Payout system

Torch’s payout model rewards high-quality predictions without relying on fixed market deadlines or pooled prize funds. The winning bets are rewarded based on a dynamically computed multiplier that reflects the quality and timing of the prediction.

Each token maintains its own isolated liquidity reserve, funded by forfeited losing bets. This reserve is the sole source of payouts, avoiding payout debt or delays.

The size of a winning base payout is set in advance at the moment of betting and is released at the moment of resolution unless it exceeds the reserve. It is calculated based on two core factors:

1. Prediction quality Bets are evaluated for their

   1. Sharpness (how narrow the predicted range is)

   2. Boldness (how far the prediction deviates from the current probability distribution at the time of placement)

   3. Lead time (how far in advance the prediction was made)

   Together, these dimensions reflect how risky, useful, and information-rich the prediction was.

2. Reserve liquidity All payouts are capped based on the current size of the token's liquidity reserve to ensure solvency

Additionally, the payout might be boosted with a bonus, should reserve accumulate sufficient funds from the recent betting activity:

1. Reserve bonus A portion of the surplus reserve funds that exceed its Target Level.

To prevent spam and abuse, especially from trivial predictions like betting on extremely wide ranges, all bets are subject to a protocol fee. This guarantees that even bets with a theoretically positive expected return will be unprofitable if they offer no meaningful insight. The system naturally filters for high-confidence, information-rich predictions.

Torch’s payout architecture strikes a balance between personal incentive (to earn by predicting accurately) and systemic value (to contribute useful signals). It rewards those who identify significant movements early with precision and conviction, especially when doing so against the grain.