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Position Tokens

Preliminaries

This document builds on Representation Of State.

PredictionSwap records economic state directly as a Conditional Account Value Vector.

Token balances are derived views of account value.

This document describes how token balances are derived.


Freecash and Position Value

Outcome Space

Consider a mutually exclusive outcome space:

\[ \Omega = \{R, G, B\} \]

Exactly one of these outcomes will occur.


Account Value Decomposition

Given a Conditional Account Value Vector

\[ e = (e_R, e_G, e_B) \]

it can be decomposed uniquely into:

\[ e = c(1,1,1) + r \]

Where

  • \( c = \min(e_R, e_G, e_B) \)
  • \( r = e - c(1,1,1) \)

By construction:

\[ \min(r_R, r_G, r_B) = 0 \]

This decomposition separates account value into two components:

  • Freecash \( c \), which contributes equally across all outcomes
  • Conditional Position Value \( r \), which represents outcome-dependent value generated by positions

This decomposition is unique.

Interpretation

The constant component \( c \) represents uniform value across all outcomes — this is freecash.

The residual vector \( r \) represents outcome-specific value contributed by positions — this is the Conditional Position Value Vector.

This decomposition is unique.


Example

Starting Account Value

Alice's holdings are uniquely characterised by the Conditional Account Value Vector:

\[ e = (19, 11, 16) \]

Alice's Freecash

\[ c = \min(19,11,16) = 11 \]

Alice's Shares

\[ r = (19,11,16) - (11,11,11) \]
\[ r = (8,0,5) \]

YES Tokens

Definition

YES token balances correspond directly to the Conditional Position Value, or the shares Alice has in each outcome.

From:

\[ r = (8,0,5) \]

Token Balances

  • YES–R = 8
  • YES–G = 0
  • YES–B = 5

YES tokens are mutually exclusive.
Each corresponds to position value in exactly one outcome.


NO Tokens

Definition

A NO token corresponds to position value in all outcomes except one.

For example:

  • NO–G pays $1 if either \( R \) or \( B \) occurs.

Economically, one NO–G is equivalent to:

  • 1 unit of YES–R
  • 1 unit of YES–B

Applying to the Example

Alice has:

  • YES–R = 8
  • YES–B = 5

Since each NO–G requires one YES–R and one YES–B,
she has:

  • NO–G = 5

NO tokens are overlapping views of position value.


Alice’s Token Balance

  • YES–R = 8
  • YES–G = 0
  • YES–B = 5

  • (NO–G = 5)


Interpretation

A Conditional Account Value Vector has a single canonical form.

YES tokens provide a unique decomposition of the Conditional Position Value Vector.

NO tokens are overlapping views of YES tokens.