leverage financing

Structures that let traders hold prediction market exposure larger than their own capital — collateralized lending against existing contracts, margin trading, event perpetuals, or insurance-style risk pricing. The core problem is that binary contracts can gap to a new price before any liquidation executes, so financing terms must price that jump risk rather than assume it away.

Cluster: Mechanism Design

Related Concepts

• position collateralization — Using prediction market positions as collateral to borrow capital, unlocking liquidity without selling. This addresses the capital lock-up problem in long-dated markets and enables composability with the broader DeFi ecosystem.
• gap risk — Exposure to sudden large price jumps in binary markets when new information arrives between trades.
• derivatives — Financial instruments whose value derives from an underlying asset, index, or event — including options, futures, and event contracts. Prediction market contracts are structurally derivatives, so their prices may embed risk premia and market frictions rather than being pure probability estimates.
• liquidity provision — Supplying capital so traders can buy and sell positions without excessive price impact or delays.

Articles about leverage financing

• Can Leverage Really Work in Prediction Markets? by Eniola