Combining Parimutuel Settlement with Automated Market Makers for Liquidity-Guaranteed Prediction Markets: The Onix Protocol

Abstract

Prediction markets aggregate dispersed information into probabilistic forecasts that consistently outperform polls and expert panels, yet their adoption is constrained by a structural liquidity problem: providers of market depth bear adverse selection risk that deters retail participation. We present the Onix Protocol, a hybrid architecture that decouples the pricing function from the settlement function in prediction markets. By pairing automated market maker pricing-a Constant Product Market Maker (CPMM) for binary outcomes and a Logarithmic Market Scoring Rule (LMSR) for multi-outcome markets-with parimutuel (totalizator) settlement, we achieve a structural guarantee that liquidity-provider principal is never at risk from betting outcomes. We formalize the protocol's economic invariants, prove the LP principal guarantee for both market types, describe a "Lazy" liquidity pool enabling passive retail participation, analyze the dispute resolution mechanism under DAO governance, and discuss the experimental hypotheses this system is designed to test. The protocol is implemented as consensus-level operations on the VIZ distributed ledger.