> For the complete documentation index, see [llms.txt](https://whitepaper.after-bell.uk/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://whitepaper.after-bell.uk/protocol-overview/how-a-prediction-market-works.md).

# How a Prediction Market Works

Explains Yes and No outcome trading and how market prices express expectations.

A binary prediction market prices a defined question with two possible outcomes. It does not predict the future with certainty. It creates a market where participants can take opposite positions on a result that will later be evaluated.

### Start with an unambiguous question

Consider the following market:

> Will NVDA close above $150 on Friday?

The question needs a stated condition and a stated time. Its possible outcomes are mutually exclusive:

* **Yes** — NVDA closes above $150 on Friday.
* **No** — NVDA does not close above $150 on Friday.

The market’s usefulness depends on that clarity. Participants need to know what they are buying, and the system needs a condition it can resolve.

### Prices express trading expectations

Participants can buy either outcome. In the source example:

| Outcome | Example price |
| ------- | ------------- |
| Yes     | $0.72         |
| No      | $0.28         |

The $0.72 Yes price can be interpreted as an approximately 72% market-implied expectation for Yes. This is a reading of the current market price, not a guaranteed, objective probability. Prices change as participants submit and match orders.

AFTERBELL proposes an off-chain central limit order book to receive signed orders and match compatible prices. A participant can trade with another participant, or the system can mint new paired outcome shares from USDG where applicable. The detailed matching rules are covered in Trading Architecture.

### Follow the outcome to resolution

The market remains open until its defined resolution condition. In this example, the relevant condition is NVDA’s Friday close. When the market resolves:

1. The price condition is evaluated.
2. One outcome wins.
3. The winning outcome becomes redeemable for $1.00 under the product model.
4. The losing outcome becomes worthless.

If NVDA closes at $152, Yes wins. A $0.72 Yes share becomes redeemable for $1.00. The example difference is $0.28 before applicable fees. A No position has no redemption value.

This finality distinguishes a binary market from ordinary spot trading. A stock position continues to represent exposure to an underlying asset. An outcome token represents only the defined market condition. At resolution, one side has the settlement value and the other does not.

### How AFTERBELL supports the flow

The proposed settlement model uses USDG and ERC-1155 Yes/No outcome tokens on Robinhood Chain. Smart contracts are intended to hold USDG, issue outcome tokens, and settle the market.

Resolution uses Chainlink stock-token feeds as the primary data source and the Robinhood REST API as a cross-check. A difference greater than 5% pauses the market. An administrator may then resolve manually using off-chain evidence. This is a safeguard, not a claim of fully trustless resolution.

The mechanism is simple in concept: a clear question, two tradable outcomes, a specified resolution condition, and redemption for the winning outcome. Market quality still depends on clear definitions, available liquidity, and credible resolution.


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