Convex Payout Dynamics
The unique upside potential of 42 markets.
How Convexity Emerges on 42 Markets
Convexity in 42 arises from the interaction between time, positioning, and capital flow.
Early participants who take minority positions do so when opposing conviction is still dominant and prices are least reflective of the eventual truth. As new information enters the market and capital reallocates toward the correct outcome, later participants effectively fund the payoff of those who entered earlier.
When the market resolves, the winning outcome(s) splits the entire collateral pool, concentrating returns toward positions that accumulated exposure before consensus shifted. This structure creates asymmetric payoff profiles where downside is limited to capital committed, while upside scales non-linearly with both timing and the magnitude of mis-pricing captured.
Payout Mechanics
Winning OTs are redeemable for a pro-rata share of the total collateral pool accumulated across all outcomes in the market.
Consider a market with three outcomes (A, B, and C) each represented by its own OT.
During the live market:
Outcome A accumulates $5M
Outcome B accumulates $2M
Outcome C accumulates $3M
This results in a total collateral pool of $10M at resolution.
If Outcome B resolves as the winner, all B-OT holders split the full $10M, proportional to their ownership of the total B-OT supply.
What Determines Payout Size
In short, users can aim to maximize the upside of buying into a market by considering the following:
The number of winning tokens held → greater exposure results in a larger share
The total size of the market at resolution → deeper markets produce larger payout pools
The degree of mis-pricing captured at entry → earlier, lower-cost positioning increases effective returns
Participants who identified the correct outcome early benefit not only from correctness, but from having secured exposure before consensus and capital inflows reshaped the market.
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