AMM Prediction Market Contracts

This project implements a decentralized automated market maker (AMM) for prediction markets using Solidity. It allows users to add liquidity, buy shares, and predict outcomes in a decentralized manner. The contract is fully compatible with ERC20 tokens for collateral and integrates key functionalities like liquidity provision, share trading, and market resolution.

Table of Contents

• Overview
• Features
• Technology Stack
• Getting Started
  • Prerequisites
  • Installation
• Usage
  • Deployment
  • Testing
• Smart Contract Details
  • AMMPredictionMarket
  • MockToken
• Security Considerations
• License

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Overview

The AMM Prediction Market Contracts allow users to:

• Provide liquidity in ERC20 tokens.
• Buy shares for yes or no outcomes of a prediction market.
• Resolve markets based on outcomes and redeem winnings.

The AMM uses a constant product formula to calculate the price of shares, ensuring liquidity is always available. A small fee is charged on each transaction to incentivize liquidity providers.

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Features

1. Automated Market Maker (AMM):

   • Liquidity pools for yes and no outcomes.
   • Dynamic pricing based on the constant product formula.

2. Liquidity Provision:

   • Add or remove liquidity in ERC20 tokens.
   • Reward liquidity providers with a share of the pool.

3. Prediction Market:

   • Buy shares for yes or no outcomes.
   • Resolve markets and redeem winnings.

4. Fee Mechanism:

   • 1% fee on every share purchase.

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Technology Stack

• Solidity: Smart contract programming language.
• Foundry: Development framework for Ethereum smart contracts.
• OpenZeppelin: Reusable, secure smart contract components.
• ERC20 Standard: Token standard for collateral.

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Getting Started

Prerequisites

Before running the project, ensure you have the following installed:

• Node.js
• Foundry
• Git
• An Ethereum wallet with testnet tokens for deployment/testing.

Installation

1. Clone the repository:

   git clone <repository_url>
   cd AMM-Prediction-Market-Contracts
   

2. Install dependencies:

   forge install
   

3. Compile the contracts:

   forge build
   

Usage

Developement

1. Deploy the contracts using Foundry:

forge script script/Deploy.s.sol --tc Deploy --broadcast --rpc-url $RPC_URL --private-key $PRIVATE_KEY

Testing

1. Run the test using Foundry:

forge test

Smart Contract Details

AMMPredictionMarket

The main contract for the prediction market. Users can:

• Add liquidity to the pool.
• Buy yes or no shares.
• Resolve the market and redeem winnings.

Key Functions:

• addLiquidity(uint256 amount): Add liquidity to the market.
• buyShares(uint256 yesAmount, uint256 noAmount): Buy shares for yes or no outcomes.
• resolveMarket(address winningOutcome): Resolve the market with the winning outcome.
• redeemWinnings(): Redeem winnings after the market is resolved.

Events:

• LiquidityAdded: Emitted when liquidity is added.
• LiquidityRemoved: Emitted when liquidity is removed.
• SharesPurchased: Emitted when shares are purchased.
• MarketResolved: Emitted when the market is resolved.

Areas for Improvement and Future Enhancements

1. Modular AMM Liquidity Management:

   • Create a separate smart contract dedicated to managing AMM liquidity.
   • Improves code modularity, readability, and ease of maintenance.
   • Allows better scalability and flexibility in upgrading liquidity mechanisms.

2. Decouple Auction Mechanism:

   • Separate the auction logic from the main smart contract.
   • Facilitates cleaner architecture and enables independent upgrades or changes to the auction system.

3. Support for Multiple Auction Types:

   • Implement various auction mechanisms (e.g., Dutch auctions, English auctions, sealed-bid auctions).
   • Enhance the platform's functionality and cater to diverse use cases.

4. Enhanced Administrative Controls:

   • Introduce a more robust and granular administration framework for managing auctions and liquidity.
   • Implement role-based access control (RBAC) for better governance and reduced risk of misuse.

5. Comprehensive Testing Suite:

   • Write extensive test cases using Foundry to ensure reliability and security:
     • Load Testing: Simulate high transaction volumes to test contract performance under stress.
     • Fuzzy Testing: Use random inputs to uncover edge cases and unexpected behaviors.
     • Negative Testing: Test invalid scenarios to ensure the contract handles errors gracefully and securely.

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MockToken

A mock ERC20 token used for testing and as collateral in the AMM.

Key Features:

• Implements the ERC20 standard.
• Mints 1 million tokens to the deployer.

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Security Considerations

• Ensure the owner account is securely managed, as it has the ability to resolve the market.
• Validate external input carefully to avoid exploits.
• Perform rigorous testing, especially when deploying on a production network.
• Auditing by a third party is recommended before production deployment.