Profit on Trump’s Loss

The easiest way to profit from the Trump election on November 3rd is to put your money where your mouth is. Technically, you’d be putting your cryptocurrency where your mouth is. Either way, I’m not encouraging you to do anything. This is a tutorial.

This article explains how simple it is to get involved with prediction markets using Catnip for those that have never ventured forth into the amazing world of cryptocurrencies.

Catnip is a brand new prediction market. Prediction markets provide facilities that allow you to take a position on a possible future outcome. In particular, Catnip allows you the opportunity to take a position on the result of the 2020 presidential election.

There are surely other platforms that will allow you to eloquently express your position on the election with your discretionary income, but the thing that’s noteworthy about Catnip is that it allows you to do it easily with as much financial conviction you can muster. [1]

Catnip Limits

The default (suggested) participation is supposed to be 100 dollars. [2] This is a nice nudge, but there is no minimum level of participation. The lower bound of financial participation is zero. The upper bound is supposed to be infinity because Catnip’s developers claim that the platform allows you to venture an unlimited amount of wealth.

Acquiring DAI

DAI is redeemable for a US dollar thanks to the folks at Maker. They claim it’s “a better money” and the first thing that you’ll need to do to participate in this prediction market is get some of it even if you disagree with the Maker opinion on DAI.

Unless you are a miner, you’ll need to get some DAI from an exchange like Gemini or Upbit. The Gemini Exchange is available in 50+ countries (including Korea) and has iOS / Android apps that make everything easier. More importantly, customer support there is pretty decent. This matters if you are new to cryptocurrency acquisition and think you are going to need some handholding.

If you are not technically inclined, you’ll want to use mobile apps. They are easier to use. The downside is that Gemini will charge a higher transaction fee for that convenience. The fee for 100 DAI is going to be $2.99 if you use the mobile app.

The fee is quite high, but if you register here you will receive $10 worth of bitcoin (or BTC) which you can sell to recover your transaction fees. That link is a referral link. [3]

Taking Positions

Now that you have some DAI, you’ll want to take a position. Technically, you should have done this in your mind first. Let’s review the theory —

In this prediction market, there are only two outcomes. Trump either wins or he doesn’t. Consequently, there are two tokens [4] that represent either option:

• yTRUMP tokens (representing the position that Trump wins)
• nTRUMP tokens (representing the position that Trump does not win)

This is called a binary option. Options are all the rage these days. Now you too can brag that you are trading derivatives.

The first thing to know about this financial instrument is that it expires. It expires January 22nd whether or not the election runs smoothly. Should the outcome be clearly known before then, you will be able to sell winning tokens in the open market for slightly under 1 DAI each.

The second thing that you must know is that this option is all or nothing. It’s binary after all. That means:

1. If you traded DAI for yTRUMP and Trump does not win, you get nothing.
2. If you traded DAI for nTRUMP and Trump wins, you get nothing.

Otherwise, your options are in the money.

Option Valuation

The value of the token options on expiry is displayed on the Catnip website when you try to acquire the option. The value is always expressed in DAI terms (DAI is the quote currency). It is the amount of DAI divided by the price per share of the nTRUMP or yTRUMP token.

For example, if the price/token of yTRUMP is $0.404 and you acquire 100 DAI worth of them, then your yTRUMP tokens will be worth $247.42 on expiry only if Trump wins. If Trump doesn’t win, yTRUMP is worthless.

The profit you stand to make is also calculated and displayed on Catnip. Be careful though. The profit displayed only exposes your gain if your options are in the money.

The realized profit (or loss) will be the value of the token on expiry minus the acquisition cost. For example, if you purchased either yTRUMP or nTRUMP tokens for 100 DAI on the Catnip website, then your real profit is the value of the tokens minus 100 DAI.

Option Acquisition

Prior to the advent of blockchains, exotic financial instruments were acquired through licensed brokers. While this is still mostly true for regulated instruments, blockchains, and the Ethereum blockchain in particular, have evolved so fantastically that they boast their own exotic financial instruments.

yTRUMP and nTRUMP are exotic options that exist on the Ethereum blockchain. The best thing about these instruments is that you don’t need to find a broker to acquire them. All you need to acquire them is a cryptocurrency wallet and a little bit of the token that powers the Ethereum Network called Ether (or ETH).

The Ethereum Network was built in a manner that allows a peer-to-peer network of computers to provide the functions offered by a broker. The Ethereum Network is a lot like its über famous predecessor, the Bitcoin Network, but an order of magnitude more useful.

Smart contracts are the broker dealers of the Ethereum Network. Instead of paying brokerage fees to a broker, to acquire yTRUMP or nTRUMP you need to pay gas to the Ethereum Network.

Trading Instructions

To trade the DAI you acquired via Gemini (or Upbit) for yTRUMP or nTRUMP you need a wallet and ETH for gas. Exchanges like Gemini are used to trade one asset (like DAI) for another (like USD). Interacting with Catnip is beyond the scope of services that Gemini and Upbit provide. The DAI must be sent to a wallet.

Wallets are essential for interacting with smart contracts and securely storing your cryptocurrency wealth. Catnip officially works with the MetaMask wallet. Coinbase Wallet also works, but the instruction below are for MetaMask on iOS or Android:

[Instructions for the MetaMask Chrome extension can be found here.]

1. Download the MetaMask app for your mobile device.
2. Open it. Click “Get started”.
3. Click the blue button that reads “Create a new wallet”.
4. Follow the guide to setup your account and create a wallet.
5. Take the tour. Pay particular attention to the browser and web3.
6. Click on the menu button and select “Wallet”.
7. Click on the blue “Buy ETH” button. Purchase ~ $100 worth of ETH. [5]
8. Click on the ETH selector under the Tokens tab.
9. Click on the blue RECEIVE icon. Click on “Copy” to copy your address.
10. Switch back to your Gemini app.
11. Click on the “Account” icon in the bottom right of the screen.
12. Click on “Withdraw from Gemini” and navigate down the asset list to DAI.
13. Enter 100 DAI and click continue.
14. Paste in the address of your MetaMask wallet.
15. Click “Review Withdrawal”.
16. Click “Swipe to confirm” when the dialog is displayed.
17. Switch back to your MetaMask app and wait for the transaction to finish.
18. Click on the menu button and select “Browser”.
19. Navigate to catnip.exchange by entering it into the search dialog.
20. Wait for the page to load then scroll down to connect wallet.
21. Confirm that you want to connect your wallet when MetaMask prompts.
22. Tap the grey “MAX” button in the “From” input box next to DAI.
23. Tap the dropdown box next to the “To” input box.
24. Select “Yes” or “No” in response to the question.
25. Finally, click on “Swap”.

Acquiring nTRUMP and yTRUMP Tokens

After you complete all of the steps above, nTRUMP or yTRUMP tokens will be sent to your MetaMask wallet. You can use the MetaMask app to verify the balance.

Decentralized Infrastructure

After completing all of the steps outlined above, you may have questions as to how all of this is possible. If so, reach out to the Catnip team directly. They are quite friendly.

The brief explanation is that Catnip is built on smart contracts and integrates decentralized finance infrastructure (like the mighty Balancer) running the Ethereum Network. According to the Catnip team, Catnip is 100% non-custodial, settlement is fully decentralized, and the developers aren’t taking a profit.

To learn more about Ethereum, visit their website. To learn more about Balancer Finance, visit their website.

This article is neither financial nor legal advice. It is purely technical. You should reflect on the ethics of wagering money on event derivatives and determine whether such behavior is permitted in your jurisdiction.

Special thanks to Ben Davidow for reviewing the initial draft.

[1] Please be responsible.

[2] Unless you mint DAI with ether (or ETH), you need to purchase it in the open market. Consequently, the price is never usually one dollar when DAI is acquired through purchase.

[3] Using that referral link also ensures that I get $10 in BTC for writing this tutorial. May you be peaceful and happy for your charity.

[4] Yes… There are tokens for everything in the cryptocurrency world.

[5] If you never plan on returning to the cryptocurrency world, $10 works.