Chris Stewart is the CEO and cofounder of Suredbits[1], a bitcoin-settled derivatives platform.
Discreet log contracts (DLCs) are a way to do peer-to-peer betting directly on Bitcoin. You can make these contracts contingent on an oracle’s attestation about a real-world event. This real-world event could be the winner of a presidential election, the BTC/USD price on a cryptocurrency exchange or the outcome of a sporting event.
A simple example is betting on the outcome of the Super Bowl. The Super Bowl this year was between the Cincinnati Bengals and the Los Angeles Rams. With discreet log contracts, Alice and Bob can bet on the Super Bowl by making a bitcoin transaction between them. The funds locked in the bitcoin transaction become unlocked when an oracle attests to the outcome of the Super Bowl.
This article is going to explain why discreet log contracts add value to the existing sports betting ecosystem by giving sports bettors the best odds possible for their bet while not moving the lines.
Understanding “The Vig”
The vigorish (“vig” for short), also known as “the margin” or “the house edge,” is a mathematical advantage introduced by sportsbooks to guarantee they will always profit over the long term. When giving customers odds, the sports book will introduce a statistical bias for a percentage of profit they want to capture independent of the outcome of the underlying game. This is why sportsbooks are so profitable: if they run their business with appropriate risk management, they can’t lose!
The suckers in this example are the customers of the sportsbook. They are at a mathematical disadvantage from the start. If they keep participating in bets where this mathematical bias is built in against them, they are guaranteed to lose unless they have some sort of other edge.
