Resolution Source

#Definition

A resolution source is the pre-designated authority or data feed that determines the official outcome of a prediction market, establishing which traders win and how funds are distributed. These sources provide the verifiable truth that settles market questions according to explicit criteria defined when the market is created.

#Why It Matters in Prediction Markets

Resolution sources are the backbone of trust in prediction markets. Without clear, reliable sources to determine outcomes, markets would devolve into disputes and lose their credibility as information aggregation tools.

For traders on platforms like Polymarket and Kalshi, understanding resolution sources directly impacts:

• Risk assessment - A weak or ambiguous source increases the chance of disputed outcomes
• Pricing accuracy - Markets with clear sources tend to have tighter spreads and better liquidity
• Edge identification - Knowing exactly how a market resolves can reveal trading opportunities others miss
• Capital allocation - Markets with trusted sources deserve larger position sizes than those with questionable resolution criteria

The quality of resolution sources often determines whether institutional traders participate, affecting overall market depth and efficiency.

#Historical Evolution

Resolution sources have evolved alongside prediction market technology:

• 1988-2000: Early academic markets like the Iowa Electronic Markets relied on official government sources (FEC results, BLS data) with manual verification by university administrators.
• 2001-2013: Intrade used a combination of news wire services and official sources, with disputes resolved by platform administrators. This centralized model created single points of failure.
• 2015-2018: Augur pioneered decentralized resolution through token-holder voting, introducing the concept of cryptoeconomic dispute resolution where staked tokens incentivize honest reporting.
• 2020-present: Polymarket implemented the UMA Optimistic Oracle, combining automated primary resolution with escalation to human arbitration. Kalshi maintains CFTC-compliant resolution using designated official sources.

The trend moves toward hybrid systems: automated data feeds for objective metrics, with human escalation for edge cases.

#Resolution Source Comparison Table

Centralized vs Decentralized Resolution:

#How It Works

Resolution sources operate through a structured process:

1. Pre-designation: Before trading begins, the market creator specifies exactly which source(s) will determine the outcome
2. Criteria definition: The resolution rules explicitly state what data points or events from the source will trigger each outcome
3. Monitoring period: The source is observed during the relevant timeframe for the triggering event or data
4. Outcome determination: Once the resolution criteria are met, the platform checks the designated source
5. Settlement: The market settles based on the source's data, distributing funds to winning positions

Most platforms implement a hierarchy of sources to handle edge cases:

• Primary source: The main authority (e.g., official government statistics)
• Secondary sources: Backup options if the primary source fails or is unavailable
• Consensus mechanism: For ambiguous cases, multiple sources may be consulted
• Platform discretion: As a last resort, the platform may make a determination based on the "spirit" of the market

The resolution process typically includes a review period where traders can dispute outcomes before final settlement.

#Source Hierarchy Visualized

#Examples

#Polymarket Example: Presidential Election Market

A binary market on "Will Candidate X win the 2024 election?" might specify:

• Primary source: Associated Press election call
• Secondary source: Decision Desk HQ projection
• Resolution criteria: Market resolves YES when both AP and DDHQ call the race for Candidate X, or NO when both call it for any other candidate
• Edge case handling: If sources disagree, wait for Electoral College certification

#Kalshi Example: Federal Reserve Rate Decision

A categorical market on "Fed Funds rate after next FOMC meeting" would use:

• Source: Federal Reserve's official FOMC statement
• Resolution criteria: The target range explicitly stated in the press release
• Timing: Resolution occurs immediately after the 2:00 PM ET statement release
• Verification: Cross-referenced with Fed's website and Bloomberg Terminal

#Sports Market Example

A market on "Will Team A beat Team B?" typically uses:

• Primary source: Official league website (NFL.com, NBA.com, etc.)
• Resolution trigger: Final score posted as "Official" or "Final"
• Dispute period: 6 hours after game completion for stat corrections
• Excluded outcomes: Forfeits or canceled games may void the market

#Economic Data Market

A scalar market on unemployment rate might specify:

• Source: U.S. Bureau of Labor Statistics Employment Situation Report
• Specific metric: U-3 unemployment rate, seasonally adjusted
• Resolution date: First Friday of the following month at 8:30 AM ET
• Revision handling: Uses initially reported figure, ignoring later revisions

#Source Reliability vs. Speed

Different sources trade off between speed and authority.

Note: Government sources (High Reliability) are often slower than News Feeds (Fast).

#Developer Guide: Verifying Sources

When building prediction market interfaces, you often need to fetch data from the same APIs that oracles use.

/**
 * Fetches resolution data from a trusted source.
 * @param {string} sourceUrl - The official API endpoint
 * @param {string} keyPath - Path to the specific data point (e.g., "observations.0.value")
 * @returns {Promise<number>} - The value to resolve against
 */
async function fetchResolutionData(sourceUrl, keyPath) {
  try {
    const response = await fetch(sourceUrl);
    const data = await response.json();
    
    // Navigate the JSON object to find the value
    const value = keyPath.split('.').reduce((obj, key) => obj && obj[key], data);
    
    if (value === undefined) throw new Error("Data point not found");
    return parseFloat(value);
  } catch (error) {
    console.error("Resolution fetch failed:", error);
    return null; // Trigger backup source logic
  }
}

// Example: Fetching CPI from BLS API
// fetchResolutionData("https://api.bls.gov/...", "Results.series.0.data.0.value");

#Risks, Pitfalls, and Misunderstandings

Common resolution source problems traders encounter:

#1. Source Ambiguity

Risk: Markets with vague language like "according to mainstream media consensus" invite disputes. Mitigation: Avoid these markets or demand higher expected value to compensate for resolution risk.

#2. Time Zone Confusion

Risk: A market resolving "by December 31" needs clarity on whether that means ET, UTC, or local time. This seemingly minor detail can flip outcomes. Mitigation: Always check the specific time zone in the rules.

#3. Data Revisions

Risk: Economic statistics often get revised weeks or months later. Mitigation: Markets must specify whether they use initial releases or final revised numbers. Most use initial.

#4. Source Manipulation

Risk: Resolution depends on easily influenced metrics like social media follower counts or online polls. Mitigation: Look for markets where the cost to manipulate exceeds potential profits.

#5. Platform Interpretation

Risk: Sources don't perfectly match the market question. Mitigation: Even well-intentioned platforms may resolve markets in unexpected ways when edge cases arise.

#Practical Tips for Traders

• Read resolution criteria completely before trading - the details often contain surprises that affect probability assessments
• Bookmark primary sources for active positions to monitor them directly rather than trusting secondary reporting
• Factor resolution risk into position sizing - use Kelly Criterion adjustments for markets with ambiguous sources
• Check historical resolutions on similar markets to understand how the platform interprets edge cases
• Avoid markets citing "common knowledge" or "general consensus" as these virtually guarantee disputes
• Screenshot resolution sources at critical moments in case websites update or delete information
• Trade the resolution, not reality - sometimes markets resolve on technicalities rather than real-world truth

#The Importance of Backup Sources

What happens if the primary resolution source (e.g., a specific URL) goes offline (404 Error)?

• Bad Market: Resolves to "Invalid" or gets stuck.
• Good Market: Has a "Backup Source" clause (e.g., "If URL is unavailable, resolution will be based on the Associated Press").

Always look for backup sources in the market rules to avoid getting your capital stuck.

#Related Terms

• Oracle
• Settlement Criteria
• Market Resolution
• Binary Market
• Trusted Source
• Outcome Verification
• Prediction Market

#FAQ

#What happens if the designated resolution source is unavailable?

Most markets specify backup sources or fallback procedures. If the Bureau of Labor Statistics website is down when unemployment data should be released, the market might use Bloomberg Terminal data or delay resolution until the primary source becomes available. Always check what secondary sources are listed in the resolution criteria.

#Can resolution sources be manipulated?

It depends on the source type. Official government data from agencies like the BLS or BEA is extremely difficult to manipulate. However, sources like social media metrics, online polls, or statements from individuals may be more vulnerable. Smart traders assess manipulation risk when evaluating markets and demand higher expected returns for markets with questionable sources.

#Why do some markets resolve differently than I expected?

Usually because the resolution criteria specified something different than what traders assumed. "Will X happen by December 31?" might mean 11:59 PM UTC, not your local time zone. "Will the bill pass?" might mean any form of passage, not just the version you were tracking. Always read the exact resolution language before trading.

#What if the resolution source and reality disagree?

The market resolves based on the source, not reality. If the initial BLS report says unemployment is 3.9% (triggering a YES resolution) but is later revised to 4.1%, the market stays resolved as YES. Markets trade on what will be announced, not what the "true" value might be. This is why announcer markets are common.

#How can I verify a resolution before claiming winnings?

Check the designated source directly using the links or references in the market criteria. Most platforms provide a dispute window during which traders can challenge proposed resolutions. Document your evidence (screenshots, archived pages) if you believe the resolution is incorrect before the dispute window closes.