Conditional Token
A token representing a claim that pays out only if a specific future outcome occurs, created by splitting collateral into a complete set of mutually exclusive outcome tokens in a prediction market.
A conditional token is a token created by splitting a deposited collateral asset into a complete set of mutually exclusive outcome tokens for a prediction market (see Kaavon's "Prediction Market" glossary definition) — for example, splitting one unit of collateral into one "Yes" token and one "No" token for a binary question, where each individual outcome token can be bought, sold, and traded independently, but recombining one of each outcome token lets the holder redeem the original collateral back.
Once the market's real-world outcome is resolved, whichever outcome token corresponds to what actually happened becomes redeemable for the full underlying collateral, while the token representing the outcome that didn't occur becomes worthless. This splitting-and-redeeming structure is the core mechanical building block underlying most on-chain prediction markets, letting the token's market price serve as a continuously updating, tradable estimate of that specific outcome's probability.
Examples
- A prediction market splitting $1 of collateral into one 'Yes' conditional token and one 'No' conditional token lets each be traded separately, with their combined market prices reflecting the perceived probability of each outcome.
- Once a prediction market resolves, the conditional token matching the actual outcome becomes redeemable for the full collateral, while the token for the outcome that didn't occur becomes worthless.