Why conditionals?

Conditionals let traders hedge and speculate on event-driven uncertainty by trading outcome-specific branches that settle deterministically after the event resolves.

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

Conditionals resolve on the outcome itself (e.g., Hike, Hold, or Cut; Beat or Miss; Approve or Reject), which reduces basis to the risk traders care about.

In the language of complete markets, societies lack state-contingent claims for many material decisions, and conditionals add those missing states.

Conditionals let participants stay in-market under uncertainty, which reduces 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, which removes event-volatility risk inside that branch.

Conditional market prices isolate decision beta and make it quotable, comparable, and hedgeable, which improves planning for treasuries, CFOs, allocators, and public policy.

Conditionals support risk sharing for households, small and medium-sized enterprises (SMEs), applications, and municipalities that want to hedge local housing and policy shocks, regulation and input-price decisions, protocol governance, and state and federal rulings. Event risk stops being a private tax on the least diversified.

Specific trader use cases

Tail risk insurance uses conditionals as capital-efficient insurance against low-probability and high-risk outcomes by selectively shorting the asset in branches corresponding to those outcomes, while selling conditional USDC in the other branches. This is an event-specific far out-of-the-money put option analogue.

Concentrated tail exposure concentrates capital-efficient exposure to an asset in a low-probability outcome where your thesis becomes applicable by trading away conditional USDC in all other branches so that only exposure in that target outcome remains. This is an event-specific far out-of-the-money call option analogue.

Conditional thesis exposure achieves long or short exposure to an asset only in branches where your thesis is relevant, while keeping conditional USDC in other branches so that your stake is refunded if those traded outcomes do not occur.

Event-impact isolation trades the asset in outcome-specific branches, which holds the event result constant so branch prices are insulated from shifts in event probabilities and you avoid adverse selection, volatility, and liquidation risk that come from the market continuously repricing a probability-weighted mix of outcomes. This is of value to market makers who face adverse selection on spot and can offer deeper liquidity in conditional markets while keeping risk constant.

Conditionals and futarchy

Outcome-indexed conditionals bootstrap advisory futarchy, since market prices guide, not bind, policy and corporate decisions without binding pre-commitments. They de-risk 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. For a longer explanation of how Butter relates to futarchy, see Is Butter futarchy?.

Why conditionals are the shortest path

Macro, earnings, and governance events create real profit and loss (P&L) risk for treasuries, market makers, funds, and SMEs, which creates a natural hedger base and supports immediate liquidity. These traders want to shed outcome tails, and they do not need persuasion to speculate. Prediction-only venues struggle here.

FOMC results, CPI prints, earnings, and court rulings resolve to public and time-stamped facts with frequent resolution, which supports clean and exogenous oracle rules with low controversy. This keeps markets honest and builds a long time series quickly.

Outcome-only payoffs eliminate theta, vega, and path dependence, and conditional prices isolate decision beta, which is the number boards and policymakers compare across options.

Treasury hedging playbooks, DAO risk modules, and CFO event calendars can wire conditionals into operations today without governance reform.

Reframing decision markets as risk sharing, not betting, increases narrative legitimacy.

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.