Contract Resolution

The process of determining the outcome of a prediction market contract to distribute payouts based on the event’s result.

What is Contract Resolution?

Contract resolution in prediction markets is the process of verifying the outcome of an event (e.g., an election result) to finalize the payout of digital assets traded in the market. As Scott Kominers and Alex Tabarrok explain in the transcript, this often requires an oracle to bring off-chain data (e.g., who won the 2024 election) onto a blockchain, where smart contracts distribute payments based on the asset’s terms (e.g., $1 if a candidate wins, $0 if they lose). Accurate resolution is critical, as it determines who profits, as seen in Polymarket’s reliable payouts post-2024 election.

The transcript highlights challenges, such as oracle manipulation, where incorrect data (e.g., a hacked New York Times report) could distort payouts, as Alex notes with crypto hack examples. Decentralized oracles mitigate this by aggregating multiple sources, enhancing trust. In non-blockchain markets, like the Iowa Political Prediction Markets, resolution relies on institutional trust, but blockchain’s immutability ensures verifiable outcomes. Thin markets or unclear events (e.g., the transcript’s example of an unlisted nominee like Gaetz) can complicate resolution, requiring precise contract design.

Contract resolution is the linchpin of prediction markets’ trustworthiness, enabling applications like election forecasting or corporate decision-making. Robust design, often leveraging blockchain’s transparency, ensures accurate payouts and maintains market integrity as a public good.