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Trading Risks

Understanding the risks involved in trading on Seesaw prediction markets.

Risk Overview

Market Risk

What It Is

The risk that your prediction is wrong and you lose your investment.

Potential Impact

PositionOutcome Against YouMaximum Loss
100 YES @ 6000 bpsDOWN60 USDC (100%)
100 NO @ 4000 bpsUP40 USDC (100%)

Mitigation Strategies

StrategyDescription
Position SizingOnly risk what you can afford to lose
DiversificationSpread across multiple markets
HedgingHold both YES and NO positions
Exit EarlySell before resolution to limit losses

Oracle Risk

What It Is

The risk that oracle prices are incorrect, manipulated, or unavailable.

Pyth Oracle Protections

ProtectionDescription
Decentralization90+ data providers
Confidence IntervalsPrice uncertainty bounds
On-chain VerificationVerifiable price data
Continuous UpdatesSub-second price feeds

Potential Issues

IssueProtocol Response
Stale PriceWaits for fresh price
Invalid PriceRejects (price <= 0)
High ConfidenceOptional gating enabled
Oracle DownForce close after 7 days

Mitigation

  • Protocol uses Sampling Rule A: First valid price at or after boundary
  • Prices must have publish_time >= boundary_time
  • Optional confidence ratio constraints

Smart Contract Risk

What It Is

The risk of bugs, vulnerabilities, or exploits in the protocol code.

Protocol Safeguards

SafeguardDescription
Audited CodeSecurity review completed
Open SourcePublicly verifiable
Invariant ChecksRuntime safety assertions
Checked MathNo overflow/underflow
Idempotent OperationsSafe to retry

Key Invariants Enforced

InvariantProtection
SolvencyVault >= max(yes_shares, no_shares)
No Naked ShortsCan only sell owned shares
Collateral CoverageAll buys fully backed
Snapshot ImmutabilityPrices cannot be changed

Mitigation

  • Use official frontends and SDKs
  • Verify transaction contents before signing
  • Start with small positions

Liquidity Risk

What It Is

The risk of not being able to enter or exit positions at desired prices.

Manifestations

ScenarioImpact
Wide SpreadsHigher trading costs
Low DepthPrice slippage
Empty BookCannot trade at all
Limit Reached64 orders per side max

Mitigation

StrategyDescription
Use Limit OrdersControl your execution price
Check DepthReview order book before trading
Size AppropriatelyMatch order size to liquidity
Trade Popular MarketsHigher liquidity

Operational Risk

What It Is

The risk of infrastructure failures affecting your trading.

Components

ComponentRisk
Crank OperatorsDelayed settlements
Solana NetworkTransaction failures
RPC ProvidersConnection issues
WalletKey compromise

Protocol Resilience

RiskMitigation
Crank OfflineMultiple competing operators
Network CongestionRetry logic, priority fees
Single RPC DownUse multiple providers
Wallet CompromiseYour responsibility

Force Close Protection

If all else fails, markets force close after 7 days:

  • All collateral returned
  • No resolution required
  • User funds always recoverable

Timing Risk

What It Is

The risk related to market timing and boundaries.

Considerations

Timing IssueImpact
Late EntryLess time for favorable moves
Early ExitMiss potential gains
Boundary IssuesExact second matters for resolution

Key Timing Points

EventTiming
Market CreationUp to 24h before t_start
Trading StartWhen start_price captured (at t_start)
Trading EndAt t_end (orders cancelled)
ResolutionImmediately after end_price
Expiry7 days after t_end

Risk Summary Table

RiskSeverityLikelihoodMitigation
Market RiskHighHighPosition sizing, diversification
Oracle RiskCriticalLowPyth decentralization
Smart ContractCriticalVery LowAudits, open source
Liquidity RiskMediumMediumLimit orders, size management
Operational RiskLowLowMultiple operators, force close
Timing RiskLowMediumCareful trade planning

Risk Disclosure

Important: Trading binary prediction markets involves substantial risk of loss. Key points:

  1. You can lose your entire investment on any single trade
  2. Past performance does not guarantee future results
  3. Only trade with funds you can afford to lose
  4. The protocol has no control over oracle prices or market outcomes
  5. Smart contracts, while audited, may contain undiscovered vulnerabilities

Best Practices

  1. Start Small: Learn with small positions
  2. Understand the Market: Know what you're predicting
  3. Set Limits: Define maximum loss per trade
  4. Stay Informed: Monitor positions actively
  5. Use Trusted Tools: Official SDK and interfaces
  6. Secure Your Wallet: Protect private keys

Next Steps