Graduation Protocol
Overview
Graduation is the protocol mechanism that transitions a market from the virtual bonding curve phase to real token trading on the Order Book. This process involves minting actual tokens, wrapping them for compatibility, and enabling secondary trading.
Graduation Trigger
The market graduates when the solvency threshold is reached:
Solvency = VaultBalance / MAX(TotalShadowYES, TotalShadowNO) >= 100%This condition ensures the protocol can always pay the maximum possible liability regardless of the market outcome.
Solvency Calculation
Example State
Total Shadow YES
10,000 shares
Total Shadow NO
8,000 shares
Maximum Liability
10,000 (if YES wins)
Vault Balance
$10,500
Solvency
10,500 / 10,000 = 105%
At 105% solvency, graduation is triggered.
Graduation Sequence
The graduation process executes atomically through the following steps:
1
Freeze
Disable shadow share trading
2
Fee Extraction
Deduct 2% graduation fee (50/50 creator/protocol)
3
Token Minting
Create ERC-20 YES and NO outcome tokens
4
Distribution
Mint tokens to shadow share holders
5
Order Book
Enable Order Book trading
6
Trading Active
Users can now trade real tokens
Token Architecture
Token Transformation
Token Specifications
YES Token
ERC-20
Tradeable YES outcome token
NO Token
ERC-20
Tradeable NO outcome token
USDC
ERC-20
Settlement currency
Each market deploys its own YES and NO token contracts at graduation.
Order Book Activation
Upon graduation, the Order Book is enabled for secondary trading:
Trading Capabilities
Limit Orders
Place orders at specific prices
Market Orders
Execute immediately at best price
Order Cancellation
Cancel unfilled orders anytime
Price Discovery
Supply/demand matching
Excess Token Handling
Post-Graduation State Changes
Trading Venue
Protocol CPMM
Order Book
Fee Rate
2%
0.1% (taker)
Token Type
Shadow (virtual)
ERC-20 (real)
Transferability
None
Full
Limit Orders
Not available
Available
Wallet Visibility
Not visible
Visible
Failed Graduation
If the bonding deadline expires before reaching 100% solvency:
Refund Mode Activation
Refund Calculation
Users receive a pro-rata share of the vault:
Expected Recovery
90-99%
~90-95%
80-89%
~85-90%
< 80%
~80-85%
Recovery is less than 100% due to fees paid and slippage incurred during trading.
Atomicity Requirements
The graduation process must execute atomically to prevent:
Front-running: Manipulation of token prices during minting
Sandwich attacks: Exploitation of liquidity seeding
Partial state: Inconsistent state between shadow and real tokens
All graduation operations execute in a single transaction.
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