Market Selection Criteria¶
Every prediction market entered by the vault must meet all of the following criteria before the operator opens a position.
1. Minimum Order Book Depth¶
The NO side must have at least 5× the intended position size in resting liquidity within 2% of the current price.
Example: If the vault intends to buy $200K of NO shares, there must be at least $1M of sell-side liquidity within 2% of the quoted price.
Why: This ensures: - Entry does not move the market significantly - The market price referenced by the adapter reflects real independent price discovery (not the vault's own presence) - Exit via emergency liquidation (if ever needed) has meaningful depth
2. Maximum Position as Percentage of Market¶
The vault's position must not exceed 10% of the total NO-side open interest.
Why: Holding more than 10% makes the vault the marginal price-setter. The market price reported by the adapter would then reflect the vault's own presence rather than independent price discovery. This directly corrupts the NAV calculation.
Example:
3. Time to Resolution¶
| Limit | Value | Rationale |
|---|---|---|
| Minimum | 30 days | Insufficient accrual time below this |
| Maximum (recommended) | 120 days | Longer durations expose the vault to too many regime changes; linear accrual model becomes unreliable |
| Sweet spot | 60–90 days | Optimal balance of yield and risk |
4. Entry Price Range¶
| Price Range | Verdict | Reason |
|---|---|---|
| Above $0.95 | ❌ Avoid | Accrual spread too thin to generate meaningful yield after fees and reserve drag |
| \(0.88–\)0.93 | ✅ Sweet spot | 7–12% gross return over typical 60–90 day period |
| \(0.80–\)0.88 | ⚠️ Caution | Acceptable but approaching the risk threshold |
| Below $0.80 | ❌ Avoid | Market is pricing YES at >20% probability — too much binary risk |
The vault is designed for high-confidence NO positions, not speculative ones.
5. Correlation Constraint¶
No two active positions should share a causal driver.
The operator must document an independence assessment for every market pair. Prioritize: - Different geographies — e.g., US election and Asian market event are independent - Different domains — politics vs. sports vs. crypto vs. economics - Different time horizons — a 30-day and a 90-day market on similar topics may still be correlated
Why: If multiple positions share causal drivers, a single real-world event can trigger multiple write-offs simultaneously. The contract cannot enforce this on-chain — it is an operator discipline requirement.
Pre-Entry Checklist¶
Before calling openPosition(), the operator should verify:
- [ ] NO-side depth ≥ 5× intended position size within 2% of current price
- [ ] Intended position ≤ 10% of NO-side open interest
- [ ] Market has 30–120 days to expected resolution
- [ ] Entry price is in the \(0.88–\)0.95 range
- [ ] Market is independent of all other active vault positions
- [ ] Independence assessment documented
- [ ] Entry slippage expected to be ≤ 50 bps
- [ ] New adapter contract has been reviewed and is trusted