Prediction Markets

What Are Prediction Markets

Prediction markets are financial instruments that allow participants to trade on the outcome of real-world events. Each market poses a binary question with two possible outcomes: YES or NO. Traders buy and sell outcome tokens whose prices reflect the crowd’s collective probability estimate for that event. If your prediction is correct at resolution, each winning token pays out $1.00. Losing tokens expire worthless.

Unlike traditional betting, prediction markets operate on a full order book where participants set their own prices, enabling continuous price discovery and liquidity throughout the life of the market.

How It Works on GX

GX Exchange prediction markets run on the same central limit order book (CLOB) matching engine that powers spot and perpetual trading. This means you get the same low-latency execution, order types, and depth visibility you are already familiar with.

Step-by-step flow:

1. Browse markets — Explore open markets across multiple categories. Each market displays a binary question, current YES/NO prices, volume, and time remaining.
2. Place an order — Submit a limit or market order on the YES or NO side. Orders are matched against the CLOB just like any other instrument on the exchange.
3. Hold or trade — Your position is live. You can sell your tokens at any time before resolution if the market moves in your favor, or cut losses early.
4. Market resolves — When the event outcome is determined, an oracle submits the resolution. The market locks and no further trading occurs.
5. Settlement — Winning tokens are redeemed at $1.00 each in USDC. A 2% fee is deducted from winnings. Losing tokens settle at $0.00. Funds are credited to your GX account automatically.

Markets that are not resolved within their defined timeframe are subject to a 30-day auto-expiry policy, after which unresolved markets are voided and all participants receive a pro-rata refund of their entry cost.

Market Categories

GX Exchange supports five market categories at launch. New categories may be introduced through governance.

All markets must have a clearly defined resolution criterion and a verifiable data source agreed upon at creation.

Pricing Mechanics

Prediction market prices on GX are denominated in basis points, where the internal range of 0 to 10,000 maps to $0.00 to $1.00. This provides fine-grained pricing with four decimal places of precision.

The core pricing invariant is:

YES price + NO price = $1.00 (10,000 basis points)

This relationship always holds. When you buy a YES token at $0.65, the corresponding NO token is priced at $0.35. Prices naturally reflect probability: a YES token at $0.65 implies the market assigns a 65% probability to the event occurring.

Key pricing principles:

• Minting pairs — A trader can always mint one YES token and one NO token together for exactly $1.00 in USDC, or redeem a matched pair back for $1.00 (minus fees). This arbitrage mechanism keeps prices anchored.
• Order book driven — Prices are determined by supply and demand on the CLOB, not by an AMM curve. This allows for tighter spreads and more efficient price discovery.
• No negative prices — Token prices cannot go below $0.00 or above $1.00. The basis point system enforces this range at the engine level.

Example:

Resolution and Settlement

Markets are resolved through one of three oracle mechanisms:

1. Manual resolution — A designated resolver (typically the market creator or a governance-approved authority) submits the outcome after verifying the event result against the stated resolution criteria.
2. On-chain oracle feeds — For crypto price markets, resolution is triggered automatically when an on-chain price feed (e.g., Chainlink, Pyth) confirms the threshold has been met or the expiry has passed.
3. External API oracles — For sports, weather, and other data-driven markets, trusted external APIs provide the definitive result.

The smart contract governing prediction markets is GXPrediction.sol, inspired by the Gnosis Conditional Token Framework (CTF). It handles token minting, pair redemption, and final settlement on-chain.

Settlement process:

• Resolution is submitted and verified.
• All outstanding positions are marked to the final outcome.
• Winning tokens are redeemed at $1.00 USDC each, with the 2% winner fee deducted.
• Losing tokens are burned and settle at $0.00.
• Net proceeds are credited to the trader’s USDC balance on GX Exchange.

Settlement is final. Once a market is resolved, the outcome cannot be reversed.

Fees

Prediction markets on GX Exchange apply a single fee structure:

There are no additional trading fees for buying and selling prediction market tokens on the order book. The 2% fee is only charged on net winnings at resolution.

Fee revenue is distributed through the standard GX protocol split:

• 40% to GX token stakers
• 20% to validators
• 20% to the insurance fund
• 20% to the protocol treasury

Risk Disclosure

Prediction markets carry inherent risks that all participants should understand before trading:

• Binary outcome risk — Unlike traditional markets, prediction tokens settle at exactly $1.00 or $0.00. There is no middle ground. A position can lose its entire value at resolution.
• Liquidity risk — Some markets may have thin order books, leading to wide spreads and difficulty exiting positions at desired prices.
• Oracle risk — Resolution depends on oracle integrity. While GX employs multiple oracle sources, incorrect or delayed resolution data could affect outcomes.
• Time decay — As a market approaches its resolution date, prices may become increasingly volatile or illiquid.
• Regulatory risk — Prediction markets may be subject to varying regulatory treatment across jurisdictions. Participation may not be available in all regions.

Prediction markets are speculative instruments. Only trade with capital you can afford to lose. Past market pricing does not guarantee future outcomes.