How it works

Operational Architecture: How Kynex Works

Overview

The Kynex Protocol operates as a deterministic state machine that transmutes On-Chain Data into Settled Value. The workflow is a linear progression from data ingestion to economic settlement, designed to be entirely transparent, automated, and trust-minimized.

The life-cycle of a Kynex market follows four distinct phases: Indexing, Instantiation, Execution, and Settlement.

Step 1: Capital Tracking & Indexing (The Data Layer)

Objective: To source, sanitize, and verify actionable signal from raw blockchain state.

Kynex begins by indexing the "ground truth" of the chain. This is not sentiment analysis; it is the rigorous accounting of capital flow.

1.1 Portfolio Discovery & Attribution

The protocol allows users and indexers to subscribe to specific capital streams. This layer transforms raw addresses into identifiable strategies.

• Individual Entity Tracking: Monitoring specific high-net-worth wallets or DAO treasuries.

• Cluster Analysis: Aggregating "Smart Money" cohorts or sector-specific funds (e.g., "Top 10 L2 Yield Farmers").

• Custom Watchlists: Users can compose bespoke indices of wallets to serve as the underlying asset for a prediction market.

1.2 Signal Sanitization (Anti-Sybil)

Raw data is noisy. To ensure market integrity, the Kynex Indexer applies a filtration mesh to remove non-economic activity.

• Activity Thresholds: Wallets must meet minimum volume and transaction frequency requirements to be eligible for market creation.

• Wash-Trading Exclusion: Heuristics detect and exclude circular transactions designed to fake volume or performance.

• Consistency Checks: Algorithms flag and filter erratic behavior that suggests key compromise or botting, ensuring only "organic" capital behavior is tracked.

1.3 Alpha Confidence Scoring

Before a market is spun up, the underlying data source is rated. The Kynex Confidence Score (KCS) evaluates the reliability of the signal provider.

• Historical Accuracy: How often has this wallet’s behavior correlated with positive ROI?

• Risk-Adjusted Returns: Does the wallet generate alpha via skill or extreme leverage?

• Capital Efficiency: A metric assessing yield generated per unit of gas/fees.

Step 2: Market Instantiation (The Creation Layer)

Objective: To define the terms of engagement and launch the financial contract.

Once a valid data stream is identified, a Performance-Based Prediction Market (PBPM) is initialized via the Market Factory smart contract.

2.1 Protocol-Governed Initiation

Market creation is permissionless but rule-bound to ensure solvability.

• Verifiable Reference: Every market must query a specific, immutable on-chain data point.

• Resolution Logic: The "Definition of Success" must be binary (True/False) or scalar (Range) and mathematically provable.

• Liquidity Bootstrapping: Creators must seed the initial liquidity pool to guarantee immediate tradability.

2.2 Smart Contract Parameters

The creating actor defines the immutable variables of the market contract:

• Outcome Condition: The specific metric to be tested (e.g., ROI > 5%).

• Epoch Duration: The precise start and end block numbers.

• Benchmark Asset: The comparative asset for relative performance markets (e.g., vs. SOL , vs. BTC).

• Position Caps: Maximum exposure limits to prevent pool domination by single entities.

2.3 Spam Resistance Fees

To prevent ledger bloat and low-quality markets, a creation fee is payable in KNX.

• Quality Control: Serves as an economic barrier to spam.

• Revenue Stream: Fees are routed to the Protocol Treasury and Staking Rewards pool.

Step 3: Staking & Execution (The Liquidity Layer)

Objective: To price the probability of the outcome via capital allocation.

This is where insight becomes inventory. Participants trade against the probability of the event occurring.

3.1 Binary Outcome Pools (YES / NO)

Liquidity is deposited into opposing vaults.

• YES Vault: Long exposure. Stakers believe the wallet/portfolio will achieve the metric.

• NO Vault: Short exposure. Stakers believe the wallet/portfolio will fail the metric. These pools are isolated per market, meaning risk is contained solely within the specific contract.

3.2 Automated Market Maker (AMM) Pricing

Kynex does not use an order book; it uses a bonding curve or AMM logic.

• Dynamic Odds: The price of "YES" and "NO" shares floats freely based on the ratio of capital in each pool.

• Imbalance Opportunities: As sentiment shifts, odds change. Early stakers or contrarian traders capture higher potential upside if the market swings back in their favor.

3.3 MEV & Risk Protection

To protect retail participants from predatory latency arbitrage (MEV), the protocol implements:

• Slippage Tolerances: Users define acceptable price impacts during staking.

• Transaction Ordering: Mechanisms to prevent front-running of large stakes.

• Position Limits: Caps on individual wallet contributions to maintain a healthy distribution of holders.

Step 4: Deterministic Settlement (The Resolution Layer)

Objective: To finalize the market state and distribute value.

Upon the expiration block, the market enters the Resolution Phase. This process is fully automated.

4.1 On-Chain Verification

The Settlement Engine executes a read-only call to the blockchain state at the precise snapshot block.

• Data Points: It retrieves wallet balances, transaction logs, and benchmark asset prices.

• Logic Execution: The contract computes the final performance metric (e.g., Did Wallet X ROI = 6%?) against the initial condition.

4.2 Oracle Redundancy

To ensure the data is incorruptible, Kynex utilizes a multi-layered verification stack.

• Primary: Direct on-chain state reading (trustless).

• Secondary: Chainlink or Pyth feeds for benchmark asset pricing (ETH/USD).

• Fallback: A dispute window where KNX token holders can challenge a result if malicious manipulation is detected (rare).

4.3 Distribution & Payouts

Once the result is confirmed:

1. Aggregation: The losing pool’s liquidity is aggregated.

2. Fee Capture: The protocol fee (e.g., 2%) is deducted for the Treasury.

3. Pro-Rata Claim: The remaining pot is unlocked for the winning pool. Winners claim their original principal + their share of the winnings.

   • Example: If you contributed 10% of the winning pool, you claim 10% of the total pot.

The Closed-Loop Economy

Kynex creates a self-reinforcing flywheel of intelligence and liquidity:

1. Capital moves on-chain (generating signal).

2. Markets form around the signal (pricing the probability).

3. Traders stake on the outcome (creating liquidity).

4. Accuracy is rewarded (incentivizing better analysis).

This structure ensures that Kynex is not just a betting platform, but a decentralized pricing engine for portfolio alpha.