Prediction Market Contract Principles (V1)

1. Goals and Scope

CloudBank's prediction market protocol is designed to:

• Create markets around verifiable events
• Let users trade positions during market lifetime
• Settle positions on-chain with auditable rules

V1 focuses on binary markets (YES/NO) with clear safety boundaries.

2. Contract Layers

The protocol is split into four layers:

1. Factory (market creation)
2. Market Controller (lifecycle rules)
3. CTF Asset Layer (position tokens)
4. AMM (pricing and liquidity)

2.1 Factory

Factory deploys and initializes markets and applies governance constraints.

2.2 Market Controller

Controller enforces state transitions:

• TRADING
• PROPOSED
• RESOLVED

It defines who can submit outcomes, dispute windows, and final settlement rules.

2.3 CTF Asset Layer

Positions are represented via Gnosis Conditional Tokens Framework (ERC-1155).

2.4 AMM

CPMM is used for baseline liquidity and price discovery.

3. End-to-End Flow

1. Market is created by factory
2. Users trade YES/NO positions via AMM
3. Oracle path submits result and enters dispute window
4. After dispute window closes, market resolves
5. Holders redeem by final outcome

4. Settlement Principle

V1 follows an optimistic-style settlement:

• Accept proposed outcome by default
• Allow disputes during the challenge window
• Finalize if no valid challenge is raised

5. Safety Boundaries

• Smart contract implementation risk
• Oracle/data source risk
• Liquidity/slippage risk
• Frontend/indexer availability risk (without changing on-chain truth)

6. Related Technical Docs

• Technical Docs Index
• docs/tech/design.md
• docs/tech/requirements.md

7. Version

• Version: V1
• Source Issue: #713
• Last Updated: 2026-02-15