Different types of sports betting venues. (And how web3 venues fix this and how we fix web3 venues)
There are a number of different types of sports betting venues which each have benefits and downsides. It is important to understand how each of these operates to ensure you have the best sports betting experience possible.
Sportsbooks
The most common type of venue used around the world and used by most casual bettors is a sportsbook, also known as a bookmaker (or bookie). These can be online or in person in a casino (in the US) or shop (in Europe). Online sportsbooks usually hold a licence to operate in particular countries and only accept customers from those countries. There are some online sportsbooks which will let almost anyone sign up, and even some which let you play anonymously with cryptocurrency. However, the more unlicensed a sportsbook is, the less regulation they must follow — and that includes being responsible with users’ money and paying out when they should. In some cases, the court of public opinion is the only thing that holds these operators responsible, but if they are big enough, a few complaints online mean nothing.
(As a side note here, that I really need to get off my chest, a sportsbook licence from Curacao means absolutely nothing. There are other “licences” which sportsbooks can also claim to have but this is the main one. If a Curacao licensed bookie voids your winning bets, or closes your account and takes your money, there is nothing you can do about it.)
All legal and licensed sportsbooks require users to complete KYC (know your customer) checks to ensure they are from an eligible territory and are of legal age to gamble. Across the UK and Europe where the online gambling scene is more mature than the US, bookies use these checks as an excuse to punish and infuriate winning bettors. You can lose thousands per month and never be asked for extra pictures of your passport or proof of your income, but as soon as you win any significant money, you get asked to jump through many hoops to be able to withdraw your funds. To use these venues, you must trust them with your personal details and images of sensitive documents, and every penny in your account.
Sportsbooks operate by picking the odds to offer on each event, and taking on the bets from users. They take all the risk of every bet they take (unless they choose to lay it off with other venues but this is more common with American casinos than anywhere else). The implied probability of the odds they offer on each outcome of an event do not add together to 100%. They always add to over 100%. This is called the overround or vig. This is equivalent to the fees you pay for betting with the bookmaker. This is the bookie’s best friend and the bettor’s worst enemy. The larger the overround, the less likely the bettor is to win over the long term. Theoretically, a sportsbook’s job is to “balance the book” by having equal risk on each outcome of the event. After considering the overround, this means that they should make money no matter the outcome. They should do this by lowering the odds of the side with too much risk and increasing the odds of the side with the least risk to encourage more people to bet on that outcome. However, modern sportsbooks very rarely operate like this. Users at sportsbooks are overwhelmingly casual bettors who are more likely to bet on parlays/accumulators. While each of these brings high risk, they are unlikely to ever have to pay out much of that risk since every selection needs to win. The main business model of sportsbooks is to encourage losing bettors, especially whales, to keep betting using promotions and offers, while quickly limiting the risk taken from sharp bettors who can win over the long term. This is discussed more in a previous article: here
Sportsbooks are the most popular venue for most bettors because they are the most convenient. They will always always have reasonable odds on offer for the team you want to bet on, and for 99% of people, they will always take as much of your hard earned money as you want to bet. There is no need to place an order and wait to find a taker or hunt for a venue which has the event you want. You just have to have a lot of trust in them to operate fairly and responsibly.
Exchanges
Betting exchanges are the original creators of the “prediction market” model (a horrific name made by Americans to pretend they weren’t gambling). Exchanges are an online platform which are similar to legal sportsbooks in terms of trust assumptions: you must live in one of the appropriate jurisdictions, you must KYC, you must trust them with your funds (however, all major exchanges have real licences so they are less likely to steal from you and you have some legal recourse). There are 2 or 3 smaller betting exchanges but Betfair is by far the largest. All of these operate mainly in the UK market and some parts of Europe. There are ways to get access otherwise but they are more gray-market than legal.
Betting exchanges do not offer odds on events. They are merely a platform which facilitates the matching of bets between people who want on opposite outcomes. Like crypto exchanges, there are makers and takers, and buyers and sellers (but these are known as back bets — for the outcome to happen — and lay bets — for the outcome not to happen). A maker places their order, specifying their odds and the amount they want to risk, and a taker will match that bet at those odds — or he will become a maker himself and offer different odds. As this takes place between many people over a long time, a market forms with a back and lay price and an orderbook with increasing depth and slippage for bigger bets. Most of the maker action is performed by automated trading algorithms (like a crypto exchange). Taker action is either opposing bots who may be running automated strategies or arbitrage strategies against other venues, but this is also the type of order a normal bettor would place. They want the instant bet placement that they would get at a sportsbook.
Betting exchanges’ business model is based on fees/commission for matching bets. Losing bets pay no fees, but anyone who profits on a market upon its settlement pays a percentage of their overall profit to the exchange. This fee is anywhere from 2% to 8% of your total profit on the market. In a liquid market on a mainstream event, the odds on offer can have an overround very close to 100%, so it can look like you are getting a great deal, but once you add in this fee, the real odds are maybe closer to what is offered elsewhere. The main positive of an exchange is that because the fees are only taken at the completion of the event and the overround is very low, trading in an out of a position as the odds change has a much lower cost compared to trying the same strategy at a sportsbook. At the sportsbook, you “pay” the vig every bet you place, but at the exchange you “pay” a very small vig each time, then pay the fee based on your overall profit once the event is settled. Because of this, trading live tennis and cricket are very popular, along with horse racing just before the start and politics throughout the election campaign as the odds ebb and flow based on poll results. Betfair took over £1bn in volume on the 2020 US Election. The major downside of an exchange is that there needs to be liquidity for anyone to bet and this can be an issue on sports which are less popular in the operating jurisdictions.
Asian Bookmakers
Asian bookmakers is a term used to describe the business and operating model which originated in Asia. Most modern Asian bookies are based in Asia and target an Asian audience, there are some which are not, notably Pinnacle, and there are many platforms which open up their services to the world. Asian bookmakers differ from US/UK/EU sportsbooks in many ways. The main one which is the driver of their demand from outside Asia is that they do not limit or ban winners. They offer a much lower overround compared to sportsbooks and offer much larger max bet limits. They offer low vig and high limits in order to take huge volume on each event. They aim to have a balanced book and guarantee profit no matter the outcome (like bookies traditionally did before they moved to the modern business model). Any time you place a bet with an Asian bookie, you will see the odds on offer decrease a small amount to encourage someone to bet on the other side — either by tempting them with higher odds, or by creating an arbitrage opportunity.
Because of the acceptance of winners, large limits, and good odds, Asian bookies are used by experienced bettors who have been banned from other sportsbooks and professions or quant firms who bet huge amounts of money on each bet. These are the only venues that would accept such action. Asian bookmakers may sound like the best choice for all bettors, but they come with their own challenges. You cannot just find an Asian bookie’s website and sign up (other than Pinnacle, if your country of residence is allowed). You must get access through an agent or broker. The most popular way to get access for most Western bettors is through an aggregator platform. These platforms display the odds of many different bookies in the one bet slip and automatically execute your order with the bookie(s) with the best odds and most liquidity. This allows you to get the best odds without searching and place bets with stakes bigger than any one individual bookie is offering. These platforms can also only be accessed through an agent (however you must be wary of scams).
This overall explanation of Asian bookies has been fairly positive so what are the downsides? Some Asian bookies offer only soccer or mainly focus on soccer. However there is still plenty of opportunity to bet on major leagues in other sports like NBA and NFL. Pinnacle has extended the Asian model to many other sports, including some fairly niche sports (however the max bet limits are lower on these less liquid markets). When you place a bet through an aggregator platform, the bookie on the other side only sees an anonymous or pseudo-anonymous order. However, most brokers will require you to KYC with them. It is also important to make sure your agent/broker is trustworthy as they are your only point of contact and can move your funds without your permission. Asian bookies are great for betting big at good odds but you must access them through someone else and trust them. You are less likely to beat them long term as they are the most liquid venue so they have the most accurate odds.
Web3 Venues
Web3 betting is still very much in its infancy. I wouldn’t even call it more than 6 months old (there are venues older than this but I will expand soon). To be clear, by web3 betting, I mean venues which operate fully or almost fully on-chain, in a decentralised and non-custodial manner. Stake.com does not count. Any number of new sportsbooks which are popping up and let you connect your Metamask to deposit do not count. These simply take your money and operate like any other sportsbook, except they are not licensed so aren’t allowed to use traditional banking rails. They can void your bets, ban you, take your money, do whatever they want (and they do).
Personally, I would say there are 6 web3 venues worth considering as having potential to serve users in the long term. I am sure this number will expand rapidly over the next 2 years. Web3 venues can be broken down into 2 broad camps: exchange style and instant liquidity. With smart contracts, there are many ways instant liquidity can be designed. These will generally always be attractive to bettors because of the instant liquidity, assuming that liquidity is deep enough, and it is offered on the events they want to bet on. Exchange protocols face a tougher challenge. They must incentivise market makers and arbitrageurs-to-be to put up maker orders so that most casual bettors can come along and place the bet they want at good odds. As I mentioned, on-chain venues have existed for longer than 6 months however these were exchange style venues which have almost or literally no liquidity to bet on (the exception being SX Bet). “Liquidity breeds liquidity” is something I have thought about for a long time. If you have traded crypto for any time, you will know this applies to anything outside top 5 coins as much as it does to trading a 2nd tier match on Betfair — if other people are trading it, it becomes more liquid and more attractive to trade.
Outside of exchange style venues, (V)AMM protocols are very new. If you bet on lots of different sports, right now, it is unlikely you will find one protocol which offers every event you want to bet on. Azuro offers lots of soccer leagues with lots of markets for each game. Overtime has major soccer leagues as well as NFL, some NCCA football, MLB, and some motorsports. Poolprops offers major American events along with some player prop markets and other side markets.
All of the protocols come with the upsides of being anonymous and non-custodial. They cannot take your unused funds from you. There are many downsides with them that come with each being still very new. There can be a lack of liquidity if you want to bet big. There can be limited offerings at any single protocol if you like to bet on many sports. For now, these are a small price to pay to be on the cutting edge of technology.
Purebet
Purebet is designed to solve all the issues of traditional betting venues by solving all the issues of web3 venues. Purebet is based on our custom built on-chain exchange engine, designed specifically for sports betting. Upon this foundation, we aim to aggregate the odds and liquidity of every web3 venue out there. We will display the aggregated liquidity curve of every offer on an exchange style venue and the (V)AMM function curve of every instant liquidity venue within our orderbook. Once a user places a bet on our protocol, we will automatically place the corresponding bet with the venue offering the best odds. If the stake is so big that it must be placed at 2 or more venues to get the odds we showed, this will be handled automatically. Purebet takes on no directional risk, like a traditional exchange, but can offer instant liquidity like a sportsbook, as well as low overround and deep liquidity like an Asian bookie, thanks to tapping into multiple partner protocols at once. Since our on-chain exchange engine is the core of the protocol, users can still use Purebet as an exchange, placing maker orders to market make or try to get higher odds than any protocol is currently offering. Active market makers can interact directly with Purebet to offer higher odds than the other protocols to capture more user flow.
Built on the Solana blockchain for low transaction cost and high speeds, we do not take custody of user funds. Any unused funds remain in their blockchain wallet and funds placed on a bet are stored in our smart contract programs. Once the event is over, winnings are paid out automatically.
Purebet is the first protocol to use on-chain betting venues as a building block but is also a building block itself. It is the best option for any protocol or DAO which wants to place bets or market make to build upon since we have the best odds and deepest liquidity of any on-chain betting venue.
If you have any questions or comments please let me know. This article was originally published on October 8th 2022 here
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