Betting exchanges: Peer-to-Peer betting before it was a thing

Why are betting exchanges relevant, and how popular are sports betting tipsters?

One of the latest additions to online gambling technology is the betting exchanges model, with the leaders like Betfair and Smarkets. Mainly restricted to the British market, exchanges enable players to bet against each other instead of against the bookmaker. The operator only takes a small margin of the winnings. Note that the UBet platform plans to have both sportsbook and exchange capability with a very little transaction fee. In this post, we would like to share some benefits of exchange models.

A Multi-Sided Platform: a ground-breaking model for sports betting

Betting exchanges are born from the idea that letting people trade freely with one another is more efficient than a system in which one protected group of people, the bookmakers, accepts all bets. Researchers characterized this model as a Multi-Sided Platform. Mark Davies, who worked for Betfair, explained via Metcalfe’s Law of Networks a striking conclusion: each customer’s utility increases as many customers use the exchange multiplies. In the end, it creates more efficient and sharper odds (Davies et al., 2005). Betting exchanges also work to keep with their vision of a stock exchange for gambling. One tactic is to use decimal odds instead of the traditional British fractional ones to reduce the trading increments, allowing for finer-grained movements in price.

The Market Makers: how the backers create markets

Betting exchanges’ marketing strategy initially focused on attracting market makers. This term refers to punters willing to expose themselves to a book of bets and lay them. In opposition to the “backers” (ordinary punters betting on the realization of an event), the market makers are on the other side of the transaction and bet against the backers’ transaction. These specific punters created even more opportunities to bet for players, enabling a diverse offering. (Casadesus-Masanell & Campbell, 2019).

Attract both novice and advanced players looking for the best returns

Betting exchanges’ extensive offerings reassure novice punters with a wide range of online help, tutorials, and videos. Most exchanges share their open API with experts and professional traders. This enables customers to program complex strategies and rules to hedge their bets. The popularity of exchanges among traders also forced the platforms to adapt by developing an algorithm that calculates the punter’s total exposure to a single bet to free some liquidity for other, less popular markets. (Casadesus-Masanell & Campbell, 2019). Providing an API is an indispensable component and to the best of our knowledge, UBet might be the first one to offer the API that enables blockchain transactions among sports entertainment projects.

Less is more: limit choices to create value

A core success of betting exchanges’ strategy is the provision of values by limiting choice. Indeed, as the exchanges decide which games and events are allowed to receive wagers, this limits the cash liquidity needed for the exchange to operate correctly, leading to better odds and higher limits for the punter. Besides, whereas traditional bookmakers survive by managing risk and capturing value through the odds they offer to the punters, betting exchanges bear no risk on the outcome. (Casadesus-Masanell & Campbell, 2019).

Conclusion: from betting exchange to decentralized gambling

The significant advantages of cryptocurrency betting exchanges are their security against infiltration and unauthorized changes to data, partial anonymity, and the removal of reliance on third-party intermediaries (Jethmalani, 2016). The latter results in house edges as low as 1.9% on crypto exchanges whereas 2.7% on average for traditional casinos (Gainsbury & Blaszczynski, 2017).

Are you a sports trading or sports bettor? Or perhaps, you can think about what your preference is and join our discord for more information!

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Disclaimer: The above content is intended for information purposes only and is not intended to be gambling, trading, nor investment advice. Please perform your own analysis before making any betting, trading, or investments based on your own personal circumstances or seek a duly licensed professional for gambling and trading advice. Accordingly, neither UBet nor its partners, directors, shareholders or employees are liable for any damage, expense, or other loss that you may incur out of reliance on the above information.

References

Betfair. (2021). Betfair Fees. https://www.betfair.com/aboutUs/Betfair.Charges/

Casadesus-Masanell, R., & Campbell, N. (2019). Platform Competition: Betfair and the UK market for sports betting. Journal of Economics and Management Strategy, 28(1), 29–40. https://doi.org/10.1111/jems.12310

Davies, M., Pitt, L., Shapiro, D., & Watson, R. (2005). Betfair.com:: Five Technology Forces Revolutionize Worldwide Wagering. European Management Journal, 23(5), 533–541. https://doi.org/https://doi.org/10.1016/j.emj.2005.09.008