Credit for Prediction Markets

Prediction-market shares remain an untapped opportunity for credit due to their unique mechanics, collateral behavior, and the need for optimized risk frameworks.

Gearbox is built to support such novel use cases by design: Credit Accounts enable modular configuration of execution rules, while Lending Market parameters can be flexibly adjusted to meet evolving market needs.

Modular execution rules

Gearbox’s modular architecture unifies credit and execution, allowing custom logic to run directly within leveraged positions.

The core money-market layer provides additional capital while ensuring positions remain fully collateralized, and specialized modules extend this base with any purpose-specific execution rules.

Flexible Risk Controls

Prediction-market outcome shares require additional risk oversight due to their unique behavior, such as sharp price movements near resolution.

Gearbox’s risk framework is built to operate under uncertainty and adapt to market conditions that may not have been seen before.

Key challenges with prediction-market dynamics:

Shallow liquidity: Vulnerable to short-term price manipulation and arbitrage, though prices tend to stabilize over the medium term.

High volatility near resolution: Makes pricing and liquidations significantly more difficult.

Gearbox provides a robust set of tools to address these challenges:

Dual-oracle system

• Protects against short-term manipulation by cross-checking with an alternative source (e.g., a longer TWAP).

• The primary oracle handles solvency checks and triggers liquidations.

• The secondary oracle detects divergence and blocks sensitive operations when prices disagree.

LT ramping

• Gradually reduce exposure as markets approach maturity.

• Adjustable slope and duration ensure borrowers deleverage in time, protecting LPs.

Loss policy

• Adds protective logic for liquidations that could create bad debt.

• Prevents liquidation cascades and defends LPs against manipulation-driven loss scenarios.

If you’re building credit for prediction markets, reach out to Gearbox for the infrastructure so you can focus on product.