You ever heard about FanDuel? The site that had a split monopoly on fantasy sports with DraftKings, then turned sportsbook and casino. That was, and is, quite a success story (worth an estimated $30 billion in 2021). Former executives of FanDuel has now embarked on a new adventure: BetDEX - the world's first decentralized sports betting protocol.
Blockchain of choice? Solana Network. The reason why they chose Solana? Speed, security, low costs, and scalability.
In this post I will try to explain what a sports betting DEX is, even though it is a world's first, I think I have a pretty good idea of how it works.
I used to work for a market maker for about 8 years. A sports betting company, doing market making and trading on the Betfair Exchange, Smarkets, Matchbook, SBOBET in Asia. All examples of fiat sports betting exchanges. The company priced markets and provided liquidity in the betting markets, while trading and making money off of algorithmic high-frequency trading. I started around 2011. Way before that, the company used to be the only market maker on the Betfair Exchange in the early 00s - pretty cool. Anyway...
To best explain what a sports betting DEX is, let us take a look at a traditional fiat sports betting exchange.
A sports betting exchange is very similar to a stock exchange. It follows a similar model, but instead of stocks, betting odds are traded. Most common is odds on sports events, but it can also include politics or entertainment. In the political arena, the most recent US election had insane turnover (way more than the Super Bowl LIV) on the betting exchanges as Biden and Trump were battling it out.
On a stock exchange, there are buyers and sellers. Someone is holding stock and wish to sell it, they list their stocks at a price, and on the other side there is a buyer of said stock that agrees on the price.
On a betting exchange, there are also two sides. But instead of a stock, there is a betting market. On any given betting market, there are two sides of a bet. One side that think that an event will happen, those are called "backers". On the other side there are those who think that the event will not happen, those are called "layers". An event happening, a market, is represented by betting odds. Odds is representing the likelihood, or chance, of the event happening. In sports betting exchanges, odds are often referred to as price. For example, "What price did you get?", is the same as "What odds did you get?".
When a stock get sold, a seller and buyer match because they agreed on the price of the stock.
When a betting market is matched, it is when the backer and the layer agree on a price (the odds) that the event will or will not happen. For example, Los Angeles Lakers are playing Brooklyn Nets at home. The layer thinks that the Lakers will lose and is willing to lay that to 2.0* (50% chance) in odds. On the other side, there is the backer thinks that Lakers will win and is willing to back that to 2.0 (50% chance) in odds.
Usually, in popular sports with big games, you have several people and large amount of money laying and backing the same odds. In the case of the Lakers example, there might be hundreds of users laying and backing 2.0. In those cases, getting matched is easy. All you need is money in your account to cover your bet, then take a position. If you back the Lakers to win, and they win, you win 2.0 x your bet.
As you can read, the middleman is removed. In a traditional sportsbook, the bookmaker takes all the bets. And in order for the bookmaker to make money, and get paid for taking risks, they apply a margin to all odds. In the example of backing the Lakers to win at 2.0 in odds on a betting exchange, the same bet can be had at 1.86 in a traditional sportsbook. So, a bet of $100 would net you $100 (minus a tiny fee) on the betting exchange, while the same bet in a traditional sportsbook would net you $86.
This means that you will usually get better odds on a betting exchange, because the middleman is cut out of the equation. You are betting against other customers, and the betting exchange provides you with a platform to do so. To provide this service, they charge a small fee on every bet that is paid by the winner of a bet.
There are more things to it, but that's the basics.
*2.0 is a decimal odds. 2.0 is 100+ in American odds format. 1/1 in Fractional odds format. 1.0 in Hong Kong odds format. Different cultures/geographies have different format - similar to the metrical system. Would be so much easier if everyone agreed on one format. I use decimal format in this post because I am European and Decimal format is the default odds format over here.
It is a world's first, so we would not know how it works in practice yet. But my bet is that it will work pretty much the same way, with the difference that is is running on-blockchain. And is restricted to Solana ecosystem. But the mechanics of the sports betting exchange and placing bets should be the same as I outlined above. Then there is of course the currencies, instead of accepting fiat wagers, users can place bets using:
That is just for starters. The Solana ecosystem is vast and likely more cryptocurrencies will be accepted in due time, post-launch.
The benefits of building on Solana is the value of the ecosystem. Besides being one of the most popular blockchains, rivalling Ethereum. Solana is super fast, secure and is a censorship-resitant Layer1 blockchain. The best part about Solana is the extremely low fees. You can make hundreds of transactions on Solana for around $0.01.
When describing how a sports betting DEX works, I mentioned fees on the part of the betting exchange, in return for facilitating an exchange platform where people can bet. Here is where a sports betting DEX in Solana can excel. Transactions are super fast, and low-cost. Both more efficient than a fiat sports betting exchange, and with lowers costs for punters.
Plus, the BetDEX is built on the blockchain, leveraging a protocol built in Solana. It will be fully decentralized and open-sourced. Open-sourced is key here. Traditional fiat sports betting exchange have seen little to no innovation in the last 10+ years. BetDEX as an open-sourced dApp allows third parties to build their own decentralized application on top of the platform. This will likely drive innovation, seeing how innovative the blockchain space is compared to legacy web.
Plus, Solana is booming, massive amounts of capital is flowing into it right now, and there are no signs of slowing down. Rather the opposite, the Solana ecosystem is poised for growth.
Nigel Eccles is part of the team behind BetDEX. This is the guy that co-founded FanDuel in 2009. Last year, Flutter Entertainment, an online gambling giant, bought FanDuel for $4.2 billion dollars. Today, FanDuel is estimated to be worth around $30 billion dollars. Eccles was key in building FanDuel into what it is today. Then there is Varun Sudhakar that also comes from FanDuel, with a background in finance and strategy, he is appointed CEO. And last but not least, Stuart Tonner who was Head of Engineering in FanDuel between 2010 and 2018.
That is a seriously good lineup. FanDuel has an amazing product and did one hell of a job taking over the Fantasy Sports market and then timed it with the legislations of sports betting in various states in the United States. Dream team - these guys will deliver. 🚀
What Sudhakar, the CEO of BetDEX had to say about the project:
The sports betting industry charges high prices for poor products and limits trades by its most successful users. BetDEX is diametrically opposed to this approach, we will successfully compete against incumbents with a markedly superior product and low fees, which is now possible with the advent of the blockchain technology. Winners will always be welcome on our protocol.
The worldwide sports betting market is worth over $200 billion and is forecasted to reach up towards $400 billion by the end of 2024. At the time of writing this, the Solana ecosystem is worth $65,876,022,387 - the fifth-largest blockchain behind Bitcoin, Ethereum, Binance Smart Chain and USDT. Solana is taking over and for sure there is a high-demand for betting within the growing ecosystem.
There are some heavy hitters in the seed investment round:
The size of the seed investment? $21 million.
What the CEO and Founder of FTX, Sam Bankman-Fried had to say about the project:
We are thrilled to be backing a team with deep industry expertise to transform the sports betting experience. It is mind-boggling that more sports wagering does not occur on exchanges - we firmly believe in giving consumers the ability and control to set their own price and are excited to partner with BetDEX to bring this vision to fruition.
In a different post later next week, I will highlight what this means to the value of $SAMO coin, and the future existence of the beloved mascot of the Solana ecosystem.