> ## Documentation Index
> Fetch the complete documentation index at: https://docs.supermisson.fun/llms.txt
> Use this file to discover all available pages before exploring further.

# How Prediction Markets Work

> Binary outcomes, shares that pay $1 or $0, and prices that reflect what the crowd actually believes. The mechanics in 3 minutes.

# Prediction markets — first principles

<Frame>
  <img src="https://mintcdn.com/supermission-e97e4c8f/bSIQ3L_bJliUq8Wr/images/how-markets-work.png?fit=max&auto=format&n=bSIQ3L_bJliUq8Wr&q=85&s=cfca7a4cd79d5f57981a50fff6d40b8e" alt="How prediction markets work on Supermission" style={{ borderRadius: '12px', width: '100%' }} width="2100" height="1272" data-path="images/how-markets-work.png" />
</Frame>

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.

## The core mechanic

Every market has two outcomes: **YES** and **NO**.

* A YES share pays `$1.00` if the event happens, `$0.00` if it doesn't
* A NO share pays `$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."

<Tabs>
  <Tab title="Example: You're bullish">
    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`. You profit **`$0.70` per share** (233% return)
    * **If wrong**: each share pays `$0.00`. You lose **`$0.30` per share**

    The asymmetry is the whole game. Low prices = high upside if you're right.
  </Tab>

  <Tab title="Example: You're bearish">
    Market: "Will the Fed cut rates in March?"

    YES price: `$0.80` (market says 80% chance)

    You think it's overhyped. So you buy NO at `$0.20`.

    * **If right**: each share pays `$1.00`. You profit **`$0.80` per share** (400% return)
    * **If wrong**: each share pays `$0.00`. You lose **`$0.20` per share**

    Fading the consensus can be the highest-edge play — when you're right.
  </Tab>
</Tabs>

## 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`

<Info>
  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?"
</Info>

## 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.

<Tip>
  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."
</Tip>