Settled

#Market State Progression

Unopened → Open → Closed → Settled/Resolved

#Definition

Settled is the final state of a prediction market where the outcome has been officially determined, all winning shares have been redeemed for their payout value (typically $1.00), and the market is permanently closed. Settlement marks the completion of the market lifecycle.

#Settlement Process

#From Closed to Settled

1. Market Closes
   ↓
2. Real-world event occurs (if not already)
   ↓
3. Resolution source consulted
   ↓
4. Outcome determined
   ↓
5. Dispute period (if applicable)
   ↓
6. Settlement executes
   ↓
7. Payouts distributed
   ↓
8. Market fully settled

#Timeline Examples

Fast settlement (minutes):

Sports game:
6:00 PM: Game ends → Market closes
6:15 PM: Official score confirmed → Resolution
6:20 PM: Payouts sent → Settled
Total: 20 minutes

Standard settlement (hours to days):

Election:
8:00 PM Tue: Polls close → Market closes
11:30 PM Tue: Race called → Resolution pending
Wednesday 9 AM: Official confirmation → Resolution
Wednesday 10 AM: Payouts → Settled
Total: ~14 hours

Delayed settlement (weeks):

Regulatory market:
Dec 31: Market closes
Jan 10: BLS releases employment data
Jan 11: Verification complete → Resolution
Jan 12: Payouts → Settled
Total: 12 days

#What Happens at Settlement

#Winning Positions

YES winners (when market resolves YES):

• Each YES share → $1.00 payout
• Automatically credited to account
• Can withdraw immediately
• 100% return on cost basis

NO winners (when market resolves NO):

• Each NO share → $1.00 payout
• Automatically credited
• Can withdraw immediately
• 100% return on cost basis

#Losing Positions

• Worthless (0 value)
• No payout
• 100% loss of investment
• Shares burned/deleted

#Example Calculations

Trader A:
Bought: 100 YES shares @ 60¢ = $60 cost
Market resolves: YES
Settlement: 100 × $1.00 = $100
Profit: $100 - $60 = $40 (67% return)

Trader B:
Bought: 100 NO shares @ 40¢ = $40 cost
Market resolves: YES
Settlement: 100 × $0.00 = $0
Loss: $0 - $40 = -$40 (100% loss)

#Platform-Specific Settlement

#Kalshi

Automatic settlement:

• Payouts to Kalshi account balance
• Available for withdrawal immediately
• Email notification sent
• Tax forms updated (1099-MISC)

Process:

1. Market resolves based on rules
2. Staff verify outcome
3. Settlement button clicked
4. Accounts credited within minutes

#Polymarket

On-chain settlement:

• Smart contract executes
• Winning tokens redeemable for USDC
• Must claim redemption (not automatic)
• Gas fee for redemption transaction

Process:

1. Oracle determines outcome
2. 2-hour dispute window
3. If no disputes, settlement unlocks
4. Users claim USDC for winning shares

#Manifold Markets

Play-money settlement:

• Mana automatically credited
• Instant settlement post-resolution
• No withdrawal (internal currency)
• Immediate use in other markets

#Settlement Mechanisms

#Automatic Settlement

Centralized platforms (Kalshi, PredictIt):

Platform controls settlement
→ Updates database
→ Credits accounts
→ Emails confirmations
Fast, simple, trusted

Pros:

• Instant and free
• No user action needed
• Clean UX

Cons:

• Trust in platform required
• Platform insolvency risk
• No composability

#Manual Redemption

Decentralized platforms (Polymarket, Augur):

Users hold outcome tokens
→ Oracle determines winning outcome
→ Users redeem winning tokens for stablecoin
→ Pay gas fee for transaction
Permissionless, transparent

Pros:

• Non-custodial (you control funds)
• Transparent on-chain
• No counterparty risk

Cons:

• Requires user action
• Gas fees
• Can forget to claim

#Automated Redemption Services

Some platforms offer:

• Auto-redemption bots
• Batch settlement (reduce fees)
• Email reminders to claim

#Settlement Disputes

#Dispute Process

If outcome contested:

UMA Optimistic Oracle (Polymarket):

1. Outcome proposed
2. 2-hour dispute window
3. Anyone can dispute (must stake collateral)
4. If disputed → Token holder vote
5. Correct side wins, wrong side slashed
6. Final outcome → Settlement

Kalshi Appeal:

1. Market settles
2. User emails dispute
3. Platform reviews within 24-48 hours
4. May re-settle if error found

Rare but possible:

• Incorrect source used
• Misread data
• Technical error
• Ambiguous rules

#Re-Settlement

If dispute succeeds:

Original settlement: YES (incorrect)
Users received: YES holders got $1.00

Correction: Actually NO
Platform action:
- Reverse payouts
- Debit YES holders
- Credit NO holders
- Send explanatory emails

Challenges:

• Users may have withdrawn funds
• Legal liability
• Reputation damage
• May void entire market instead

#Settlement and Taxes

#Taxable Events

In most jurisdictions, settlement triggers tax:

United States:

• Settlement = realization of gain/loss
• Must report on tax return
• Platforms issue 1099 forms
• Treated as "other income" or capital gains

Example:

Buy 100 YES @ 60¢ = $60
Settles YES = $100
Taxable gain = $40
Tax owed (at 25% rate) = $10
Net after tax = $30

#Tax-Loss Harvesting

Some traders:

• Sell losing positions before close
• Realize loss in current tax year
• Reduces tax liability
• Then market settles naturally

#Settlement Timeline Uncertainty

#Predictable Settlement

Scheduled events:

• Elections (day/week after close)
• Economic releases (exact date known)
• Sports (minutes after event)
• Earnings (same day)

Users can plan:

• Know when funds unlock
• Budget for taxes
• Reinvest quickly

#Unpredictable Settlement

Contingent events:

Market: "Will Bitcoin reach $100k before 2026?"
Close: When target hit OR Dec 31, 2025
Settlement: Could be tomorrow or 12 months away

Issues:

• Capital locked indefinitely
• Cannot plan
• Opportunity cost
• May forget to check

#Settlement Failures

#Platform Insolvency

If platform goes bankrupt before settlement:

Centralized:

• Funds may be lost
• Bankruptcy proceedings
• May recover partial amount
• Reason to use regulated platforms

Decentralized:

• Smart contract still holds funds
• Oracle still functional
• Can still settle even if platform UI gone
• Access via contract directly

#Technical Failures

Rare but possible:

• Smart contract bug
• Oracle failure
• Database corruption
• Payment processor down

Recovery:

• Platform manually resolves
• Refunds issued
• Market voided
• Insurance/guarantee fund

#Post-Settlement

#After Settlement

• Market becomes read-only
• Historical record preserved
• Prices frozen
• Used for research/calibration
• Can't reopen (except errors)

#Settlement Data

Platforms track:

• Final resolution
• Settlement timestamp
• Payout amounts
• Winner counts
• Total volume

Uses:

• Audit trails
• Tax reporting
• Historical analysis
• Platform statistics
• Research data

#Settlement Efficiency

#Fast Settlement

Benefits:

• Quick capital return
• Better UX
• Higher platform velocity
• Trust building

Requires:

• Clear resolution source
• Automated systems
• Minimal dispute risk

#Slow Settlement

Drawbacks:

• Capital locked longer
• Frustration
• Opportunity cost
• Users forget to check

Sometimes necessary:

• Complex resolution
• Multiple source verification
• Dispute likely
• Legal review needed

#Settlement Best Practices

#For Platforms

✅ Automate when possible ✅ Communicate timeline ✅ Notify users of settlement ✅ Clear dispute process ✅ Fast payout processing ✅ Accurate tax reporting

#For Traders

✅ Verify settlement occurred ✅ Check for payouts ✅ Claim redemptions (if manual) ✅ Review for errors ✅ Keep records for taxes ✅ Withdraw or reinvest

#Common Settlement Issues

"I didn't receive my payout":

• Check spam/email filters
• Verify market actually settled (not just resolved)
• Confirm you held winning side
• Check if redemption required (crypto platforms)
• Contact support

"Settlement seems wrong":

• Review resolution rules
• Check resolution source
• Compare to announced outcome
• File dispute quickly if error
• Document your case

"When will it settle?":

• Check market rules for timeline
• Review platform announcements
• Monitor resolution source
• Be patient (some take time)
• Contact support if excessive delay

#The Importance of Settlement

Settlement is when:

• Promises become reality
• Traders get paid
• Market proves itself
• Platform demonstrates trustworthiness
• Cycle completes

Reliable settlement is essential for:

• User trust
• Platform reputation
• Regulatory approval
• Market growth
• Ecosystem health

Without reliable settlement, prediction markets cannot function.