Once a proposal has accumulated enough stake, the project takes half of its liquidity from the spot (e.g. META/USDC)
market and moves it into a proposal’s conditional markets.Traders can then make conditional trades over 3 days. Conditional trades are like normal trades, except they
revert if the condition isn’t met.
If you thought that ORE would have been worth more than $19 if they reduced their emissions by
40%, you could have participated in this market:If you believed that ORE would go to $30 if they adopted this change, you could have bought ORE in the pass market.
For example, you could have placed a trade of $1000 for 50 ORE ($20 per ORE).Then, if the proposal passes, you would have bought ORE at $20. But if it fails, you wouldn’t have bought any ORE.
Suppose there’s a project, EXMPL, that has $1M in its treasury and a $1.2M
market cap. You own $10,000 worth of the token.The founder just raised a proposal to send all of the project’s money to himself
so that he can go on a nice vacation.The market immediately reacts to this information and the token shoots down to a
$900k market cap. But so far, no one has traded the decision markets, so it’s trading
$900k in both the pass and fail markets - what should you do?One reasonable course of action would be to sell pass and buy fail. Pass is
overvalued at $900k if you think the token will go to 0 if the founder walks
away with all of the money. And fail is undervalued at $900k if you think that
the immediate next proposal will be to liquidate, netting you a nice 11% profit.
You’re prepared for either scenario.
Now suppose there’s another project called XYZ with $10M in revenues and a $100M market
cap. So it’s trading at a price-to-sales multiple of 10.The founder just created a proposal to add a new business line.You think that this business line will add $5M of revenue to the project, translating to
$50M in market cap.Here, your course of action should totally depend on the prices of the decision markets.
If the pass market is already pricing the token at $150M, you shouldn’t take any trades.But if it’s trading at $110M in the pass market, you probably want to buy. If it’s trading
at $200M, you probably want to sell.And if you think that $100M is the fair value for the project if the proposal fails, you
would probably want to buy the fail market at below $100M and sell it above $100M.
