Cliff Risk Index (CRI)

The cliff risk index measures how fast a binary prediction-market contract is approaching resolution, defined as the absolute price velocity multiplied by the days remaining: CRI = |Δp/Δt| × τ. High CRI flags markets that are actively deciding; low CRI flags markets that are stuck.

CLI:sf scan --by-cri desc

Why "Cliff"

Every binary prediction-market contract eventually walks off a cliff. At resolution it snaps to either $1.00 or$ 0.00 with nothing in between. The interesting question is when the cliff approach starts. Some contracts drift sideways for months and then resolve in the final week. Others reprice violently months before expiry as new information arrives. CRI is the metric that separates the two.

The formula is:

CRI = | Δp / Δt |  ×  τ_remaining

Where:

Δp = price change over a recent window (e.g., 24 hours)
Δt = the window length, in days
τ_remaining = days to resolution

The first term — absolute velocity — captures how much the market moved. The second term — days remaining — captures how much story room is left for the move to mean something. The product is the metric.

What High vs Low CRI Means

A high-CRI contract is one where the market is actively making up its mind right now. A low-CRI contract is asleep. Use CRI to allocate attention: which contracts are active, regardless of which direction the headline price is going?

CRI is not a directional signal. It does not tell you whether the move is bullish or bearish, only that there is a move. Combine it with other indicators (your thesis, news flow, divergence from related markets) to decide what to do about the activity.

Why the τ Scaling Matters

Without the τ multiplier, you would just have raw velocity, and a contract about to expire would always look like the most active thing on the board (because the snap to 0 or 1 produces the largest possible move). The τ scaling deflates near-expiry noise and surfaces structural moves earlier in the contract's life.

A 1-cent move with 200 days remaining is a structural reassessment. A 1-cent move with 5 days remaining is settlement noise. CRI says the first one is 40× more interesting (200/5 = 40), and that ratio is what makes the metric useful for allocation.

Example

Three contracts on a typical Monday morning:

| Contract | 24h Δp | τ remaining | CRI |
|---|:---:|:---:|:---:|
| A — Recession 2026 YES | 0.45 → 0.46 | 200 days | 0.01 × 200 = **2.0** |
| B — Powell next chair YES | 0.45 → 0.49 | 60 days | 0.04 × 60 = **2.4** |
| C — Fed cut May YES | 0.45 → 0.61 | 5 days | 0.16 × 5 = **0.8** |

Contract C has the loudest headline move (16¢ in a day) but the *smallest* CRI of the three. That is the scaling working as intended: a 16¢ move with five days left is largely a settlement crystallization, not a structural shift.

Contract A has the smallest headline move (1¢) but the second-highest CRI, because the move happened with 200 days of story room remaining — a tiny shift that actually represents a fresh thesis being priced in.

Contract B sits in the middle and is the most "live" of the three by this metric: a meaningful move (4¢) at a meaningful horizon (60 days). CRI tells you to look at B first.

Related Terms

Binary Contract

A binary contract is a financial instrument that pays out a fixed amount (typically $1) if a specified condition is met, and nothing otherwise. Prediction markets are built on binary contracts.

Contract Expiration

Expiration is the date and time by which a prediction market contract must resolve. If the event has not occurred by expiration, the contract settles to $0 for Yes holders and $1 for No holders.

Edge Detection

Edge detection is the systematic process of scanning prediction markets to find contracts where the market price diverges from your thesis-implied fair value by more than the cost of execution.

Implied Yield (IY)

Implied yield is the annualized return a binary prediction-market contract pays if held to expiry, computed as IY = (1/p)^(365/τ) − 1, where p is the YES price (0–1) and τ is days to resolution. It converts a binary mid-price into the same units fixed-income traders use for treasuries.

Event Overround (EE)

Event overround is the sum of YES prices across all mutually exclusive outcomes in a single prediction-market event, minus one: EE = Σpᵢ − 1. A clean market gives EE = 0. Positive EE means the outcomes collectively overstate certainty (sell-side arbitrage). Negative EE means the outcomes collectively understate it (buy-side arbitrage).

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