Market Structure
An introduction to how Melee markets work - covering outcomes, bonding curves, payout structures, and why early participation may lead to higher rewards.
Overview
Most prediction markets today follow the orderbook model. Markets have two outcomes, and shares are priced as probabilities that settle to $1 for the correct outcome and $0 for the wrong one. Traders buy and sell shares through an orderbook or an automated market maker, meaning:
Liquidity depends on market makers or counterparties being present.
Prices are capped between $0–$1, limiting upside to “dollar-for-dollar” returns.
Market creation is gated to platforms or specialized teams that manage liquidity.
Melee introduces a different design. Instead of a single price curve bounded by $1, each outcome has its own bonding curve. Markets can support 2–32 outcomes, with users buying shares directly from the bonding curve of their chosen outcome. The mechanics are simple:
When users buy shares, their payment is added to a shared pool for that outcome.
Upon resolution, winners first receive their initial stake back.
The money in the losing pools is distributed proportionally to winning shareholders.
This model unlocks new dynamics:
Always-on liquidity → no market makers required.
Early advantage → The earlier you are, the cheaper your shares, meaning higher % returns.
Uncapped upside → outcomes can appreciate far beyond the $1 cap of traditional markets.
Viral incentives → users benefit from driving more participants into the markets they believe in.
Outcomes
Markets can have 2-32 outcomes. Each outcome has its own bonding curve to track the price of entering a position in that outcome.
In an example market with two outcomes, “The Pacers will win the NBA Finals”, one curve allows users to buy shares of “Yes”, and another allows users to buy shares of “No”. When users buy shares, the proceeds from the bonding curves are put into a shared pool. Shares represent your claim on the opposite pools if your outcome is correct.
Like any paramutual system (e.g. sportsbooks) liquidity is locked and all bets are final.
Payouts
Upon resolution, users who own shares in the winning pool have their initial bets returned to ensure they don’t lose money by taking the correct outcome. The remainder, the amount put in the pool by users of all other outcomes, is split according to each user’s shares.
The below graphic assumes each person has paid different amounts for the same number of shares, thus they receive different amounts of initial capital back from the Yes pool to return their initial investment, but equal amounts from No pool.
Profitability as a percentage for each user depends on the ratio of what they spend on their shares to what they win from the other pools. Earlier buyers get a higher % return because they bought their shares at a cheaper price.
Advantages
Liquidity
Anyone can enter any position at any time without the need for a market maker
If they are correct, they will not lose money
If they are correct and early, they can make a massive return
Uncapped upside
Like Pump.fun, users that are early can make massive returns
Incentivizes early participation
Users are incentivized to get more people to participate in the markets they have positions in to increase the total pool available to them
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