> ## Documentation Index > Fetch the complete documentation index at: https://pnpprotocol.mintlify.site/llms.txt > Use this file to discover all available pages before exploring further. # PAMM Economics > Fee architecture, settlement payouts, worked numerical examples, and comparison to other prediction market AMMs for PNP's Virtual Liquidity CPMM. # PAMM Economics This page covers the fee structure, settlement mechanics, and worked examples that show how money flows through a PAMM market. ## Fee Architecture Two fees are applied on every trade: | Fee | Rate | Where It Goes | When | | - | - | - | - | | **Protocol Fee** | 1% (100 bps) | FeeManager contract | Every buy and sell | | **Take Fee** | 1% (100 bps) | Stays in market reserve | Every buy | ### Protocol Fee Deducted from the trader's collateral **before** it enters the bonding curve. This money leaves the market entirely and goes to the FeeManager contract, which splits it **50/50** between the market creator and protocol owner after the market ends. ### Take Fee Deducted **after** the protocol fee but **stays inside the reserve**. It enters `R` but doesn't produce tokens. This means the virtual reserves are slightly deeper than they would be without the take fee. Over many trades, this silently increases liquidity depth. ### Combined Effect on a 1,000 USDC Buy ``` Collateral in: 1,000.00 USDC Protocol fee: -10.00 (1%) → leaves the system Net: 990.00 Take fee: -9.90 (1% of 990) → stays in reserve Amount for curve: 980.10 R increases by 990.00 (includes the take fee portion) Tokens minted are based on 980.10 ``` The 9.90 take fee is "trapped" in the reserve, making the market slightly deeper for future trades. ### Effective Round-Trip Cost * Buy: 1% protocol + 1% take = \~2% off collateral before curve * Sell: 1% protocol off the collateral released * **Total round-trip: \~3% of principal** ## Settlement and Payouts ### How Resolution Works After the market's `endTime`, an authorized party (creator or protocol owner) calls `settleMarket()` declaring the winner — either the YES or NO token ID. ### Winner Payout Formula Winners split the **entire reserve** pro-rata: ``` payout_i = (my_winning_tokens / total_winning_supply) * R ``` The reserve `R` contains **everything** — the creator's initial deposit, all collateral from buyers, accumulated take fees. Winners take it all. ### Losers Losers get nothing. Their collateral is already part of `R` and gets distributed to winners. ### Creator's Remaining Claim After all winners have redeemed, the creator calls `claimRemainingReserve()` to recover whatever is left in `R`. This includes: * Unredeemed funds (if some winners never claim) * Rounding dust * In one-sided markets where the losing side had no tokens: the entire reserve ## Worked Examples All examples below use **zero fees** to isolate the bonding curve mechanics. ### Example 1: First Trade in a Fresh Market **Setup:** Market created with R = 10,000 USDC ``` Initial State: R = 10,000 S_YES = 0 S_NO = 0 V_YES = 10,000 V_NO = 10,000 price_YES = 50.00% ``` **Alice buys 1,000 USDC of YES:** ``` Swap component: additional_YES = (1,000 * 10,000) / (10,000 + 1,000) = 909.09 Total YES to Alice = 1,000 + 909.09 = 1,909.09 tokens New State: R = 11,000 S_YES = 1,909.09 S_NO = 0 V_YES = 9,090.91 V_NO = 11,000 price_YES = 54.75% ``` Alice paid 1,000 USDC for 1,909.09 tokens. Average entry: **0.524 USDC/token** (52.4%). ### Example 2: Price Impact in Action **Bob buys another 1,000 USDC of YES** (continuing from above): ``` additional_YES = (1,000 * 9,090.91) / (11,000 + 1,000) = 757.58 Total YES to Bob = 1,000 + 757.58 = 1,757.58 tokens New State: R = 12,000 S_YES = 3,666.67 S_NO = 0 V_YES = 8,333.33 V_NO = 12,000 price_YES = 59.02% ``` Bob paid the same 1,000 USDC but got only 1,757.58 tokens (vs Alice's 1,909.09). Average entry: **0.569** (56.9%). The curve charges more as YES becomes popular. ### Example 3: Opposing Trade Pushes Price Back **Carol buys 2,000 USDC of NO:** ``` additional_NO = (2,000 * 12,000) / (8,333.33 + 2,000) = 2,322.58 Total NO to Carol = 2,000 + 2,322.58 = 4,322.58 tokens New State: R = 14,000 S_YES = 3,666.67 S_NO = 4,322.58 V_YES = 10,333.33 V_NO = 9,677.42 price_YES = 48.36% ``` Carol's NO purchase pushed YES price **back down** from 59% to 48.36%. The market flipped. ### Example 4: Settlement **Continuing from above — YES wins:** ``` Reserve: R = 14,000 Total YES supply: 3,666.67 (Alice: 1,909.09, Bob: 1,757.58) Alice's payout: (1,909.09 / 3,666.67) * 14,000 = 7,290.91 USDC Bob's payout: (1,757.58 / 3,666.67) * 14,000 = 6,709.09 USDC Total paid out: 14,000 USDC Alice: invested 1,000 → received 7,290.91 → profit +6,290.91 Bob: invested 1,000 → received 6,709.09 → profit +5,709.09 Carol: invested 2,000 → received 0 → loss -2,000 Creator: deposited 10,000 → remaining reserve 0 → loss -10,000 ``` In this one-sided scenario (only YES and NO bought, YES wins), the creator loses their deposit. Carol (NO buyer) loses too. Alice and Bob profit massively. **If NO had won instead:** ``` Carol's payout: (4,322.58 / 4,322.58) * 14,000 = 14,000 USDC Carol: invested 2,000 → received 14,000 → profit +12,000 Creator: claimRemainingReserve() → 0 (all claimed by Carol) ``` ### Trade Summary | Trade | Actor | Action | Amount | Tokens | Avg Price | YES Price After | | - | - | - | - | - | - | - | | 1 | Alice | Buy YES | 1,000 USDC | 1,909.09 | 0.524 | 54.75% | | 2 | Bob | Buy YES | 1,000 USDC | 1,757.58 | 0.569 | 59.02% | | 3 | Carol | Buy NO | 2,000 USDC | 4,322.58 | 0.463 | 48.36% | ## Creator Economics by Scenario | Scenario | Reserve at End | Creator Gets Back | Net P\&L | | - | - | - | - | | Balanced trading, YES wins | R grew from fees + both sides | Remaining after winner payouts + protocol fee share | Moderate profit | | Only YES bought, YES wins | R = initial + YES collateral | 0 (winners take all) | **Full loss** | | Only YES bought, NO wins | R = initial + YES collateral | Entire reserve (no NO tokens to redeem) | Profit = YES collateral | | No trading | R = initial deposit | Full deposit returned | Break even | ## Comparison to Other Models | Feature | PNP PAMM | Order Book (Polymarket-style) | LMSR (Gnosis/Omen) | | - | - | - | - | | Market maker | Virtual CPMM | Limit orders from makers | Cost function | | Bootstrapping | One deposit | Need active market makers | Subsidy provider seeds | | Starting price | Always 50/50 | First trade sets it | Configurable | | Creator gets tokens? | No | N/A | No | | Liquidity depth | Proportional to reserve | Depends on maker depth | Proportional to subsidy | | Max creator loss | 100% of deposit | N/A | 100% of subsidy | | Gas per trade | Single tx | Multiple (matching) | Single tx | | Price bounds | (0, 1) asymptotic | \[0, 1] discrete | (0, 1) | ## Key Takeaways 1. **The reserve IS the pool.** No separate AMM pool. Virtual reserves are derived from `R`, `S_YES`, and `S_NO`. 2. **Take fees compound silently.** Unlike protocol fees that leave the system, take fees grow the reserve. After many trades, the reserve is deeper than the sum of all deposits. 3. **Settlement is winner-takes-all.** The entire reserve is distributed to holders of the winning token. Losers get zero. The creator gets what's left. 4. **Round-trip cost is \~3%.** 2% on entry (protocol + take), 1% on exit (protocol only). Competitive with most prediction market platforms. 5. **Prices are self-correcting.** As one side gets expensive, buying the other side becomes cheaper. Natural mean-reversion pressure at extremes. This documentation is built and hosted on [Mintlify](https://mintlify.com), a developer documentation platform.