> 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/reference/glossary.md).

# Glossary

Key terms and concepts used throughout the Praxis documentation.

## A

**AMM (Automated Market Maker)**\
A pool-based liquidity mechanism used by Praxis prediction markets. Instead of matching individual buyers and sellers, an AMM lets users trade against a shared pool at a price determined by a formula. The pool is always open and always quotes a price — no order book or counterparty needed. See [Prediction Market AMM](/praxis/documentation/advanced/prediction-market-amm.md).

**APY (Annual Percentage Yield)**\
The annualised rate of return generated by a vault on deposited USDC. Vault APY determines how quickly YT accumulates value over an epoch.

## B

**Bankroll**\
The YT available to a user for participation in prediction markets and games. A user's bankroll grows when they win and shrinks when they lose.

**Base**\
The Layer 2 blockchain on Ethereum where Praxis is deployed.

## C

**Chainlink**\
The primary oracle provider used by Praxis for market settlement and verifiable randomness (VRF).

**Chainlink VRF (Verifiable Random Function)**\
A cryptographically provable source of on-chain randomness used to select winners in Random Yield Distribution games.

**CLOB (Central Limit Order Book)**\
A traditional trading mechanism where buyers and sellers post orders that are matched directly. Used by mature prediction markets such as the current version of Polymarket. Praxis uses an AMM approach, which is more suitable for bootstrapping liquidity in new or niche markets.

**Constant-Product Formula**\
The AMM invariant $$Y \times N = k$$, where $$Y$$ and $$N$$ are the YES and NO token reserves in a pool. The formula ensures the pool always has liquidity and that prices update automatically with each trade. See [Prediction Market AMM](/praxis/documentation/advanced/prediction-market-amm.md).

## E

**Early Exit**\
Withdrawing from a vault before it reaches maturity. Requires burning equal amounts of PT and YT: $$X \text{ PT} + X \text{ YT} \rightarrow X \text{ USDC}$$. Early exit capacity is reduced each time YT is spent in predictions or games. See [Exit Paths](/praxis/documentation/getting-started/exit-paths.md).

**Epoch**\
The fixed time period a vault runs from deposit to maturity. YT accumulates value throughout the epoch and reaches its maximum worth at the end. Vaults do not auto-renew — a new deposit is required to start a new epoch position.

**ERC-20**\
The standard Ethereum token interface. Both PT and YT are ERC-20 tokens, meaning they can be held, transferred, or traded like any other on-chain token.

**Expected Value (EV)**\
The probability-weighted average return from a prediction position. Positive expected value means that, over many similar positions, the strategy is statistically profitable even if individual trades lose. See [Mathematical Foundations](/praxis/documentation/strategies-and-guides/mathematical-foundations.md).

## F

**Fixed Yield**\
A guaranteed, pre-determined return locked in at the moment of purchase. Achieved by buying PT at a discount to face value. Regardless of how the vault APY performs, the buyer redeems at 1 USDC per PT at maturity. See [PT/YT Trading Strategies](/praxis/documentation/strategies-and-guides/pt-yt-trading-strategies.md).

**Fractional Kelly**\
A conservative variant of the Kelly Criterion where the suggested allocation is scaled down (e.g., half-Kelly bets 50% of the full Kelly amount). Reduces variance at a modest cost to long-run expected growth.

## I

**Informational Edge**\
A statistical advantage arising from better knowledge, analysis, or models than what is reflected in current market pricing. The core engine of prediction markets: without edge, repeated participation trends toward zero return before fees. See [Mathematical Foundations](/praxis/documentation/strategies-and-guides/mathematical-foundations.md).

## K

**Kelly Criterion**\
A mathematical formula for optimal position sizing that maximises long-run growth while avoiding ruin. In prediction market form:

$$F = \frac{p - c}{1 - c}$$

Where $$p$$ is your estimated probability and $$c$$ is the current market price. A zero or negative output means there is no edge on that side. See [Mathematical Foundations](/praxis/documentation/strategies-and-guides/mathematical-foundations.md).

## L

**Late Deposit Fee**\
A fee applied when depositing mid-epoch, equal to the yield already accumulated in YT at that point. Rather than being deducted from the wallet, the fee is folded into the YT received so the depositor immediately holds YT worth the equivalent amount. See [PT & YT](/praxis/documentation/how-it-works/pt-and-yt.md).

**Liquidity Pool**\
The shared pool of YES and NO tokens that an AMM uses to facilitate trading. Deeper pools produce less price impact for the same trade size.

**Liquidity Provider (LP)**\
A user who deposits YT into both sides of a prediction market pool to earn a share of trading fees. LPs do not need to predict an outcome — their return comes from market activity volume.

## M

**Maturity**\
The fixed end date of a vault epoch. After maturity, PT and YT can be redeemed independently: PT for the original principal, YT for the total yield accumulated over the epoch. There is no deadline to redeem after maturity. See [Exit Paths](/praxis/documentation/getting-started/exit-paths.md).

**Morpho**\
The current yield source used by Praxis vaults. Deposited USDC is deployed into Morpho to generate the yield that accrues into YT. The vault architecture is designed to be yield-source agnostic.

## N

**NO Token**\
One side of a prediction market position. Pays $1 at settlement if the predicted event does not occur. Prices between $0 and $1 before settlement, reflecting the market's implied probability that the event will not happen.

## O

**Oracle**\
An external data source used to resolve the outcome of a prediction market. Praxis uses Chainlink as its primary oracle, supplemented by custom oracles for non-standard markets.

## P

**Prediction Market**\
A market where participants trade YES and NO tokens on whether a specific event will occur. Prices reflect collective probability estimates. At settlement, the winning side pays $1 per token; the losing side pays $0. See [Prediction Markets](/praxis/documentation/how-it-works/prediction-markets.md).

**Price Impact**\
The change in token price caused by a trade. The larger a trade relative to pool size, the more the price moves. Also called slippage. Deeper liquidity pools produce lower price impact for the same trade size.

**Principal**\
The original USDC deposited into a Praxis vault. Principal is always protected, never wagered in predictions or games, and is always redeemable at full value via PT.

**Principal Protection**\
The core guarantee of Praxis: the original deposit is always redeemable, regardless of prediction outcomes or game results. Only YT (representing the yield generated by the deposit) is ever put at risk.

**Principal Token (PT)**\
An ERC-20 token representing a redeemable claim on the original USDC deposit. One PT always equals one USDC at maturity. PT does not grow in value over time and is never used in prediction markets or games. See [PT & YT](/praxis/documentation/how-it-works/pt-and-yt.md).

**PT/YT Trading**\
The secondary market for independently buying or selling PT and YT tokens. Enables fixed-yield strategies (buying PT at a discount) and leveraged yield exposure (buying YT without a direct deposit). Planned feature, not yet live. See [PT/YT Trading](/praxis/documentation/advanced/pt-yt-trading.md).

## R

**Random Yield Distribution (RYD)**\
A yield lottery game on Praxis. Participants deposit YT into a shared pool; at the end of the round, one or more winners are selected by Chainlink VRF and receive the entire pool. See [Games](/praxis/documentation/how-it-works/games.md).

**Redemption**\
The act of burning PT or YT to receive USDC from the vault. PT redeems for the original principal (1:1); YT redeems for the proportional share of vault yield accumulated during the epoch.

## S

**Settlement**\
The resolution of a prediction market after the outcome is known. The oracle confirms the result; YES token holders receive $1 per token if the event occurred, $0 if it did not; NO token holders receive the inverse.

**Slippage**\
See *Price Impact*.

## T

**2 Pools**\
A Praxis feature that lets users allocate YT to express a view on whether vault yield will run above or below a target rate. The Stable side offers returns anchored near the target; the Elevated side accepts more variance in exchange for amplified returns when yield runs hot. See [2 Pools](/praxis/documentation/advanced/two-pools.md).

## U

**USDC**\
The stablecoin used for all deposits in Praxis. Deposits are denominated in USDC; PT redeems 1:1 for USDC at maturity.

## V

**Value Betting**\
The strategy of identifying prediction market outcomes that are underpriced relative to their true probability, and consistently participating in them to generate a positive expected return over time. See [Base Strategies](/praxis/documentation/strategies-and-guides/base-strategies.md).

**Value Trading**\
The broader principle that pricing matters more than direction in prediction markets. A position can be statistically profitable even if it loses most of the time, as long as the payout is large relative to the true probability. See [Mathematical Foundations](/praxis/documentation/strategies-and-guides/mathematical-foundations.md).

**Vault**\
The core capital structure in Praxis. Accepts USDC deposits, allocates them to yield-generating sources, mints PT and YT at a 1:1 ratio, and defines the epoch duration. The entry point for every Praxis position. See [Vaults](/praxis/documentation/how-it-works/vaults.md).

## Y

**YES Token**\
One side of a prediction market position. Pays $1 at settlement if the predicted event occurs. Prices between $0 and $1 before settlement, reflecting the market's implied probability of the event happening.

**Yield**\
The return generated by a vault on deposited USDC, derived from the underlying yield source (currently Morpho). Yield continuously accrues into the YT exchange rate throughout the epoch.

**Yield Token (YT)**\
An ERC-20 token representing a share of the yield generated by the vault during an epoch. YT is minted at deposit and accumulates value toward maturity. Unlike protocols where YT decays to zero, Praxis YT reaches its maximum worth at epoch end. YT is the exclusive bankroll for all prediction market and game activity. See [PT & YT](/praxis/documentation/how-it-works/pt-and-yt.md).