Why Conditionals?
What is “event risk”?
Event risk is the uncertainty created by discrete events, including central‑bank meetings (FOMC), macro prints (CPI, NFP), earnings and guidance released, regulatory rulings, protocol upgrades, governance votes, referendums, and elections.
These are state changes with high information content that resolve in minutes to hours, yet they force days or weeks of precautionary de‑risking across portfolios, by actors looking to avoid being exposed to the resultant volatility and uncertainty which often precedes the event.
Symptoms today: spreads widen, depth thins, implied vols spike, and large pools of capital step aside. Existing hedges (options, CDS, futures) cover path risk well, but they are costly and noisy when your goal is to hedge your exposure to a specific event, as distinct from a specific price movement.
Why conditionals are useful
Precision without path baggage Conditionals resolve on the outcome itself (e.g., Hike/Hold/Cut, Beat/Miss, Approve/Reject). They have far less basis to the risks traders care about.
Completing missing insurance markets In the language of complete markets, societies lack state‑contingent claims for many material decisions. Conditionals add those missing states.
Re‑opening sidelined liquidity By letting participants stay “in‑market under uncertainty,” conditionals shrink the pre‑event liquidity wedge. Market makers can keep tighter markets through an event because within each conditional branch, the event's outcome is already known, eliminating event-volatility risk.
Better 🧈 price signals Conditional market prices isolate decision beta and make it quotable, comparable, and hedgeable. That improves planning for treasuries, CFOs, allocators, and public policy.
Democratized risk sharing Households can hedge local housing or policy shocks; SMEs can hedge regulation or input‑price decisions; applications can hedge protocol governance; municipalities can hedge state and federal rulings. Event risk stops being a private tax on the least diversified.
Specific trader use-cases
Tail risk insurance: Use conditionals as capital-efficient insurance against low-probability but high-risk outcomes by selectively shorting the asset in the branches corresponding to those outcomes, while selling conditional USDC in the other branches. I.e. an event-specific far-out-of-the-money put option.
Concentrated tail exposure: Concentrate capital-efficient exposure to an asset in a specific low-probability outcome where your trading thesis becomes applicable, by trading away conditional USDC in all other branches so that only exposure in that low-probability target outcome remains. I.e. an event-specific far-out-of-the-money call option.
Conditional thesis exposure: Achieve long or short exposure to an asset only in branches where your thesis is relevant, while keeping your conditional USDC in other branches so that your stake is refunded if those traded outcomes do not occur.
Event-impact isolation: Trade the asset in outcome-specific branches, hence holding the event result constant, so branch prices are insulated from shifts in event probabilities and you avoid the adverse selection, volatility and liquidation risk that come from the market continuously repricing a probability-weighted mix of outcomes.
This is especially of value to market-makers, who are at significant risk of adverse-selection on spot, hence allowing them to offer deeper liquidity in conditional markets than in spot, while keeping their risk constant.
Conditionals and Futarchy
Claim: Outcome‑indexed conditionals bootstrap advisory futarchy, markets whose prices guide (not bind) policy and corporate decisions, faster than any alternative. They derisk trading around decisions, distribute exposure to those willing to hold it, and legitimize decision markets in public discourse by creating a track record of conditional prices. Binding futarchies can emerge once advisory usage becomes routine.
What we mean by “advisory futarchy”
Advisory futarchy is the light‑weight version of futarchy: institutions consult market prices on decision‑conditioned claims but retain formal authority.
Why conditionals are the shortest path
Natural hedger base → immediate liquidity. Macro/earnings/governance events create real P&L risk for treasuries, MMs, funds, and SMEs. They want to shed outcome tails; they don’t need persuasion to speculate. Prediction‑only venues struggle here.
Clean, exogenous oracles → low controversy, high cadence. FOMC result, CPI print, earnings, court rulings—public, time‑stamped facts with frequent resolution. This keeps markets honest and builds a long time-series quickly.
Outcome‑only payoffs → less path baggage, tighter signal. By eliminating theta/vega/path, conditional prices isolate decision beta, which is the exact number boards and policymakers care about.
Direct embedded use in operations → visible value fast. Treasury hedging playbooks, DAO risk modules, and CFO event calendars can all wire conditionals in today without governance reform.
Narrative legitimacy → from “bets” to “risk sharing.” Reframing conditional markets as insurance for decision risk makes them socially acceptable.
References
Hanson, Robin. Futarchy: Vote Values, But Bet Beliefs. (2013). Link
Gnosis Conditional Tokens Documentation (Archived). Link
Hayek, Friedrich. The Use of Knowledge in Society. Link
You may also find general background on futarchy in Ethereum Foundation’s Introduction to Futarchy.
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