our decentralized governance protocol. Trading APTs on the AX Swap uses the custom AMM and does not require the trader to hold $AX coin.
Why trade Athlete Performance Tokens?
Athlete Performance Tokens provide exposure to an athlete’s statistical performance. This has a range of advantages, including player specific hedging, long-term athlete growth exposure, and less friction when adjusting positions (e.g. from Bitcoin and other cryptocurrencies to LBJ).
APTs also unlock nascent markets in sports not currently available with traditional sportsbooks. Some examples include, umpire tokens that track correct balls and strikes percentage, and 1-game expiration tokens with high in-game volatility for live trading.
Overall, AX Markets is exploiting a market inefficiency in sports prediction markets. In addition to unlocking nascent markets, AX Markets breaks the trend of traditional handicappers operating at unfair advantages over the broader market. Similar to Robinhood and big banks, sportsbooks sell order flow data to high-ticket customers which gives them a leg up on most of the market. On-chain and verifiable pricing of athlete performance brings a level of transparency and comfort not yet seen in the sports prediction markets.
Deposits in the Staking contract collateralize Athlete Performance Tokens. Stakers are paid $AX rewards for providing liquidity to APT markers.
Why $AX Holders Stake
$AX holders are incentivized to stake their $AX in two ways. Firstly, there are staking rewards. From September 2021 to August 2023, the Staking Rewards contract will unlock 29,100,000 $AX to pay stakers Staking Rewards. $AX tokens become claimable on the Staking page as they are distributed to stakers on a pro-rata basis.
Stakers are also incentivized with exchange rewards. These are generated whenever someone swaps an Athlete Performance Token on the AX Swap. Each trade generates a 75 bps (.75%) Liquidity Provider fee paid proportionately to AX stakers.
How Staking Works
The Staking contract provides stakers a net-neutral position while staking, meaning $AX stakers have no exposure to APT appreciation or depreciation. This is a function of the UMA Long Short Pair contract which mints a balanced amount of APT Long tokens and APT Short tokens each time $AX is staked.
Athlete Performance Tokens (APTs)
How APTs Work
Athlete Performance Tokens are cryptocurrencies that track the statistical performance of athletes. APTs are Long-Short Pairs collateralized by deposits in the Staking Contract. Each athlete has a Long token reflecting positive performance and a Short token reflecting negative athlete performance. APTs can be bought and sold on the AX Swap or redeemed for $AX at expiration. Redemption prices are an aggregate of in-game performance statistics with data provided by Chainlink.
APTs are a type of Synthetic Token using UMA’s Long Short Pair (LSP) Contract; meaning each APT is either Athlete Long or Athlete Short. There are three main functions of the LSP Contract: mint, redeem, settle.
Each LSP contract requires collateral to mint synthetic tokens. In our model, APTs are collateralized by the Staking Pool. When $AX is deposited into the Staking Contract, the collateral in the Staking Pool increases; so new APTs are minted, and liquidity is added to the AX Swap.
The steps involved when an $AX holder stakes are:
- The user deposits $AX into the Staking Contract (50% of $AX stake is deposited into the LSP Contract and 50% of $AX stake is deposited into AX Swap APT Liquidity Pools.)
- The LSP mints a balanced amount of Athlete Long and Athlete Short tokens (25% of each $AX stake).
- The Athlete Long and Athlete Short tokens are deposited into their respective AX Swap Liquidity Pools. (The AX Swap Automated Market Maker follows the x*y=k pricing model where x is one side of the Liquidity Pool Pair (AX) and y is the other side of the Pair (APT Long or APT Short)).
AX stakers maintain a net neutral position by minting APTs during Stakes and redeeming APTs during Unstakes. The Staking contract is currently governed by the AthleteX Council, meaning the APTs minted and how many are minted is decided internally. As the system matures, governance will transition from the Council to on-chain community governance.
When a user Unstakes their $AX the process is reversed:
- The Staking contract removes liquidity from APT Long and APT Short Trading Block Liquidity Pools (50% of the Unstake is $AX directly removed from AX Swap Liquidity Pools and 50% of the Unstake is APT Long and APT Short tokens removed. These APT Pairs are sent to the LSP for redemption.)
- The LSP redeems APT pairs for AX which is withdrawn to the Unstaker.
The Current Athlete Performance Tokens
At the time of launch, AthleteX will support athletes from the MLB and NFL. Each season, $AX holders have the opportunity to vote on new APT’s to mind and list on the AX Swap.
Each LSP contract has a settlement date. At expiration, the LSP will request a settlement price from UMA’s Optimistic Oracle (OO). The OO provides bespoke pricing for APTs, as well as other UMA financial products, through whitelisted Price Identifiers (Price IDs). The LSP contract requests and receives pricing information from the OO to determine mint, redemption, and settlement price.
After an APT expires, the APT Long and Short Pairs are redeemed for the settlement price provided by the OO.
APT Price IDs
UMA’s LSP Contracts use Price Identifiers to settle the price of synthetic tokens. Each APT Pair has its own Price ID linked to the athlete’s statistics. APT Price IDs are an aggregate of statistical data provided on-chain by Chainlink Labs.
Price IDs are built to represent the value of an athlete relative to the best replacement athlete. A replacement level athlete is different in each sport; the replacement level in baseball is the best player at that position in AAA, in other sports it is commonly the ‘best free agent on the market’.
There are several ways to measure relative athlete performance value. The Wins Above Replacement (WAR) metric is the most developed model for measuring relative athlete performance. The components of WAR are translated into other sports when considering non-baseball athletes. For basketball, this is a combination of +/- and Player Efficiency Rating. AthleteX will continue to develop performance metrics and adjust the Price IDs according to community approval.
What is WAR
Wins Above Replacement (WAR) is an attempt by the sabermetric baseball community to summarize a player’s total contributions to their team in one statistic. You should always use more than one metric at a time when evaluating players, but WAR is all-inclusive and provides a useful reference point for comparing players. WAR offers an estimate to answer the question, “If this player got injured and their team had to replace them with a freely available minor league or an AAAA player from their bench, how much value would the team be losing?” This value is expressed in a wins format, so we could say that Player X is worth +6.3 wins to their team while Player Y is only worth +3.5 wins, which means it is highly likely that Player X has been more valuable than Player Y.
WAR is not meant to be a perfectly precise indicator of a player’s contribution, but rather an estimate of their value to date. Given the imperfections of some of the available data and the assumptions made to calculate other components, WAR works best as an approximation. A 6 WAR player might be worth between 5.0 and 7.0 WAR, but it is pretty safe to say they are at least an All-Star level player and potentially an MVP.
(What is WAR adapted from FanGraphs.com)
Swapping APTs on the Trading Block
Swapping on the AX Swaproutes trades through the Swap AMM. Swaps require an input currency and an output currency. The AX Swap will initially support swaps between AX and APT Long or APT Short tokens. Future developments will support APT buys and sells between any ERC20 cryptocurrency.
The AX Swap AMM is a custom AMM built by AthleteX. The AMM contracts are a clone of Uniswap’s V3 AMM which restricts the tokens available to AX and APTs.
How $AX Backs APTs
APTs are backed by $AX in the Staking Contract. When additional $AX is added to the staking contract, APTs are minted. Similarly, when $AX is withdrawn from the staking contract, APTs are redeemed. 50% of all staked $AX is deposited into AX Swap Liquidity Pools, and the other 50% is deposited into the LSP contract to mint APTs.
There are various incentives to encourage $AX holders to stake. Staking rewards and exchange rewards are paid to $AX stakers for providing liquidity to APT markets. The scale of these incentives is determined by AthleteX governance. When governance becomes decentralized, $AX holders will vote to determine incentives, APT listings, and other system decisions.
The AX coin is the system governance and utility coin. AX coin has an inflationary or deflationary supply at the discretion of token holders. The team recommends the system go into deflationary supply during the major sports seasons since stakers earn a maximal amount of fees from high swap activity; alternatively an inflationary supply during sports offseasons so stakers remain incentivized to stake with freshly minted $AX.
Current Risk and Mitigation Strategies
There are several risks in the current architecture, as AthleteX is still an experimental system and requires empirical and theoretical analysis to ensure the mechanism design aligns incentives for all players.
Also, there are a number of aspects of the system that are currently centralized. This decision has been made to ensure the efficient launch of the project. One example of centralization is which APTs are listed. Another example is how Price Identifiers compute the price of each APT. While these aspects will be transitioned into community governance, it is important to understand risks in the current system architecture.
Risk Mitigation Strategies
As a decentralized protocol, the AthleteX team is committed to transparency and verification. As the system matures, governance and smart contract risk will gradually reduce. Current risk mitigation strategies include securing Price IDs with Chainlink oracle data and UMA’s DVM consensus solution.
AthleteX will expand governance into a community DAO as the system matures. This transition to community governance is inevitable to ensure the project’s goals are aligned with the community. Another aspect of this process is introducing a formal process for changes to the system. $AXIP’s (AthleteX Improvement Proposals) will allow the community to introduce change requests and ensure that any changes are well understood and considered by all stakeholders.
Additional Athlete Performance Tokens
There are many different kinds of Athlete Performance Tokens that can be added to the system to provide greater utility to DEX. These include APTs from different sports, indices like teams or groups of players within leagues, career-long tokens, game-long tokens, umpire tokens, coach tokens, and more.
Athlete Token Futures
We expect to launch the ability for traders to trade APT futures on the AX Swap or a credible secondary market.
We expect leveraged trading on APTs will become available on secondary markets. In addition, AthleteX Markets plans on providing APTs with various expiration frequencies. Reducing the expiration time frame provides more volatility (eg. game-long tokens for live trading) while increasing the expiration time frame reduces volatility (eg. career-long tokens for capturing long-tail upside potential of rookie athletes)
AthleteX has tapped into nascent markets of athlete prediction markets. Despite the progress so far, the potential for tokenized athletic performance is still largely untapped. Hardening the system integrity as well as introducing new Athlete Performance Tokens will vastly increase the utility of the platform. The movement towards a decentralized protocol will also reduce systemic risk and increase the long-term viability of the project.