Trading Proposals

In NovaDAO, governance decisions are made through conditional markets, not votes. When a proposal is created, two separate markets open — one for the pass outcome and one for the fail outcome. Traders express their views by buying and selling conditional tokens, and the market prices determine whether the proposal is approved.

How Conditional Markets Form

When a proposal is submitted, the Conditional Vault contract splits the DAO's governance token (NOVA) into two conditional tokens:

pNOVA (Pass Token)

Redeemable 1:1 for NOVA if the proposal passes. If the proposal fails, pNOVA becomes worthless. The market price of pNOVA reflects what traders believe NOVA will be worth in a world where the proposal is executed.

fNOVA (Fail Token)

Redeemable 1:1 for NOVA if the proposal fails. If the proposal passes, fNOVA becomes worthless. The market price of fNOVA reflects what traders believe NOVA will be worth in a world where the proposal is rejected.

Each token trades against USDC in a dedicated AMM pool. The two pools operate independently — the pass market and the fail market each discover their own price. After the trading period ends, the protocol compares the time-weighted average prices (TWAPs) from both markets to determine the outcome.

Important: You always hold both sides when you split. Depositing 100 NOVA into the vault gives you 100 pNOVA and 100 fNOVA. You can then sell whichever side you disagree with, or provide liquidity to one or both markets.

Example: Participating in a Conditional Market

Suppose a proposal asks the DAO to allocate 500,000 NOVA to fund a new integration partnership. Here is how you might participate:

Split Your NOVA

You deposit 1,000 NOVA into the Conditional Vault and receive 1,000 pNOVA and 1,000 fNOVA. At this point you have zero net exposure — your total position is equivalent to holding 1,000 NOVA regardless of the outcome.

Evaluate the Proposal

You research the partnership and conclude it will significantly increase NOVA's value. The pass market is currently trading pNOVA at $1.05 and the fail market has fNOVA at $1.02.

Express Your View

Since you believe the proposal is beneficial, you sell your 1,000 fNOVA on the fail market for approximately $1,020 USDC. You keep your 1,000 pNOVA.

Wait for Resolution

The trading period ends and the TWAP comparison runs. If the pass TWAP exceeds the fail TWAP, the proposal passes. Your 1,000 pNOVA becomes redeemable for 1,000 NOVA — and you also kept the $1,020 from selling fNOVA.

Redeem

You redeem your pNOVA for NOVA through the vault. If the proposal had failed instead, your pNOVA would be worthless — but you already received $1,020 from selling fNOVA, partially offsetting your loss.

Trading Strategies for Decision Markets

Your trading strategy depends on your view of both the proposal's merit and the current market prices. Here are three common approaches:

Case 1: You Believe the Proposal Is Good

If you believe the proposal will increase NOVA's value and the pass market is underpriced relative to the fail market:

Buy pNOVA on the pass market (or split NOVA and sell fNOVA). You profit if the proposal passes and pNOVA is redeemable at a value higher than what you paid.
Provide liquidity to the pass market if you want to earn trading fees while maintaining long exposure to the pass outcome.

Case 2: You Believe the Proposal Is Bad

If you believe the proposal will harm NOVA's value and the fail market is underpriced:

Buy fNOVA on the fail market (or split NOVA and sell pNOVA). You profit if the proposal fails and fNOVA is redeemable at a value higher than what you paid.
This is the core mechanism that prevents bad proposals — informed traders are paid to oppose value-destructive proposals.

Case 3: You Believe Prices Are Mispriced

If you believe the market is wrong about relative pricing but you are unsure about the proposal itself:

Arbitrage between markets. If pNOVA + fNOVA combined price is below the underlying NOVA price, you can buy both and merge them back into NOVA for a risk-free profit.
If the combined price is above NOVA, you can split NOVA and sell both tokens for more than the underlying value.

Arbitrage keeps prices honest. The ability to split and merge tokens means that pNOVA + fNOVA should always trade close to the price of NOVA. Any deviation creates a risk-free profit opportunity that arbitrageurs will quickly close.

Key Mechanics

Mechanic	Description
Splitting	Deposit NOVA into the vault to receive equal amounts of pNOVA and fNOVA. This is always available while the proposal is active.
Merging	Return equal amounts of pNOVA and fNOVA to the vault to receive NOVA back. This enables arbitrage and allows participants to exit positions.
Trading	Buy or sell pNOVA or fNOVA against USDC on the AMM pools. Prices move according to the constant product (x*y=k) formula.
Redemption	After the proposal is finalized, holders of the winning token can redeem 1:1 for NOVA. The losing token becomes worthless.
TWAP Recording	The AMM continuously records price observations on-chain. The time-weighted average is computed over the full trading period to resist manipulation.

Trading on Stellar's SDEX

NovaDAO's markets run on Stellar, which provides several advantages for decision market trading:

Low fees: Stellar transactions cost a fraction of a cent, making it practical to trade small positions and update orders frequently.
Fast finality: Transactions confirm in 5-6 seconds, so prices update in near real-time and arbitrage opportunities close quickly.
Soroban smart contracts: The AMM, vault, and TWAP oracle run entirely on-chain via Soroban, ensuring trustless execution with no off-chain dependencies.
Wallet support: Connect with Freighter wallet for a seamless trading experience directly in the NovaDAO interface.

Risk notice: Trading conditional tokens involves real financial risk. If you buy pNOVA and the proposal fails, your tokens become worthless. Only trade with funds you can afford to lose, and ensure you understand the mechanics before participating.

Next: Creating Proposals — learn how to submit a proposal and set its parameters. Or read about TWAPs to understand how the final decision is calculated.