42 Power Curves
On underlying pricing mechanism of 42 markets.
Price discovery on 42 is not an emergent side-effect of liquidity subsidies or market-maker quoting. It is a first-class design objective embedded directly into a novel mathematically-driven price curve, also known as the 'Power Curve'.
The power curve governs how prices respond to orderflow, which is a function to how information is incorporated over time and how capital is allocated as an event progresses toward resolution. Here, 42 optimizes for continuous, incentive-aligned information pricing throughout the event lifecycle.
Power Curve 101
The bonding curve defines the relationship between token supply and price. Conceptually, it functions like a ‘single-sided AMM’ where price discovery emerges mechanically from supply movement along a predefined curve. Each additional unit of supply is minted at a slightly higher marginal price than the last, reflecting increased aggregate demand for that outcome.
In practice:
The amount of Outcome Tokens received is calculated by integrating along the curve from the current supply to the post-mint supply.
Larger mints traverse more of the curve, resulting in higher average prices.
Smaller, early mints benefit from lower marginal prices.
This mechanism ensures:
Deterministic execution → the same inputs always produce the same outputs
No counterparty dependency → users interact directly with the protocol, not with other traders
Transparent pricing → prices are a pure function of supply and orderflow, visible on-chain at all times
On 42, there are no order books to clear, no quotes to stale, and no liquidity providers bearing inventory risk. Price formation is continuous, mechanical, and fully endogenous to the market.
Design Objectives of the Curve
The bonding curve is explicitly designed to shape participant behaviour in economically meaningful ways.
Reward early information Participants who surface correct or differentiated views before consensus forms are rewarded with a lower cost basis and greater convexity. Early positioning is structurally advantaged, not by privilege, but by exposure to a more favorable region of the curve.
Penalize late, low-conviction entry As an outcome accumulates demand, its marginal price increases. This makes late entry increasingly expensive unless backed by strong conviction, discouraging shallow or reactive positioning and reducing noise-driven churn.
Encourage continuous participation Because prices move with every trade, participants are incentivized to engage repeatedly rather than wait passively for resolution. This turns markets into living systems where information is priced as it arrives, not only at the end.
Circumvent liquidity cliffs Unlike order books or fixed-liquidity AMMs, the curve does not rely on discrete depth. Execution is always available, with slippage increasing smoothly rather than abruptly. This avoids sudden breakdowns in tradability during periods of stress or uncertainty.
Scale across market sizes without structural change The same mechanism functions whether a market has $100 or $100 million in total value. There are no parameters to retune, no liquidity thresholds to cross, and no dependence on external market makers to “activate” the market.
Efficiency Across Market Stages
As an event evolves, different forces dominate price formation. The bonding curve adapts naturally to each phase.
Early
Information asymmetry
High convexity rewards early signal
Mid
Flow & momentum
Smooth, continuous price discovery
Late
Resolution certainty
Stability and integrity via redemption tax
Early Stage (Information Dominates)
At launch, markets are usually thin in information but rich in uncertainty. Small flows can meaningfully move price, allowing informed participants to express conviction cheaply. The curve’s convexity ensures that early signal extraction is rewarded proportionally.
Mid Stage (Maturing Flow Shapes Consensus)
As participation increases, price movements reflect the aggregation of beliefs, narratives, and momentum. The curve reduces in price volatility (price function becomes less steep) while remaining responsive, allowing consensus to form through sustained interaction.
Late Stage (Certainty Approaches)
As resolution nears and uncertainty collapses, the market prioritizes stability and fairness. Redemption frictions discourage last-minute ‘extraction’ and preserve the integrity of the collateral pool, ensuring that final payouts reflect accumulated positioning rather than opportunistic timing.
The Resulting Market Properties
The combined effect is a market structure that:
Feels liquid at all sizes, without needing external liquidity providers
Prices information continuously, rather than episodically
Aligns incentives across time, rewarding early insight while preserving late-stage integrity
Resolves cleanly and fairly, with a ‘winner-takes-all’ settlement mechanism
Ultimately, the goal for 42 is to builds a system where the path of prices matters, and where market efficiency improves naturally as participation and information compound over time.
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