Strategy 07 · Event Contracts
Resolution Risk and Position Limits
The rules document is the counterparty.
A price instrument settles against a price. An event contract settles against a rules document and a resolution source, interpreted by a venue or an oracle. Between the event and the payout sits a process, and that process can produce an outcome the trader did not expect even when the event went as predicted. Managing that process, and capping exposure to it, is the last line of the mandate’s risk control.
How contracts resolve
On regulated venues, the exchange resolves the contract according to its rules from the specified source, with a published procedure for disputes and for source failure. On decentralized venues, an oracle proposes a resolution; token holders or a dispute process can challenge it; the final result is whatever that process produces. The second is slower, more contestable and more exposed to participants with a stake in the outcome.
What goes wrong
The source publishes late, is revised, or is unavailable. The wording is ambiguous on the outcome that actually occurred. The event is postponed or canceled and the contract’s treatment of that is unfavorable. An oracle resolves incorrectly and the dispute process fails to correct it, or corrects it after the payout has been made. A venue voids a contract after the fact. Each of these has happened.
Lock-up and liquidity
Capital in an event contract is committed until resolution unless the position can be sold in a secondary market that may be thin or absent. The mandate assumes every position is held to resolution and sizes accordingly; the ability to exit early is treated as an option, not a plan.
Limits
Exposure is capped per contract, per event, per venue and per resolution source, so that no single ambiguity, oracle failure or venue failure can produce a loss beyond a defined level. The aggregate mandate is a small, disclosed share of the fund. The limits are the acknowledgment that this is a market whose settlement mechanics are less mature than its pricing.
Practice
How Wesvel approaches it
- 01Rules documents are read in full for every contract and the resolution source, timing and edge-case treatment recorded before entry.
- 02Every position is sized on the assumption it is held to resolution; secondary liquidity is not relied on.
- 03Exposure is capped per contract, per event, per venue and per resolution source, and the aggregate mandate is capped as a share of the fund.
- 04Disputed resolutions are tracked to conclusion, and venues with a history of adverse or arbitrary resolution are removed from the eligible list.
More in Event Contracts
- What Is TradedThe categories of event contract the mandate trades, and the test every contract must pass before it is eligible.
- Venues and RegulationRegulated designated contract markets versus on-chain prediction markets, and how an unsettled regulatory position shapes what the fund can do.
- Probability PricingHow a contract price implies a probability, how the mandate forms its own estimate, and why the gap has to be wide.
- AI and Mispriced ProbabilitiesHow machine learning and language models screen hundreds of event contracts for prices that disagree with a calibrated estimate, and how that gap becomes a position with positive expected value.
- Cross-Venue Relative ValueBuying an outcome where it is cheap and selling it where it is rich, and why contract definitions decide whether the trade is real.
- Portfolio Event HedgingUsing event contracts to offset exposure elsewhere in the book to outcomes that price instruments cannot hedge.