#Definition
An outcome token is a blockchain-based asset representing a share in a specific prediction market outcome. On platforms like Polymarket, your positions are held as ERC-20 tokens in your crypto wallet. Winning outcome tokens redeem for $1 USDC per token at resolution; losing tokens become worthless.
Outcome tokens transform prediction market positions into tradeable, transferable digital assets with all the properties of standard cryptocurrency tokens; they can be held, transferred, used as collateral, or integrated into other DeFi protocols.
#Why It Matters in Prediction Markets
Outcome tokens bring blockchain advantages to prediction market trading.
True ownership: Unlike centralized platforms where the exchange holds your positions, outcome tokens sit in your personal wallet. You control your assets directly without counterparty risk to the platform.
Transparency: All token holdings and transfers are visible on-chain. You can verify total outstanding shares, track large holder movements, and audit the market's state independently.
Composability: Outcome tokens can interact with other DeFi protocols. They can potentially be used as collateral, incorporated into structured products, or traded on secondary markets outside the originating platform.
Transferability: Positions can be transferred to any wallet without needing platform permission. This enables gifting positions, moving between wallets, or settling debts with prediction market positions.
#How It Works
#Token Lifecycle
Minting (Creation)
1. Trader deposits $100 USDC
2. Smart contract locks the collateral
3. Contract mints 100 Yes tokens + 100 No tokens
4. Tokens sent to trader's wallet
The 1:1 minting ensures that regardless of outcome, total payout equals total collateral deposited.
Trading
Trader holds: 100 Yes tokens
Market price: Yes = $0.65
Trader can:
- Sell tokens on order book → Receives ~$65 (minus fees)
- Sell to AMM pool → Receives ~$65 (minus slippage)
- Transfer to another wallet → No fees, instant
- Hold until resolution → Wait for $100 or $0
Redemption (Settlement)
Market resolves: Yes wins
Yes tokens: Redeemable for $1.00 USDC each
No tokens: Worth $0.00, non-redeemable
Redemption process:
1. Connect wallet to platform
2. Click "Redeem" on winning position
3. Tokens burned, USDC sent to wallet
#Token Lifecycle Flowchart
#Token Standards
Most prediction market tokens use ERC-20 or compatible standards:
Properties:
- Fungible (each token identical)
- Divisible (can hold 0.5 tokens)
- Transferable (send to any address)
- Verifiable (on-chain balance checks)
#Numerical Example
You analyze a market and believe Yes has 70% probability. Current price: $0.55.
Position entry:
Buy 1,000 Yes tokens @ $0.55 = $550 spent
Tokens now in your wallet
Resolution scenarios:
If Yes wins:
1,000 tokens × $1.00 = $1,000 USDC
Profit: $1,000 - $550 = $450 (82% return)
If No wins:
1,000 tokens × $0.00 = $0 USDC
Loss: $550 (100% of investment)
#Examples
#Example 1: Standard Binary Market
A market on "Will GDP exceed 3% in Q4?" on Polymarket:
- Yes token: 0xabc123...
- No token: 0xdef456...
You buy 500 Yes tokens at 500. If not, tokens become worthless.
#Example 2: Multi-Outcome Market
A categorical market on "Who will win the election?" with three candidates:
- Candidate A token: 0x111...
- Candidate B token: 0x222...
- Candidate C token: 0x333...
Each candidate has separate tokens. Only the winner's tokens pay 0.
#Example 3: Token Transfer
You hold 200 Yes tokens worth 150 value). A friend wants to buy your position:
1. Friend sends you $150 USDC
2. You transfer 200 Yes tokens to friend's wallet
3. Transaction complete in seconds
4. No platform involvement required
#Example 4: Viewing Token Holdings
In your wallet, you can see:
Token: "Election2024-Yes" (ELEC-Y)
Address: 0xabc...789
Balance: 1,500 tokens
Value: ~$975 (at $0.65 market price)
Block explorers show all holders, transfers, and total supply.
#Risks and Common Mistakes
Wrong token addresses
Scam tokens mimicking real outcome tokens exist. Always verify token contract addresses through official platform links. Interacting with fake tokens can drain your wallet.
Forgotten tokens after resolution
Winning tokens don't auto-convert to USDC. You must actively redeem them. Some traders forget and leave value unclaimed. Set reminders for market resolutions.
Gas costs eating profits
Every on-chain action (buying, selling, transferring, redeeming) costs gas. Small positions may have profits eliminated by Ethereum gas fees. Polygon-based markets like Polymarket have much lower fees.
Illiquid secondary markets
While tokens are technically tradeable anywhere, liquidity concentrates on the originating platform. Trying to sell tokens on external DEXs usually results in poor execution.
Smart contract risk
Outcome tokens depend on smart contract security. While major platforms are audited, bugs could theoretically affect token value or redemption.
#Practical Tips for Traders
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Verify token addresses: Before interacting with any token, confirm the contract address matches the platform's official documentation
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Add tokens to your wallet: Sometimes tokens don't appear automatically; manually import using the contract address from the platform
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Redeem promptly after resolution: Don't let winning tokens sit unredeemed. Some platforms may have time limits or you might simply forget
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Consider gas when sizing positions: On Ethereum mainnet, ensure position size justifies gas costs. On L2s like Polygon, this matters less
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Use block explorers for research: Etherscan/Polygonscan show token distribution, large holders, and transaction history, which is useful market intelligence
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Keep records for taxes: Token transfers and redemptions are taxable events in many jurisdictions. Track your cost basis and proceeds
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Understand the specific token structure: Different platforms implement tokens differently. Read the docs for your specific platform
#Related Terms
#FAQ
#Are outcome tokens the same as Yes/No shares?
Yes/No shares is a conceptual term for positions in a binary market. Outcome tokens are the specific blockchain implementation of those shares on decentralized platforms. On centralized platforms, you might have Yes/No shares represented in a database rather than as tokens.
#Can I trade outcome tokens on Uniswap or other DEXs?
Technically yes, but practically it's rarely useful. Liquidity for outcome tokens concentrates on the originating platform. External DEX pools would have little liquidity, poor pricing, and potentially different rules. Use the platform's native trading interface.
#What happens to my tokens if the market is invalidated?
When a market resolves Invalid, the platform typically allows redemption of all tokens (Yes and No) at their proportional share of collateral, or returns original investment amounts. Specific mechanics vary by platform; check the resolution rules.
#How do I see all my outcome token positions?
Wallet interfaces like MetaMask may not show all tokens automatically. Use portfolio trackers like DeBank or Zapper that scan for token balances, or manually add token addresses to your wallet. The originating platform usually shows your positions most reliably.
#Can outcome tokens be used as DeFi collateral?
Theoretically possible but rarely implemented. Most lending protocols don't recognize outcome tokens as valid collateral due to their unique risk profile (can go to $0 overnight upon resolution). Future DeFi development may enable this use case.