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Overview

PMX uses a Conditional Token Framework (CTF) inspired by Polymarket. This model ensures the market is always 100% collateralized and provides a clean mechanism for trading binary outcomes. For any binary prediction market (e.g., “Will X happen?”), there are exactly two outcomes: YES and NO. The CTF model represents these as Token-2022 tokens with the Market PDA as a permanent delegate:
  • 1 YES token = Pays $1 USDC if the outcome is YES, $0 if NO
  • 1 NO token = Pays $1 USDC if the outcome is NO, $0 if YES
Since exactly one outcome will occur:
1 YES + 1 NO = $1 USDC (always). This invariant is the foundation of the entire system.

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Split: Creating Outcome Tokens

Users split collateral (USDC) into outcome tokens via an on-chain instruction: 
SPLIT: 1 USDC → 1 YES token + 1 NO token

Example:
  User calls split(100) on-chain.

  Before: 100 USDC in wallet, 0 YES, 0 NO
  After:  0 USDC, 100 YES, 100 NO

  The 100 USDC transfers to the Market vault.
  The Market PDA mints 100 YES + 100 NO tokens to the user.
Why split? To trade on the orderbook, users need outcome tokens. A user who wants to sell YES tokens must first acquire them by either:
  1. Splitting USDC (creates both YES and NO)
  2. Buying YES tokens from another user on the orderbook

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Merge: Reclaiming Collateral

Users merge outcome tokens back into collateral: 
MERGE: 1 YES token + 1 NO token → 1 USDC

Example:
  User has 50 YES and 80 NO tokens.
  User calls merge(50) on-chain.

  Before: 0 USDC, 50 YES, 80 NO
  After:  50 USDC, 0 YES, 30 NO

  The Market PDA burns 50 YES + 50 NO tokens.
  The vault transfers 50 USDC back to the user.
Why merge? Users can exit without needing a counterparty. If you hold both YES and NO tokens, you can always merge them back to USDC regardless of market liquidity.

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Redeem: After Market Resolution

When a market is resolved, winning tokens can be redeemed for $1 USDC each: 
REDEEM (if YES wins): 1 YES token → 1 USDC
REDEEM (if NO wins):  1 NO token  → 1 USDC

Example (YES wins):
  Market resolves with outcome = YES.
  User has 100 YES tokens and 20 NO tokens.

  User calls redeem(100) with their YES tokens.

  Before: 0 USDC, 100 YES, 20 NO
  After:  100 USDC, 0 YES, 20 NO

  The 100 YES tokens are burned.
  User receives 100 USDC from the vault.
  The 20 NO tokens are now worthless.

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Price Discovery

On the orderbook, users trade outcome tokens against USDC. Prices are quoted in basis points (bps) where 10,000 bps = $1.00:
Price (bps)Price ($)Implied Probability
6,000$0.6060%
5,000$0.5050%
8,500$0.8585%
The price of a YES token represents the market’s implied probability of YES occurring.

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Trading Example

Scenario: Alice thinks “Will Bitcoin hit $100K by EOY?” is 70% likely. Current YES price is $0.60. 
1. ALICE BUYS YES

   Alice has 100 USDC in her smart wallet.
   She places a BUY order: 100 YES tokens @ $0.65.

   Bob has 100 YES tokens (from a previous split).
   He places a SELL order: 100 YES tokens @ $0.60.

   Orders match at $0.60 (maker's price).

   Settlement (on-chain):
   — 60 USDC: Alice's smart wallet → Bob's smart wallet (CPI transfer, Exchange PDA signs)
   — 100 YES tokens: Bob → Alice (via Market PDA permanent delegate)

   After:
   — Alice: 40 USDC + 100 YES tokens
   — Bob: 160 USDC + 0 YES tokens

2. MARKET RESOLVES AS YES

   Alice redeems 100 YES tokens → receives 100 USDC from vault.

   Alice P&L: Paid 60, received 100 = +$40 profit
   Bob P&L: Received 60 for tokens worth 100 = -$40 loss

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Complementary Matching

The engine supports two additional matching modes beyond direct (buy vs sell):

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Complementary (Buy YES + Buy NO)

When a Buy YES order and a Buy NO order have prices that sum to ≥ $1.00, they can be matched: 
Buy YES @ $0.65 + Buy NO @ $0.40 → Match!
(0.65 + 0.40 = 1.05 ≥ 1.00)

Both buyers deposit USDC into the vault.
Vault mints YES tokens to the YES buyer, NO tokens to the NO buyer.

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Sell Complementary (Sell YES + Sell NO)

When a Sell YES order and a Sell NO order have prices that sum to ≤ $1.00, they can be matched: 
Sell YES @ $0.55 + Sell NO @ $0.40 → Match!
(0.55 + 0.40 = 0.95 ≤ 1.00)

Both sellers' tokens are burned.
Vault sends USDC to both sellers.

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Why This Model?

Always Fully Collateralized

Every YES + NO pair is backed by exactly 1 USDC. Zero counterparty risk.

No Market Maker Required

Users split/merge to create liquidity. The platform doesn’t need to provide tokens.

Clean UX

Users think in “buy YES” or “sell YES” without understanding the underlying mechanics.

Arbitrage-Free

If YES + NO prices drift from $1, arbitrageurs profit by correcting it.

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Program Instructions Summary

InstructionWhat It DoesToken Flow
splitUSDC → YES + NOUSDC from wallet → vault; YES + NO minted to user
mergeYES + NO → USDCYES + NO burned; USDC from vault → user
settle_fillDirect buy/sell matchUSDC: buyer → seller; tokens: seller → buyer
settle_complementaryBuy YES + Buy NO matchUSDC: both buyers → vault; tokens minted to each buyer
settle_sell_complementarySell YES + Sell NO matchTokens burned from both sellers; USDC: vault → both sellers
redeemWinning tokens → USDCWinning tokens burned; USDC from vault → user