Concept · liquidity-and-trading
Bonding Trades
Quick definition. A prediction-market strategy of betting on near-certain outcomes (>95% probability) to earn a small but reliable yield, analogous to holding a zero-coupon bond to maturity. The "yield" is the gap between the market price and the $1 payout. Catastrophic tail risk if the improbable outcome occurs.
Key insights
- Stephanie Stacey (FT Alphaville): the canonical example is the Polymarket "Will Jesus Christ Return" market, where betting NO at 96% odds implies a 4.76% yield to maturity.
- Two structural constraints: (1) illiquidity · only $150k executable at one time on these markets; (2) catastrophic tail risk · if the near-impossible outcome occurs, the entire principal is wiped out.
- The yield equation is straightforward: if NO trades at $0.96, you put $0.96 to win $1 → 4.17% return at resolution. The annualized rate depends on time-to-maturity, which is why long-dated near-certain markets have higher implied yields than short-dated ones (locking $1M for two years vs. two months matters).
- outpxce (related): the trader self-identifies as a "bond mule" · locking capital for small premiums on near-resolution markets. This is essentially the professional version of bonding trades.
- Connection to position collateralization: the capital lock-up is the binding constraint. If PM positions could be used as DeFi collateral, the implied yield curve on near-certain markets becomes a legitimate fixed-income substitute.
- Connection to gap risk: bonding is the short volatility trade. You earn a tiny yield in exchange for accepting that one in a hundred binaries you bond will resolve against you and wipe out years of premium.
Where it matters
Bonding trades are PM's organic fixed-income product. Their existence is what FT Alphaville-style observers point to when arguing PMs are converging on finance, not gambling · but their tail risk and capital-lock-up are also why bonding can't scale into a true bond-replacement until position collateralization is solved. They are the cleanest case study for why "stable yield" in prediction markets is a misleading frame: the yield is real, the stability is conditional on a catastrophic-outcome counterfactual that 99% of the time doesn't fire.
Connections
- Gap risk · bonding is the trade most exposed to it.
- Liquidity provision · bond mules are providing time-locked capital.
- Position collateralization · the key unlock that would scale bonding.
- Longshot bias · the inverse of bonding (paying for longshots vs. selling them).
- Temporal arbitrage · bonding is the opposite end of the time-decay strategy spectrum.
Platforms linked to this concept
- Polymarket · implements · Mentioned in Bonding Trades content as an implementing platform
Related concepts
Sources
- How Prediction Market Traders Reinvented the Bond · Stephanie Stacey (FT Alphaville) · Feb 6, 2026