A Pdot index is a synthetic index designed to track the success of an individual person. The value of each index is derived from a basket of key performance indicators , or KPIs, tracked using decentralized prediction markets on Augur. Each index attempts to measure a person’s performance across one or more of the following dimensions: Achievements & Accolades, Financial Success, and Popularity.
Pdot indexes can be traded using a special type of prediction market called a scalar market. In a scalar market, the final payout is based on the actual outcome’s value within a numerical range – which means that the current share price should represent the most likely outcome at a given point in time. As time progresses towards the market’s expiration, the most likely outcome may change, and as it does the share price (which is the index’s value) will adjust accordingly.
To construct an index, the portfolio manager will first select a set of KPIs (along with their relative weightings) that will comprise the index. Pdot will then create a scalar market on Augur that resolves to the index’s value at expiration, based on the portfolio parameters. The indexes are designed to be rebalanced once every 3 months, which means that the underlying markets will typically have an expiration date equal to quarter-end. It is on this quarter-end date that the index values will resolve to reality, based on the actual KPIs and their real-world values.
Each KPI will have a minimum and maximum value. These bounds determine the volatility profile of each index (tighter bounds offer more leverage). If the actual outcome ends up at or below the KPI’s minimum value, the KPI’s contributed value will be zero. If the actual outcome ends up at or above the KPI’s maximum value, the KPI’s contributed value will be worth two times its value at the midpoint of the range. To ensure an appropriate level of volatility, Pdot will select KPIs with minimum and maximum values defined by the 5th and 95th percentile outcomes, based on a proprietary analysis performed at the beginning of the trading period. This means that we can expect a 5% chance that each KPI’s contributed value will be zero at expiration date. Likewise, we can expect a 5% chance that each KPI’s contributed value will increase 2x from the midpoint (which is typically the index’s entry point) at expiration date.
The current value of each index is simply a weighted sum of the adjusted KPI contributed values – normalized between 0 and 1 – for each KPI in the index’s portfolio (see the example formula above). To control volatility and to ensure that the index’s value will never fall to zero, the index will always keep 10% of the portfolio allocated to stable value. This means that the index’s value will never fall by (or rise by) more than 90% in a given 3-month period.
A portfolio manager may change the composition of an index at any time (although changes are expected to occur only during the quarterly rollover period). To do this, the total value of the portfolio is reallocated to the new set of KPIs. Note that a portfolio rebalance will have no immediate impact on the current value of the index. The most up-to-date list of each index’s underlying KPIs (as well as their bounds and relative weightings) will always be visible on Pdot Index.
Note: Pdot Index only creates markets on the Rinkeby Ethereum Testnet (Rinkeby Ether can be obtained through the free Rinkeby Authenticated Faucet). Pdot Index has no control over market creation or trading activity that happens on the Ethereum Mainnet, or on any other platform outside of PdotIndex.com. Pdot Index has no affiliation with any external markets that may become available.