Central Limit Order Book (CLOB) and Market Liquidity

The protocol uses a CLOB for traditional order matching, providing continuous liquidity by allowing users to place limit and market orders.

• CLOB: Allows users to place limit and market orders, with real-time matching of bids and asks. This ensures efficient trade execution, particularly in highly liquid markets.

Mechanics of a Central Limit Order Book

1. Order Placement:

• Participants place buy or sell orders for specific event outcomes (e.g., "Will Candidate A win the election?").

• Each order specifies:

  • Price: The probability or odds the participant is willing to buy or sell at.

  • Quantity: The number of units or shares tied to the event outcome they wish to trade.

1. Order Matching:

• The CLOB aggregates and displays all active orders, showing the best bid (highest buyer price) and best ask (lowest seller price).

• When a match occurs between a buy and a sell order at the same price, a trade is executed, and the book is updated accordingly.

1. Order Book Display:

• The CLOB maintains a list of open orders, with priority given based on the price.

• Orders are sorted by price level, with the best (highest bid/lowest ask) shown at the top of the book.

1. Order Execution Priority (FIFO):

• When multiple orders are placed at the same price, the CLOB prioritizes them based on time.

• The first order placed at a given price level is filled first when a corresponding match occurs. This approach is known as First-In-First-Out (FIFO).