Negative Risk Markets

Understand the Negative Risk mechanism for multi-outcome events and how outcome conversion can improve capital efficiency.

Negative Risk is a mechanism for multi-outcome events where only one outcome can ultimately win. It connects multiple Markets under the same Event through conversion relationships between outcomes, improving capital efficiency.

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How It Works

In a standard multi-outcome event, each Market is independent. If you want to express that a specific outcome will not happen, you would normally buy that Market’s No Token, but that No Token has no asset-conversion relationship with the other outcomes.

Negative Risk creates that relationship:

• 1 No share from any Market can be converted into 1 Yes share in every other Market under the same Event.
• The conversion is performed through the Neg Risk Adapter contract.

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Example

Assume the Event is “Who will win the presidential election?” and it contains three outcomes:

Outcome	Current Position
Candidate A	—
Candidate B	—
Other	1 No

Under Negative Risk, 1 No share of “Other” can be converted into:

Outcome	After Conversion
Candidate A	1 Yes
Candidate B	1 Yes
Other	—

Economically, being short one outcome can therefore be converted into being long all other outcomes.

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Augmented Negative Risk

Standard Negative Risk generally requires the complete set of outcomes to be known when the market is created. In real-world scenarios, however, new candidate outcomes may appear after trading begins, such as a new candidate entering an election.

Augmented Negative Risk handles these dynamic changes with the following outcome types:

Outcome Type	Description
Named outcomes	Outcomes explicitly defined when the market is created
Placeholder outcomes	Reserved slots that can later be assigned to specific outcomes
Other	Captures outcomes that are not explicitly listed

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How Placeholders Work

1. Event Launches

   The Event launches with named outcomes, Placeholder outcomes, and Other.

2. Assign a Placeholder

   When a new valid outcome appears, a Placeholder can be assigned to that outcome.

3. Other Narrows

   As Placeholders are assigned, the remaining set represented by Other becomes narrower.

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Trading Rules

• If the final correct outcome was never explicitly named, the Market can settle to Other.
• The practical definition of Other changes as Placeholders are assigned, so traders should pay particular attention to its current scope when trading Other directly.

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Conversion Mechanism

The Neg Risk Adapter performs conversion atomically:

1. Hold a No Token

   The user holds 1 No Token for Outcome A.

2. Call convert

   Call the Adapter’s convert method.

3. Receive Yes Tokens for Other Outcomes

   The user receives 1 Yes Token for every other outcome under the same Event.

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Next Steps

Markets & Events

Learn how multi-Market Events are organized.

Positions & Outcome Tokens

Learn how outcome tokens relate to positions.