> 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/strategies-and-guides/base-strategies.md).

# Base Strategies

Simple strategies for getting the most out of your yield.

In Praxis, your deposit is always redeemable via PT. You deposit USDC into a vault, receive YT (your prediction bankroll) and your principal keeps compounding in the background. These strategies are all about what to do with that YT.

None of them require advanced market knowledge. They work independently, or combined.

***

## Value Betting

The most fundamental edge in any prediction market is spotting a price that doesn't match reality.

When a market underprices an outcome (when the probability you estimate is higher than what the market implies), you have a statistical advantage. Over time, consistently buying underpriced outcomes produces a positive expected return, even when individual trades lose.

**Example:**

A match market prices Team A's win at $0.30, implying a 30% chance of winning. You've done your research and believe their real probability is closer to 45%.

If your estimate is correct, buying that $0.30 outcome repeatedly in similar situations will, statistically, generate returns over time even though some trades will lose.

{% hint style="success" %}
The key question is never "will this outcome happen?" It's "is this outcome priced correctly?"
{% endhint %}

This is what separates prediction markets from gambling. The market constantly exposes its probability estimates. Your goal is to find where they're wrong. For the underlying math, see [Mathematical Foundations](/praxis/documentation/strategies-and-guides/mathematical-foundations.md).

### How much to allocate

Even when you have edge, putting your whole budget on a single position is a mistake. A few bad runs can eliminate an otherwise sound strategy.

The [**Kelly Criterion**](https://en.wikipedia.org/wiki/Kelly_criterion) gives you the optimal fraction to allocate based on your edge:

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

| Symbol | Meaning                                            |
| ------ | -------------------------------------------------- |
| $$p$$  | Your estimated probability of the outcome          |
| $$c$$  | The current market price (the implied probability) |

Using the example above — you estimate 45%, market prices it at 30%:

$$
F = \frac{0.45 - 0.30}{1 - 0.30} \approx 0.21
$$

The Kelly Criterion suggests you allocate around **21% of your prediction budget** to this position. Many participants use **half-Kelly** (roughly 10% here) to reduce variance at a small cost to long-run returns.

{% hint style="info" %}
If the formula outputs zero or a negative number, the market is pricing the outcome at or above your estimate. There's no edge — sit this one out, or check whether the opposite side has value instead.
{% endhint %}

***

## 2 Pools — Choose Your Yield Stance

Prediction markets aren't the only place to put YT to work. **2 Pools** lets you express a view on whether vault yield will run above or below a target rate without needing to predict any specific event.

When you allocate YT into a 2 Pools market, you pick one of two sides:

* **Stable** — you give up some upside in exchange for returns anchored close to a target APY. When actual yield falls short, Stable pool depositors are compensated first.
* **Elevated** — you accept more variance in exchange for amplified returns when vault yield runs hot. When yield exceeds the target, Elevated pool depositors capture the surplus.

**Example:**

A pool has a **3% target APY**. Here is how yield is distributed across different vault conditions:

| Actual vault APY  | Stable receives | Elevated receives |
| ----------------- | --------------- | ----------------- |
| 2% (below target) | \~2.5%          | \~1.5%            |
| 3% (at target)    | 3%              | 3%                |
| 4% (above target) | \~3%            | \~5%              |

Either way, your original deposit sits untouched in the vault. You're choosing how your yield is distributed, not whether your capital is safe.

{% hint style="info" %}
If vault APY has been consistently beating its target, the Elevated side may already be crowded and late depositors pay a small entry cost when one side is imbalanced. For the full mechanic, see [2 Pools](/praxis/documentation/how-it-works/two-pools.md).
{% endhint %}

***

## Providing Liquidity

Every prediction market on Praxis needs liquidity to function. Liquidity providers put YT on both sides of a market and earn a share of trading fees in return. Your return comes from market activity, not from picking the right side.

{% hint style="warning" %}
Providing liquidity involves additional complexity, including understanding how AMM pricing and fee accrual work. It's a solid strategy, but worth reading the full mechanics before committing YT.
{% endhint %}

Read more in [Advanced Strategies](/praxis/documentation/strategies-and-guides/advanced-strategies.md).