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  • What is Butter?
  • Portfolio Page
  • Welcome
    • How it Works
  • Getting Started
  • How to Exit a Market
  • Technical Explainer
    • Introduction
    • Overview
    • Counterfactual Markets
    • Process
    • Limitations
  • Technical Information
    • CFM v1 Contracts
    • CFM v1 Dependencies
    • Contract Addresses
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  • Two Markets Per Proposal
  • How to Use These Markets
  • Token Distinctions and Relationships
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  1. Technical Explainer

Counterfactual Markets

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Last updated 22 days ago

Butter Conditional Funding Markets (CFMs) feature two distinct markets for each proposal to precisely estimate its impact. This page explains this structure. We will use Total Value Locked (TVL) as an example Key Performance Indicator (KPI); actual CFMs may use different KPIs.

Two Markets Per Proposal

For each proposal (e.g., "Proposal X"), you will find:

  1. "Funded" Market: Predicts the protocol's TVL if Proposal X receives funding. "Funded" means the proposal is selected and gets its requested capital.

  2. "Not Funded" Market: Predicts the protocol's TVL if Proposal X does not receive funding.

Screenshot of a proposal's KPI Estimate in the Funded and Not Funded scenarios:

These markets allow the CFM to isolate the proposal's specific contribution. If the "Funded" market for Proposal X predicts $15M TVL and the "Not Funded" market predicts $10M TVL, the market estimates Proposal X will add $5M TVL if funded.

How to Use These Markets

Your goal is to assess if the current market-predicted TVL in either scenario (Funded or Not Funded) is an over or underestimate. Each market has its own UP and DOWN tokens, where UP tokens gain value with higher final TVL, and DOWN tokens with lower final TVL.

For Proposal X's "Funded" Market: If its price implies $15M TVL if funded:

  • Believe TVL will be >$15M? Buy "Funded UP" tokens for Proposal X.

  • Believe TVL will be <$15M? Buy "Funded DOWN" tokens for Proposal X.

Screenshot of the trading widget for an example proposal's Not Funded scenario:

(the green and red buttons facilitate purchases of Not Funded-UP and Not Funded-DOWN respectively)

For Proposal X's "Not Funded" Market: If its price implies $10M TVL if not funded:

  • Believe TVL will be >$10M even without funding? Buy "Not Funded UP" tokens for Proposal X.

  • Believe TVL will be <$10M without funding? Buy "Not Funded DOWN" tokens for Proposal X.

Important: Compare your TVL belief against the market's current predicted TVL for that specific scenario before buying. Do not buy UP tokens irrespective of the market price.

Token Distinctions and Relationships

  • "Funded DOWN" vs. "Not Funded UP": These are different.

    • "Funded DOWN" (for Proposal X): You predict low TVL if Proposal X is funded.

    • "Not Funded UP" (for Proposal X): You predict high TVL if Proposal X is not funded.

  • Market Dynamics & Resolution:

    • The "Funded" and "Not Funded" markets for a proposal predict the same metric (e.g., TVL) under mutually exclusive conditions.

    • Their predicted TVL values can change based on shared information (e.g., general ecosystem news) or information specific to one scenario. They are not expected to move in exact lockstep, and their predicted TVLs do not sum to a fixed value.

    • After funding decisions:

      • If Proposal X is funded: Its "Funded" market tokens resolve based on actual TVL at the resolution date. Its "Not Funded" market tokens become worthless.

      • If Proposal X is not funded: Its "Not Funded" market tokens resolve based on actual TVL at the resolution date. Its "Funded" market tokens become worthless.