Bonds

Skin in the game for truth-telling.

#Definition

In prediction markets, a bond is collateral (typically USDC or platform tokens) that participants must stake when proposing or disputing a market's outcome. Bonds create economic incentives for honest behavior—if you're right, you get your bond back plus a reward; if you're wrong, you lose it.

#Why Bonds Matter

Bonds solve a fundamental problem: how do you get strangers to tell the truth about real-world events?

Without bonds:

• Anyone could propose false outcomes
• Disputes would be costless spam
• Resolution systems would be easily manipulated

With bonds:

• Proposers risk real money on their claims
• Disputers only challenge when confident
• Economic incentives align with honest reporting

#How Bonds Work

#Proposal Bonds

When someone proposes an outcome for a market:

1. Stake required: Proposer deposits bond (e.g., $500 USDC)
2. Challenge window: Others can dispute during set period (e.g., 2 hours)
3. No dispute: Bond returned, proposal accepted
4. Successful dispute: Proposer loses bond to disputer

#Dispute Bonds

When someone challenges a proposed outcome:

1. Match stake: Disputer must post equal or greater bond
2. Escalation: Dispute triggers voting or arbitration
3. Disputer wins: Gets their bond back + proposer's bond
4. Disputer loses: Loses bond to proposer

#Example: UMA Resolution

On Polymarket, the UMA Optimistic Oracle uses bonds:

Market: "Will Bitcoin reach $100k in 2025?"
Event occurs: Bitcoin hits $100k on March 15

1. Alice proposes "YES" with $500 bond
2. 2-hour challenge window opens
3. Bob thinks Alice is wrong, disputes with $500 bond
4. UMA token holders vote
5. Voters confirm "YES" is correct
6. Alice gets her $500 back + Bob's $500
7. Bob loses his $500

#Bond Amounts

Bond sizes vary by platform and market importance:

Higher-stakes markets often require larger bonds to deter manipulation.

#Strategic Considerations

#For Proposers

• Only propose when certain: Your bond is at risk
• Check resolution criteria: Ambiguity invites disputes
• Verify sources: Ensure data matches market rules
• Time it right: Propose after outcome is clearly determined

#For Disputers

• Calculate expected value: Is the bond worth the risk?
• Gather evidence: Support your dispute claim
• Consider voting dynamics: Who decides if you're right?
• Don't dispute obvious truths: You'll lose your bond

#Risks and Edge Cases

#Undercollateralized Bonds

If bonds are too small relative to market size:

• Manipulation becomes profitable
• Bad actors can afford to lose bonds
• Resolution integrity compromised

#Bond Lock-Up

During disputes, bonds are locked:

• Capital unavailable for other uses
• Opportunity cost if dispute takes weeks
• Consider this before proposing/disputing

#Coordinated Attacks

Sophisticated attackers might:

• Spam false proposals (costly but possible)
• Coordinate voting after disputes
• Most systems design bonds to make this unprofitable

#Bonds vs. Traditional Systems

#Related Terms

• UMA (Optimistic Oracle)
• Oracle
• Resolution
• Polymarket
• Skin in the Game