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Prediction markets — first principles

A prediction market is a market where you trade on the outcome of real-world events. Will X happen? The market gives you a price, and that price is the crowd’s probability estimate. That’s it. Everything else is mechanics.

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The core mechanic

Every market has two outcomes: YES and NO.
  • A YES share pays 1.00∗∗iftheeventhappens,∗∗1.00** if the event happens, **0.00 if it doesn’t
  • A NO share pays 1.00∗∗iftheeventdoesn′thappen,∗∗1.00** if the event doesn't happen, **0.00 if it does
  • YES price + NO price always sums to approximately $1.00
If YES is trading at $0.65, the market is saying: “we collectively believe there’s a 65% chance this happens.”
Market: “Will BTC hit $100K by June?”YES price: $0.30 (market says 30% chance)You think it’s more like 60%. So you buy YES at $0.30.
  • If right: each share pays 1.00.Youprofit∗∗1.00. You profit **0.70 per share** (233% return)
  • If wrong: each share pays 0.00.Youlose∗∗0.00. You lose **0.30 per share**
The asymmetry is the whole game. Low prices = high upside if you’re right.

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How markets resolve

Every market has a resolution source — the objective criteria that determines the outcome. Most Polymarket markets use the UMA Optimistic Oracle, which works like this:
  1. An event happens (or doesn’t)
  2. Someone proposes a resolution (YES or NO)
  3. There’s a challenge period where anyone can dispute
  4. If undisputed, the resolution is finalized
  5. Winning shares become redeemable for $1.00
Resolution is based on objective, verifiable criteria defined when the market is created. It’s not opinion-based — it’s “did this specific thing happen or not?”

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Where the edge comes from

Markets are efficient, but not perfectly efficient. Your edge exists when:
  • You have information the market hasn’t priced in — breaking news, domain expertise, pattern recognition
  • The market is reacting emotionally — panic selling or hype buying creates mispricings
  • Time decay is mispriced — a market expiring tomorrow has very different dynamics than one expiring in 3 months
  • Liquidity is thin — small markets can be significantly mispriced because not enough smart money is paying attention
This is exactly what Supermission’s AI agents look for. They cross-reference news, sentiment, and historical patterns to find markets where the price doesn’t match reality.
The best trades aren’t “I think YES.” They’re “the market says 30%, I have specific reasons to believe it’s 60%, and here’s why the crowd is wrong.”