Vaulto Whitepaper | Private Company Valuations and Prediction Markets

Contents

The access problem — why private company exposure doesn't exist
Live market data — SpaceX IPO valuation bands
Constructing Arrow-Debreu securities from prediction bands
Weighted composite tokens — LONG and SHORT with floors
Token weights and acquisition cost analysis
Payoff diagrams — visual proof of the structure
Profit & loss by outcome
Cost guarantee — why acquisition never wipes out profit
Technical architecture — paired minting and LMSR

The access problem

SpaceX, Stripe, Databricks, Canva — the most valuable companies of the decade are private. No retail investor can gain directional exposure to their equity in any compliant instrument.

Traditional financial instruments for expressing a view on company valuation — equity, options, futures, total return swaps — all require the underlying to be listed on a regulated exchange. Private companies, by definition, are not listed. The result is a structural gap: billions of dollars in investor demand for private company exposure, with no instrument to express it.

Secondary market platforms like Forge Global and EquityZen require accredited investor status, minimum tickets of $50K–$250K, and impose severe lockup restrictions. Security-based swaps referencing private equity trigger Dodd-Frank Title VII margin requirements and swap dealer registration — prohibitive for any platform below institutional scale. Interval funds like Destiny Tech100 offer exposure but with extreme premium distortions, no short-selling capability, and quarterly liquidity at best.

The Vaulto thesis: Prediction markets referencing valuation milestone events — not equity itself — can create synthetic long and short exposure to private companies through CFTC-compatible event contracts, accessible at any ticket size, with continuous on-chain liquidity and transparent settlement.

Live market data

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Band	YES price	Implied probability	Volume	Midpoint (est.)

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Arrow-Debreu securities from prediction bands

Each valuation band's YES token is an Arrow-Debreu security — it pays exactly $1.00 if and only if that specific state of the world is realized.

Because the bands are mutually exclusive and collectively exhaustive, the complete set of YES tokens spans the full probability space. One and only one band will resolve to TRUE. This gives us the foundational completeness property: the sum of all YES token prices equals $1.00, and any arbitrary payoff function over valuation outcomes can be replicated by purchasing the correct portfolio of band tokens.

// Completeness constraint Σ pᵢ = 1.00 // Any payoff function f(V) is replicable Cost = Σ wᵢ · pᵢ where wᵢ = f(midpointᵢ) // Realized payoff = wⱼ where band j resolves

This is the theoretical backbone of the Complete Contingent Claims Market (CCCM) framework. With these primitives, we can engineer instruments that behave like equity, like options, like structured notes — or like entirely new payoff profiles that don't exist in traditional finance.

Weighted composite tokens

Raw binary positions go to zero when the wrong band resolves. Vaulto's LONG and SHORT tokens use weighted portfolios across all bands to create equity-like payoffs with embedded principal protection.

The weight functions

Instead of buying YES tokens on only some bands, we buy across every band in different quantities. The weight function determines the payoff shape:

// LONG token weights — scales with valuation wᵢ(long) = floor_L + (1 - floor_L) × (mᵢ - m_min) / (m_max - m_min) // SHORT token weights — inverse relationship wᵢ(short) = floor_S + (1 - floor_S) × (m_max - mᵢ) / (m_max - m_min) // where mᵢ = midpoint of band i // floor_L, floor_S = minimum payoff (principal protection)

The floor parameter is the key innovation. Setting floor = 0.20 means the LONG token pays at least $0.20 even in the absolute worst-case outcome (No IPO, valuation collapses). This transforms a binary bet into something that behaves like equity with an embedded put — downside protection is structurally guaranteed, not dependent on hedging or counterparty risk.

Interactive floor adjustment

Use the sliders below to explore how different floor levels affect token economics. Higher floors increase principal protection but reduce maximum returns — the same tradeoff as buying downside puts alongside a long equity position.

LONG floor $0.20

SHORT floor $0.15

Token weights and acquisition costs

The following table shows the exact weight allocation and per-band cost breakdown for both composite tokens at current market prices.

Band	Midpoint	Mkt price	LONG wt	SHORT wt	LONG cost	SHORT cost

Resolving band	LONG payoff	LONG P&L	LONG return	SHORT payoff	SHORT P&L	SHORT return

Payoff diagrams

The payoff chart plots the dollar value received by LONG and SHORT token holders for each possible outcome, against the fixed acquisition cost baseline.

Token payoff by valuation outcome

LONG payoff SHORT payoff LONG cost basis SHORT cost basis

Where a token's payoff line sits above its cost basis, the holder is in profit. Where it sits below, the holder takes a loss — but the floor ensures the loss is bounded. Notice the LONG and SHORT curves cross near the middle of the valuation spectrum: this is the breakeven zone where neither directional bet has a strong edge, reflecting the balanced risk/reward of the structure.

Profit & loss by outcome

Net dollar P&L and percentage returns for each possible resolution, showing the bounded loss and asymmetric return profiles.

Net P&L per token

LONG P&L SHORT P&L

Key observation: In the current market, the SHORT token has the more attractive risk/reward ratio. Because consensus is overwhelmingly bullish (57¢ on the 2.0T+ band), short exposure is cheap — offering 200%+ returns on a No IPO outcome while capping losses at approximately -55% even if the most bullish outcome materializes. This is the exact kind of contrarian trade that prediction markets uniquely enable.

Cost guarantee

Why acquisition cost structurally cannot wipe out profits.

Paired minting invariant

When LONG and SHORT weights are designed such that their sum is constant across all bands, the protocol can mint them as a pair at a fixed, deterministic cost — independent of market prices.

// If weights sum to constant k at every band: wᵢ(long) + wᵢ(short) = k ∀i // Then minting cost for 1 LONG + 1 SHORT: Cost_pair = k × Σpᵢ = k × 1.00 = k // Cost is ALWAYS $k regardless of market state // No slippage, no AMM fee stacking, no price impact

Monotonic weight guarantee

The LONG weight function is strictly increasing across bands (higher valuation → higher payoff). The acquisition cost is a probability-weighted average of all possible payoffs. Therefore, there always exist outcomes where payoff exceeds cost — specifically, any outcome above the probability-weighted expectation. This is mathematically identical to how equity works: you profit when the stock does better than what was priced in.

LMSR atomic bundling

For secondary market purchases (not paired minting), the Logarithmic Market Scoring Rule prices the entire basket of band positions in a single atomic transaction. Unlike CPMM-based AMMs where sequential swaps across multiple markets create path-dependent slippage, LMSR computes the exact bundle cost in one function call. The user sees a quoted price, clicks buy, and receives exactly that price.

Technical architecture

Protocol-level implementation for wrapping prediction market primitives into tradable composite tokens.

Smart contract flow

// 1. User calls mint() mintLong(amount) → compute required YES quantities per band (weight × amount) → single LMSR cost function for the full bundle → transfer cost from user → mint wrapped LONG ERC-20 token → total cost deterministic before execution // 2. On market resolution redeem(tokenId) → identify resolving band → compute payoff = weight[resolving_band] × amount → burn wrapped token → transfer payoff to holder // 3. Paired minting (preferred path) mintPair(amount) → cost = k × amount (fixed, no market dependency) → mint complete YES sets across all bands → split into LONG + SHORT weighted bundles → issue both ERC-20 tokens to caller → caller sells unwanted side on secondary AMM

Oracle resolution

Markets resolve against verifiable valuation events: S-1 filings (for IPO valuation), 409A valuation reports, funding round announcements from credible sources (SEC filings, company press releases), or secondary market transaction data aggregated from platforms like Forge Global, Hiive, and EquityZen. Vaulto employs UMA's optimistic oracle with a dispute resolution window — any participant can challenge a resolution by posting a bond, triggering a decentralized arbitration process.

Why this cannot be replicated

The critical compliance insight: these contracts reference observable events (a valuation number), not equity itself. They are structured as CFTC-compatible event contracts rather than security-based swaps, avoiding Dodd-Frank Title VII margin requirements and swap dealer registration. The Kalshi v. CFTC precedent expands the permissible scope of event contracts, and Vaulto's market design targets valuation milestone events that fall squarely within this expanding category.

No listed option chain exists for SpaceX. No futures market. No total return swap accessible below institutional scale. The weighted prediction market composite is the only instrument in existence that provides continuous, floored, bidirectional exposure to private company valuations at any ticket size.