How to trade

Butter Conditional Funding Markets (CFMs) feature two distinct markets for each proposal, to precisely estimate its impact. This page explains this structure. We will use Total Value Locked (TVL) as an example metric; actual CFMs may use different metrics.

Why two markets per proposal?

For each proposal (e.g., "Proposal X"), you will find:

1. Funded market: Predicts the protocol's TVL if Proposal X receives funding. "Funded" means the proposal is selected and gets its requested capital.

2. Not Funded market: Predicts the protocol's TVL if Proposal X does not receive funding.

Screenshot of a proposal's metric estimate in the Funded and Not Funded scenarios:

These markets allow the CFM to isolate the proposal's specific contribution. If the Funded market for Proposal X predicts $15M TVL and the Not Funded market predicts $10M TVL, the market estimates Proposal X will add $5M TVL if funded.

Token summary

How do I trade these markets?

Your goal is to assess if the current market-predicted TVL in either scenario (Funded or Not Funded) is an over or underestimate. Each market has its own UP and DOWN tokens, where UP tokens gain value with higher final TVL, and DOWN tokens with lower final TVL.

For Proposal X's Funded market: If its price implies $15M TVL if funded:

• Believe TVL will be >$15M? Buy Funded-UP tokens for Proposal X.

• Believe TVL will be <$15M? Buy Funded-DOWN tokens for Proposal X.

Screenshot of the trading widget for an example proposal's Not Funded scenario:

(the green and red buttons facilitate purchases of Not Funded-UP tokens and Not Funded-DOWN tokens respectively)

For Proposal X's Not Funded market: If its price implies $10M TVL if not funded:

• Believe TVL will be >$10M even without funding? Buy Not Funded-UP tokens for Proposal X.

• Believe TVL will be <$10M without funding? Buy Not Funded-DOWN tokens for Proposal X.

Important: Compare your TVL belief against the market's current predicted TVL for that specific scenario before buying. Do not buy UP tokens irrespective of the market price.

How do UP and DOWN payouts work?

Every market fixes a minimum and maximum TVL—say $0 and $100 M.

• At the minimum: UP pays $0, DOWN pays $1.

• At the maximum: UP pays $1, DOWN pays $0.

• In between: UP pays whatever fraction of the $0–$1 range the final TVL represents; DOWN pays the rest so the two always add to $1.

The live UP price is simply the market’s guess of that fraction. If a Funded-UP token trades at $0.70 in a $0–$100 M range, traders expect funding to lift TVL to about $70 M. Buy UP if you think the TVL will finish higher than that, or DOWN if you think it will finish lower.

Are Funded-DOWN tokens and Not Funded-UP tokens the same?

No, these are different.

• Funded-DOWN token (for Proposal X): You predict low TVL if Proposal X is funded.

• Not Funded-UP token (for Proposal X): You predict high TVL if Proposal X is not funded.

They are inverses only if the proposal has zero expected impact.

How do the markets resolve?

• The Funded market and Not Funded market for a proposal predict the same metric (e.g., TVL) under mutually exclusive conditions.

• Their predicted TVL values can change based on shared information (e.g., general ecosystem news) or information specific to one scenario. They are not expected to move in exact lockstep, and their predicted TVLs do not sum to a fixed value.

• After funding decisions:

  • If Proposal X is funded: Its Funded market tokens resolve based on actual TVL at the resolution date. Its Not Funded market tokens become worthless.

  • If Proposal X is not funded: Its Not Funded market tokens resolve based on actual TVL at the resolution date. Its Funded market tokens become worthless.

Tip -- Tell the market why you bought! Once you've opened your position, it's in your interest to share your analysis/rationale with other traders, so they move the price towards your target, hence improving your chance of exiting at a profit without needing to hold until resolution.

Understand the timeline

Takeaway The trading period is liquid; the evaluation period is not. Decide whether you aim to exit either during the trading period or once the evaluation period ends (at the resolution date).

Details

• Exiting during the trading period frees capital and removes one month of metric risk—but only works if the market price moves toward your view before the trading period ends.

Calc – Buy Funded‑UP at 0.22 expecting it to reach 0.28 before the period ends. If you sell at 0.275 your gross return is 5.5 c (25 %) on each token, realised in days not months.

Liquidity and price‑impact considerations

Takeaway Only open or close a position if the actual execution price still leaves room for profit after accounting for price impact and fees.

Details

• AMM depth matters – Large orders move price along the bonding curve. Check your "Post‑trade price" and % "Price impact" in the trade confirmation dialogue.

• Break‑even check – Your forecast edge must exceed (i) expected price impact on entry and exit, (ii) trading fees, and (iii) the time value of locked capital.

  Rule of thumb – If you think true price is 0.28 and price impact means your trade's average buy price moves from 0.24 → 0.26 (2 c impact) then you later exit at 0.27 (1 c impact), your net gain is 0.27 – 0.26 ≈ 0.01. Edges < 1 % rarely cover risk.

• Staggered execution – Splitting a large order into smaller clips can reduce cumulative slippage, as it gives the market time to recover between each trade, at the risk of the price moving against you in the interim.

Risk management and trading strategy

• Liquidity risk – Post‑trading‑period exits require waiting until the resolution date; size positions accordingly.

• Manipulation – A deep‑pocketed trader can temporarily distort price. Treat large unexplained moves as potentially profitable entry points to trade against! Buy the UP or DOWN tokens you believe are mispriced.