> For the complete documentation index, see [llms.txt](https://praxis-4.gitbook.io/praxis/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://praxis-4.gitbook.io/praxis/documentation/how-it-works/prediction-markets.md).

# Prediction Markets

Bet on real-world outcomes. Buy YES or NO shares and collect if you were correct.

A prediction market lets you put money on your conviction whether something will happen.

If you think a team will win a championship, or a project will ship by a deadline — you can buy YES shares. If you think the opposite, you buy NO shares. If you're correct, your shares pay out at $1 per token at event settlement. If you're wrong, their value collapses to 0.

In general, prediction markets turn opinions about the future into tradeable positions.

***

## How a Market Works

Every prediction market has two sides: **YES** and **NO**.

Before the outcome is known, both sides trade somewhere between $0 and $1. The price reflects the market's collective belief about how likely the event is to happen.

{% hint style="info" %}
If YES is trading at $0.30, the market is saying there's a 30% chance the event happening.
{% endhint %}

### At settlement

Once the outcome is known, the market resolves:

* **YES:** every YES token pays $1. Every NO token pays $0.
* **NO:** every NO token pays $1. Every YES token pays $0.

Example: You bought YES at $0.30. The event happens and the YES value rises to $1 → you made $0.70 per token. If you paid $300 for 1,000 tokens, you receive $1,000 back — a $700 gain.

***

## Who's on the Other Side?

On Praxis, there's always someone ready to trade with you. You don't have to wait for another user to manually accept your order.

This is because Praxis uses an **AMM** — an Automated Market Maker. Instead of matching you with a specific counterparty, you trade against a shared liquidity pool. The pool always quotes a price, adjusts automatically based on supply and demand and stays open 24/7.

***

## Prices Move When You Trade

When you buy YES, the YES price goes up. When you buy NO, the NO price goes up. This is called **price impact** or **slippage**.

The bigger your trade relative to the pool, the more the price moves.

**Example:** You want to buy YES in a market currently priced at 20%.

* If the pool is large, your $100 might only move the price to 21%. You get close to what you expected.
* If the pool is small, your $100 might move the price to 30%. You end up paying more per token than the starting price.

This is normal and expected. Deeper pools mean less slippage for the same trade size.

***

## What Praxis Adds

Praxis prediction markets are built on top of Praxis's yield infrastructure. This means:

* **Your collateral earns yield** while you hold a position. This is a more capital efficient model where your principal is never idle.
* **YT (Yield Tokens)** represent your share of the yield generated by collateral in the market. Active prediction markets create active yield streams.
* **Long-tail markets are supported from day one.** Because the AMM provides liquidity automatically, even a brand-new market with few traders is immediately usable.

***

## A Simple Example

Suppose you believe a major crypto upgrade will ship before the end of the year.

1. You open the **"Upgrade ships by Dec 31"** market on Praxis.
2. YES is trading at $0.40 — the market gives it a 40% chance.
3. You disagree. You think it's more like 70%. You buy $200 of YES tokens.
4. You receive roughly 500 YES tokens at an average price around $0.40.

Now you wait. A few things can happen:

* **The upgrade ships.** YES resolves at $1. Your 500 tokens are worth $500. You made $300.
* **The upgrade doesn't ship.** YES resolves at $0. Your tokens are worth nothing. You lost $200.

***

## Want to Go Deeper?

If you want to understand how the pricing formula works under the hood: how AMMs guarantee liquidity, why prices move the way they do, and how Polymarket's early design relates to Praxis — see the advanced section:

* [Prediction Market AMM](/praxis/documentation/advanced/prediction-market-amm.md)

To understand the mathematics behind when and how much to participate, expected value, value trading, and the Kelly Criterion — see:

* [Mathematical Foundations](/praxis/documentation/strategies-and-guides/mathematical-foundations.md)